tv Squawk on the Street CNBC October 21, 2015 9:00am-11:01am EDT
>> i'm going to destroy you. >> you're done. i'm done. >> we kind of are done. >> do you think these guys are trying to advertise on our show right here? the moving and storage company right behind you? i thought they were trying to get in your shot. >> have a great day. join us tomorrow. right now it's time for "squawk on the street." ♪ i can't drive 55 >> a legendary automotive brand comes to wall street. ferrari making its public debut at the big board today. we're going to bring you all the action, including the first trade and a live interview with chairman sergio mar chone. good morning. welcome to "squawk on the street." the premarket is watching earnings from coke, gm, boeing, biogen and a lot more. china took a spill overnight, down 3%-plus, the biggest decline in a month.
japanese exports were weak. not a lot of macrodata on tap. shares of boeing and gm both higher in the premarket. better than expected quarterly results. >> lamb research buys koa. western digital buying sandisk, the price $19 billion. we'll have the ceo of western digital later on the program. >> and coke reporting a mixed ka quarter. first up, upbeat earnings news from boeing better than expected third quarter results on stronger demand for commercial aircraft. the dow component raising their full year guidance and there's gm beating the street with its q3 profit and revenue. cfo chuck stevens this morning on "squawk box." >> a strong truck market a strong suv market is helping, but i think also it's our view and our continued focus on driving cost efficiencies and if you look at the material performance and the cost efficiency that we had in the third quarter overall about 700
million, a lot of that accrued to north america. i think it's seizing the opportunities from a market standpoint but also continuing to drive efficiency in the business. >> everybody looking at that north america operating margin, jim. they see 10% for the year. >> look, gm, i don't want to say it's back because there are still other parts, moving parts that you not so good, but china getting a little better, latin america still bad, europe not that bad. but the u.s. is really able to carry this thing, and i think there's going to be more calls to be able to say, listen, you have so much cash, let's do something. this stock is back from the brink of 28, 29 where people felt china is so bad that it's over. it's clearly not over. the numbers are extraordinary. the u.s. auto market remains the strongest single part of our industrial economy. >> there was a guy here who is going to be on the floor who is going to want to do something with gm. they don't want to do something about him. i'm talking about sergio mar
chone and fiat. >> they're both operating from a position of strength. i lost faith in general motors in part because they had repeatedly been able to take lemonade and turn it back that lemons. maybe this is the quarter they don't do that. they're just making too much money. the u.s. -- the job correlation between job and auto is stronger than anything else. when people get a new job, they are buying a new car. the number of cars that are 12 years old on the road remains very big. this is a good quarter from general motors and it is a surprise. >> suvs help a lot. >> yes. >> but in cars u.s. market share is actually down in cars for gm year on year. they hit 11.5. a year ago it was 13.3. >> they are making more money and trucks matter. it's odd because i know meme have been questioning it, but this is the quarter where the gasoline money finally matters. we know from visa that wasn't in
the first quarter. we know from john morgan interview steve leaseman did last week that the money is starting to be spent. we know from this auto number where it's being spent. spent in domestic autos and that's quite exciting. >> talk about cash building up, boeing's cash flow is up 72%. we mentioned the massive beat, the guidance up, commercial air revenue up 10. i guess what's to worry about, a bubble in wide bodies? >> the delta situation is now looking to me as if it was a major misdirection play. it was a run at delta and it was supposed to really be a pass and i feel data last week which lowered the boom and said there's a wide bodied glut, they used that term, may have positioned to be able to buy planes cheaper. it looks like a blowout quarter. boeing has periodically said things on the conference call that makes you less optimistic but i have to tell you, i do not see anything in this about the wide bodied glut, and i'm beginning to believe that's one more time delta is trying to get
the best of boeing. it's not going to work this time. the ex-im bank, maybe that comes up at the debate. alcoa said aerospace remains a very strong area. is it as strong as autos? i think that's difficult. remember, you buy boeing in dollars so it's not a weak dollar/strong dollar play. i want to hear more about china and whether china is still buying the planes. they did get that big order from boeing. i want to hear more about defense. at the meeting we have at the conference at our debate, i want to know about defense spending because everybody is saying it has to pick up, and that's the line i didn't like in boeing, otherwise i like what i see. >> a lot to get to, and back to cars for a moment, as david said, ferrari debuting at the big board. the car company pricing at $52. that's the high end of the range. values the company at $9.8 billion. automaker is going to trade under the ticker symbol race,
r-a-c-e and we will talk to sergio marchionne later. as david said, we're likely to ask him about why he wants to pair up with gm so badly and whether that can ever be done. >> and electric cars and a lot of things. let me get to some specifics on the offering itself before we move into the fundamentals. it looks like it was very well allocated. heavy management allocation. i'm told mr. marchionne was actually involved in the allocation himself. remember, he's got institutional investors already at fiat, so he wants to make sure to be nice, a lot of management also getting stock. 500 accounts put in, 200 got zero, 65% of the offering going to 25 accounts. it was 20 times covered, jim. >> well, i got to tell you, if the price at $52 it sells at 29 times earnings, let's say 65, 70, it's at 40 times earnings. that's highly unusual. >> 14 multiple to ebitda to the pricing. these are high multiple approximates. >> they're ridiculous multiples
particularly because there will be a lock up that expires rather early. but you know what? this is the kind of case, this is a tesla situation. key to be able to making the numbers is for them to be able to mass produce more cars. why do we like their cars? because they're not mass produced. this is a conundrum deal. obviously the public is very excited about it and you can tell it when they don't get any -- sorry. they don't get any. gm is selling 11 times earnings, ford at 13 times. fiat chrysler being valued at 18 times earnings. remember, this is a luxury good. typically selling at 19 to 22 times earnings. that would put fiat, ferrari, well what low. this is going to be one of the deals that's going to be talking about it comes at a bad time for tesla because tesla just got pulled from "consumer reports" for the new model. this is the new tesla except is burns aton of gasoline and very exciting. >> the new tesla.
>> they weren't subject to emissions standards unless they have 10,000 cars. >> are they using -- >> i don't know that they're there yet. >> will they get there if they boost production 30%? >> they have to boost so big -- >> and they have to figure out their fleet issues and how you get to these emissions numbers. >> and you always like to talk about the family stakes. how about piero ferrari, he does pretty well today. >> he does. >> he's going to be richer than elon minsk at the end of the day. >> i don't know. it's possible. >> times were good even before this i think, but they're getting better. there's no doubt. >> absolutely. we're seeing that over and over again, and this is by the way, sorry doug mcmillen to say this, but when you have -- when ferrari does this well, walmart is the other side of the trade. >> the walton family still has more than mr. ferrari. >> they can have all the ferraris they want. what do they drive, david? station wagons? >> i don't know what the chosen vehicle is. >> eight ferraris at the big board. we've been -- >> one-tenth of production. >> about that. have you seen the blue one, the
ferrari 250 that's outside? >> it's just a real bad day for husband/wife tension. >> really? >> yeah. >> can't you just say no? >> she's got an suv for heaven's sake. why does she need a ferrari? >> just say no. >> how about maybe. >> you can say that. i just got married a year ago. you've been married -- >> let's move to m&a, second only to the mets and what i love. we got -- boy, it was an incredibly busy morning if you missed some of it. lamb research agrees to acquire kla tencor at 10.6 bl$10.6 bill the open. and sandisk to be bought by western digital, $87.50 in cash and stock.
right around $19 billion right now. it's a two-tiered structure also which i'll get to in a minute. we are going to speak to western digital ceo stephen milligan. >> i like that guy. >> as for the deal itself, first of all, when it comes to price, they actually have another tier of pricing if they don't get that money from the chinese. some of that money is going to be allocated towards this deal. that's the 8510, a share in cash. if for some reason that doesn't happen, then you get $67.50 a share in cash. a lot more stock. in fact enough it would require a shareholder vote. in speaking to people close to the situation who were involved in the transaction, they think it's unlikely they're not going to get that money from china, but a review is going on, a national security review, if you will. it's a passive investment, about
15% of the company. remember, jim and i talked about it at the time. nonetheless, that's got to be at least a small concern for people. they're also talking about this deal not closing until the third quarter, although frankly ooirp hearing it could be much closer to june in terms of the expectations. they seem to be very cautious which is why they have the two-tiered approach just in case they don't get the money from china which keeps reminding me of a sweetener of some kind. >> a sliver of stock. >> and they are also somewhat cautious on saying it could take as long as it will even though it's unlikely to go into the third quarter. more likely let's call it june. as for the fundamentals, let me just share this with you. 90% of the data in the world has been created in the last two years. anyway you want to store it, now we will be able to have it for you. >> yes. in commodity is the reason. this is a white flag thrown up by sandisk. when this whole chatter started, the stock was at $48. you have done quite well unless you bought it last year when it
was 107 padr$107. it's part of a worldwide trade of what i consider shrinkage of the market everywhere. you want to take advantage of western digital, the stock got hammered, bad quarter. if you want to buy flash, intel is starting to spend a ton of money overnight about flash. going to flood the world, 5% to 7% increase in flash. this is a sign that the commodity guys have said you know what? i'm done. sandisk is done. and western digital to bulk up and be able to compete has to do this to offer more of a soup to nuts situation. i've got to tell you, other than arm holdings this morning which used the term apple, saying it's a good earnings, everybody single one of these component companies is getting crushed. >> yes. >> you mean like a vmware today? >> that's another -- wow. corvo, skyworks solutions, western digital, seagate, intel, sandisk, micron, they're all getting crushed.
>> their addressable market will grow as a result of the deal and who they're selling to is also getting larger. emc dell is one example. it's going to be a larger company. >> we're going to talk about vmware a little later in the program. >> disgusting. >> nine down grades. >> the most in a single day. >> they bagged so many people. >> we have to talk about that but before we go, the lamb research deal i want to -- >> that's a brilliant deal. >> why? >> why is that a brilliant deal? because lamb research bought novellus at the right time. kla selling a at good time but this is about having critical mass and being able to destroy applied materials. david, you talk about china, i think the chinese are going to drag their feet on approval of this. it matters tremendously because china is trying to put together a johnny-come-lately competitor to these, but this is going to be a strong company.
lamb is going to be very strong, and i got to tell you, you could actually argue they're totally dead. intel, samsung, and tmc and taiwan semi will love this deal because the give who runs lamb, this fellow, he's a genius. i have had him on -- >> you think their customers will like it. >> he's again jugenius. >> one company makes the chips, one inspects them. >> it's one stop shopping. rick hill smart, smart guy, saying everything is right here. i love that deal. i love this deal. >> you're getting a half a share of lamb and $32 in cash. >> m&a, $38 billion. this year $130 billion. >> because they're all getting crushed. how much can you sell into hewlett. >> late stage. we like to say. >> late stage capitalism. the ugly face of capitalism. they have to do this. there's no antitrust in these because it's like, wow, everyone is getting crushed. this morning is maybe the single
most exciting morning i have come across -- >> it's pretty good. >> i'm going to get out the penguins for vmware. i think that's deserving. >> did you see the line that carl -- this is in the vmware. not just vmware, we are seeing a massive secular shift right now. massive secular shift away from what he was talking about. how many days ago? >> eight. >> yeah. i would use this for some of what kimberly clark is talking about in their unbelievably good quarter and i'm talking about some things they have for adults and some things they have in the bathroom. >> when we come back, we'll talk cfo -- coke cfo on earnings today and, of course, the ferrari ipo first trade coming up in the next hour. we'll be right back. here at td ameritrade, they love innovating. and apparently, they also love stickers. what's up with these things, victor? we decided to give ourselves stickers for each feature we release. we read about 10,000 suggestions a week to create features that as traders we'd want to use, like social signals, a tool that uses social media to help with research.
coca-cola out with mixed results this morning. let's get to sara eisen at post nine who spoke to coke cfo earlier. >> morning. profit beat but sales missed expectations. some eng kournment in the fact volumes came in better at 3%, but my worlds are colliding here because for coke it was currencies that really slammed them during the quarter. i talked to the cfo moments ago. she said the macros remain challenging. she said foreign exchange was a worse hit than they expected.
it hit the top line, the sales number, 8% instead of the 7% that they expected. she did say that we are, quote, aggressively driving productivity. this is a big part of the bullish case on coke, that they have been cutting costs, that included layoffs in the beginning of the year trying to get savings on productivity. she said in terms of the bright spots geographically, north america and latin america is where they saw the most pricing power. they have been going to smaller packages where they can get more profits per ounce on these cans. if you break down the volume numbers, you see the story pretty clearly. all the growth is in packaged water, bottled water, 11% volume growth, teas, the nonsodas, the healthy stuff. >> simply orange is killing it. >> sporting drinks very popular. in terms of other commentary from kathy waller. diet is still a problem. she said we're still having
challenges with diets and lights. it's the change in consumer, however she says we do believe we have loyal diet coke customers. part of it she did say is a lot of people are switching from diet coke to coke zero where they're seeing nice growth. >> i saw a rate of decline in diet drinks a little bit better. what i was quite struck by is the mass marketing to mass personalization. the coke cans are mattering. it's working. >> it's been a huge success. >> the marketing is very powerful. >> the estimates from the bite from 4x is enworse than prior. >> this is a huge problem for them, especially in key geographies for coke, mexico, brazil where the currencies have actually taken quite a beating. china is another big one, big important coke market which is not important to the pepsi market. a lot of people like to compare coke and pepsi. pepsi had way better organic revenue growth. it has the snacks working for
them on frito-lay. >> it's almost impossible to hedge against some of the currencies in latin america or turkey. global beverage grew 3%. is it one i want to go buy? i think warren buffett won't sell on that which is important. pepsico has better growth, but pepsico is because it's snacks. the snack business grows. >> and they say this is a quarter that was in line on strategy with their expectations. this is a transition year for them. a lot too look forward to in the next year which will put pressure on them to bring setter sales results. but perhaps volume has stabilized. >> i think that's a very fair depiction of what it was, a volume stabilization. if you want to compare it head to head against pepsico, it's apples versus orange unless you want to compare prop can that versus simple orange which he would like. do they buy monster? >> i don't know if they're any hurry to buy monster plus it's
getting more expensive by the day with all the positive -- >> weaker quarter but i think the distribution system based on germany which is on sales force.com not s.a.p., but is strong. i like monster very much for a host of reasons. >> better than keurig which hasn't been as hot for pu. >> we'll see new 40 minutes, thank you. we'll get cramer's mad dash and count down to the opening bell. still haven't gotten to yahoo!, biogen. more "squawk on the street" from the nyse where ferrari is going public today.
so what's your news? i got a job! i'll be programming at ge. oh i got a job too, at zazzies. (friends gasp) the app where you put fruit hats on animals? i love that! guys, i'll be writing code that helps machines communicate. (interrupting) i just zazzied you. (phone vibrates) look at it! (friends giggle) i can do dogs, hamsters, guinea pigs... you name it. i'm going to transform the way the world works. (proudly) i programmed that hat. and i can do casaba melons. i'll be helping turbines power cities. i put a turbine on a cat. (friends ooh and ahh) i can make hospitals run more efficiently... this isn't a competition! the most advanced iphone yet. get the new iphone 6s at t-mobile. the network that's doubled its lte coverage in the past year.
(patrick 2) pretty great. (patrick 1) how about a 10% raise? (patrick 2) how about 20? (patrick 1) how about done? (patrick 2) that's the kind of control i like... ...and that's what they give me at national car rental. i can choose any car in the aisle i want- without having to ask anyone. who better to be the boss of you... (patrick 1)than me. i mean, you...us. (vo) go national. go like a pro.
all right. little later in the morning for our mad dash a few minutes before the opening bell. where are we headed, my man. >> the last thing you want to talk about right now is buying chipotle. july was the strongest month and then it went down after that. wage costs and real estate costs nothing to write about. underinvested in technology because of the huge amount of the -- two-thirds of the food is consumed outside the foods. only 7% is ordered outside. they have to order it inside. still no aggressive, aggressive rollout of his pizzeria. now you will hear the other side. >> you love this company. >> there have been three resets over the last four years in
chipotle. every time within one month after they do a reset, you had to buy the stock. why? because the company is in there buying, in part because they fixed this. with the carnita shortfall, people thought things would get better but people didn't anticipate wage hikes. they ought to start anticipating price hike at the store which will cover the wage hikes and let me just say -- >> and won't dissuade a customer from going to chipotle? >> the big problem has been lines. they under jeff underinvested v starbucks. david, listen to me. >> i will. >> chipotle is going to go down. it will go down big. it will not be done going down today. it will go down again and when that thing settles, you take a look at the chart, you take a look at what the company does. they fix problems. they're not going to do a big rollout, i like chipotle. >> for all of their quarterly troubles, keeping it below the 200-day has been virtually impossible.
>> can i just say, you're selling a stock that was at $50 nine years ago and it is going to come back. the stock is anticipating a weaker quarter. don't buy it yet. >> there is the opening bell, and a look at the s&p at the bottom of the screen. at the big boar as you know by now ferrari celebrating its ipo. we're going to speak with ferrari chairman sergio marchionne when the stock opens. customers union ba wow, is there -- it's like where do you go first? i guess kla tencor will lead us to semis. >> continued consolidation has been great for the industries. a lot of the machines they make were deeply rooted in what intel needs. i do like intel very much when the altera deal closes but this
is fantastic for shareholders on both sides. you will see lamb up even more than it is. >> and i would point out very important to watch the acquirer stock price. i pointed out lately broadly speaking in merger and acquisition activity, we have not seen the acquirer stocks move up the way they had even a few months ago and it can be an important component of the overall environment and the judgments that ceos make in the future if they're considering a deal. >> in in case, jim, lamb moving up. let's look at western digital, the other large deal. that's going to be -- they're talking to me about the fact that it's going to be a lot about deleveraging here. they start with about $17 billion of debt once they get the deal done to acquire sandisk at about 3.2 times ebitda the leverage ratio but they immediately start taking it down. get to investment grade within a couple years. they're doing $5.5 billion in ebitda as a combined company. so they think that's an important component that perhaps is being overlooked right now by
investors, but the stock is down, not sharply, down nonetheless on the news of that enormous transaction, almost $19 billion in cash and stock. depends how much stock and how much cash depending whether the chinese come in with that money, as expected they will. but whether it's in a timely manner before this deal is done. >> yeah. you know, i'm not as crazy about the western digital deal because i'm not crazy about flash, and, remember, intel is coming on strong about flash and flash is really a second rate technology now. questionable strategic move. the arbitrage is important. western digital gets that money, then i think it's okay. they're also going against seagate. 52-week low. i'm waiting for the ceo to do something, to pull the rabbit out of his cash. they have great cash flow. this is not as good a deal as lamb because dam is offlamb is
enforcement officer -- let's watch the semi-conductor companies and see if they don't go up. maybe we're back in the days when sky works comes back with a higher bid. >> as you're talking, jim, sergio marchionne has made his way closer and closer to post 8 where ferrari is expected to open in a little bit. they're making big investments, new models in alfa romeo and maserati. a fair amount of cash they're raising for themselves. >> a huge amount. it's going to become a favorite. it's been managed very well. it's also one of the plays i hope we bring about at the debate. i want to focus on the debate also because there's so many questions. the weakness in the euro got these guys to have great numbers versus gm and ford. it's been such an advantage for fiat. >> this is going to be the biggest consumer discretionary
ipo of the year and in the meantime as we look at the earnings today, jim, people say not enough top line beats. we've got them today from boeing. got it from gm, tupperware, kimberly clark. >> look, tupperware is a nice surprise. kimberly, boy, they had some terrific organic growth. is it coming at the expense of proktor or are just more people having babies? you know what? we should watch something demographically of what's happening since the end of the great recession. it's really impacting kimberly. kimberly is so well run and very self-effacing. i think it's done a good job, some really great numbers in diapers. >> twitter is down almost 6%. >> which one? >> twitter. morgan stanley goes to underweight. they say the product is already loaded with ads. more so even than facebook once you account for users and that average time spent per mobile user is falling and falling at an accelerating rate. >> yeah.
this was a killer. we've been watching it when steve ballmer bought it. we watch it as some of the newer features come out. the newer features will make it so the load is less of a ceiling but this was a devastating downgrade and it didn't happen -- it happened right when the stock had a big run so it's very impactful. >> phil lebeau joins us on the big board. he just spoke with marchionne. >> we're over here at post 8 waiting for the first trade. we're hearing early indication of trading between $60 and $65 a share. we know it priced at $52. we talked with sergio as he was walking in. the big question, will they be able to grow the brand without diluting the exclusivity of the ferrari brand. here is what he had to say. >> the unexplored potential of ferrari and developing businesses adjacent to the car and -- >> and you think you can keep that intimacy even as you grow the volume. >> absolutely. we're already going to close the
year at 7,700. we targeted 9,000 by 2019. the world is a big place. we can find 9,000 for 9,000 customers that deserve the car. >> the world is a big place and sergio marchionne has a big smile on his face as we await the first trade. we'll send it back to you. we're waiting for first trade with you. >> phil lebeau, thank you very much. that's going to be key, getting that world to stay big if you're going to boost production 30% over the next -- >> look, this is not a growth story. it's somewhat, of course, like tesla so i like the analogy. if tesla produced more cars, then the numbers go way up, but does ferrari go way up if they produce more cars? does that get rid of the scarcity value of these cars? i don't know. >> yeah. it's a reasonable question. speaking of reasonable questions, investors in vmware may have a number of them for the management of this company, for emc, of course, which controls the company, and even for dell which is in a deal to
buy emc and take control vmware as a result. why the questions? because it's a little over the week ago we got the enormous dell deal, and at the time vmware issued a preannouncement but we didn't get the details they might now say they would have preferred to have gotten then as they judge the merits of the dell transaction. take a look at what has happened to that stock. and by the way, take a look at what's happened to it over the last let's call it week or so because it went down enormously on that preannouncement. now it's down another 14%, just to put it in some perspective. the dell deal when it was announced last monday, 2405 in cash and 0.111 of a share. in the press release, jim, in the press release, they say, oh, yeah, and we're assuming a price of vmware of $81.78 a share.
that's the valuation that we're assuming for this tracking stock which will represent 53% actually the outstanding shares ofv m ware that we're going to issue that's going to be a key part of the consideration to you, emc shareholders. it's now below $60. and we have penguins. i was reminded of it when we did the 20-year anniversary, nine down grades today as carl said earlier. nine. there they are. take a look at the penguins. they're all getting out of the water now instead of last week. >> i typically would not offer any defense to the penguins if it weren't for the fact that this company is bagged people it was hard to see through it. it was just -- the preannouncement, this is one of the worst bagging i have ever seen but, yeah. >> i'm running. i'm bank of america, i'm running. you name a firm. i haven't seen nine down grades in a long time. i don't bring these out very often anymore. >> it is incredible, but the company did major -- the company fooled a lot of people. what can i say?
the evil face of capitalism today. >> i suppose. of course, the question has to be, all right, the dell deal itself, what's it worth, what's the tracker worth? 0.111 of $58.80 is a lot different than 0.111 of $81.78 in terms of your consideration, but down is down. >> i don't want that tracking stock. >> yeah. you know, the financing, of course, is more aor less togethr for dell for that deal. the tracking stock is simply considered a common stock of dell. >> i just am aghast talking about the secular shift to cloud, well, wake up and smell the coffee. that's been going on forever. >> it seems it was this joint venture they form which they didn't give people full tra transparency into. vmware's growth rate is 2% to 3% lower and their free cash flow guidance is well below where the estimates of analysts were.
>> made a lot of sense for emc to sell, didn't it? pure technology coming in against them. this wholesale shift in what's liked in technology is rather extraordinary including yesterday's ibm, very disappointing. very few companies that are a winner in this scenario. salesforce.com is a winner. red hat is a winner. even adobe started coming down. that's been a winner. the consolidator plays are very smart. intel not that bad. remember, they, too, are expanding though. there's a lot of losers. >> very few winners. >> yahoo! is another loser though not as much as people may have anticipated given the core business is not performing well, revenue declines for yahoo!. a firm commitment in terms of 384 million shares the company owns of alibaba. that's the vast majority of the value at yahoo!, of course. as i said, third quarter results and guidance, some calling it a tortured transition for core
yahoo!. what they're transitioning too, they keep talking about mavens, mobiles. and one has to start to wonder when you're going to hear questions about the leadership of the company. what are we, almost four years in, although marissa mayers done a good job of returning capital to shareholders. >> aol was more than an asterisk positive in the verizon call. yahoo! in the end with a $1 billion ebitda and small stock price is going to be bought by someone. don't buy it for that reason, believe me. it won't be at a premium. just not a great quarter. >> do you want to end up on good note? >> how about biogen? >> 11% of your workforce gone. hardly good news but the stock is up.
>> we have been buying this because we felt there would be a big restructuring, a lot of people fired, and they did a big restructure and they fired a lot of people. >> revenues were better than expected. >> revenues were good. >> progressive ms did not -- >> remember, biogen spiked big. stock had been down almost 50% off of an alzheimer's formulation that then the street got very ahead of versus what biogen did. i like biogen, i just don't think they're doing as badly as people think. they took a lot of action, fired a lot of executives in underperforming divisions. that's fine. this valeant -- valeant is not even making a valiant effort at staying anywhere near -- this has been a hedge fund killer valea valeant. >> down again today. pershing square alone owns over 19 million.
value act had sold some. this thing has been crushing. those are the big holders but there are so many others. >> oh, i know. >> it was loved. >> and f.a.n.g. going down, too. you see obviously -- you just see massive sellers in google. i don't think google is nearly as bad. i thought it was down because people thought they might be buying yahoo!. that is wrong. >> s&p has climbed to within 1% of going break even for the year. we'll watch that at 2035, and then ferrari indicated $59 to $62. bob is on the floor. >> hey, guys. phil and i were just joking we're surrounded by impossibly well dressed italians this morning. a lot of zegna suits and valentino. $59 to $62 is thecati indicatio. the feeling is this wouldn't open until 10:00 but they're narrowing the indications here
very rapidly. somewhere between $59 and $62 and i think this is going to go a little bit quicker. again, the key point about today, priced at $52. two key things about this, they're only selling 10% of the company. that's a very small float. that's a strategy that's been employed very successfully in the last two years by a number of other ipos. they were appraised for only quoting 10% of the company and secondly, not going above the kaegs. not going above $48 to $52, pricing it right at the top end of the range, making sure they're leaving a lot of money on the table potentially. as you see indications of $59 to $62. the initial pop looks right now to be very good. they're still narrowing in the indications. very quickly right now -- we're getting a lot closer. let me get to market hits very quickly and let you know what's going on overall. the strong dollar has been a real problem for most of the major companies and we saw this today with kimberly laclark and
coke. kimberly clark 12% -- what do we got? what's the price? we just opened. ferrari has just opened at $60. ferrari sells 17.18 million shares at $60 after pricing at $52. the high end of the range, and you see a lot of clapping and applause. a lot of people wearing blazing red ferrari jackets here. this is the culmination of a long, long effort. initial value of the company close to $10 billion. at this price we're talking about a little bit more than that, close to $12 billion, and there you see sergio -- you probably can't see him but he's ringing the informal bell a lot of people ring when they open. a lot of smiling faces on the floor. ipo opening at $60. a nice round number overall. the important thing about the market today is that this is not very typical of the ipo market
that we have seen recently. we've seen a lot of different things going on. we've seen a lot of different issues. we'll come back in the next few minutes and talk to you about how the market is looking overall, but there are a number of reasons why ferrari is a unique ipo and in some ways an anomalous ipo. it's not typical of what's been happening in the ipo market. it's primary attribute is the overall sexiness of it and the extreme identification of its customers with its brand name. this morning talking with sergio marchionne, he made it very, very clear that they are relying on that very tight customer relationship, and i spoke with him and asked him the key question a lot of the critics of ferrari have had, which is you have told us you're going to increase production. only 7 st,200 cars and the crit said you're going to have to cut prices and that's going to hurt your margins. sergio marchionne came back to me very emphatically, we're not cutting prices.
we are going to maintain those tight relationships with new customers out there around the world with the ultra wealthy and we're going to have the same prices as before. he came back very forcefully against critics who say you're not going to be able to maintain your margins because you will have to cut the prices. initial trading we have at $59.41. so holding up pretty well here. let's take a look around the corner and see if we can get any of the other -- see if we can see mr. ferrari. i don't see him here right now, but sergio i'm sure is going to be making his way over to talk to you very shortly. i think the important thing right now is getting the price done at $60 overall and a lot of people, of course, very happy about that. ferrari share of the luxury sports car market, we asked about that. they have published papers. about 22% of the luxury car market, the sports car segment, about 25% overall. but sergio when i spoke to him made it clear, we're not emphasizing a percentage of the market. we don't want to get necessarily a higher percentage. we do want to sell more cars,
but we're manufactuour emphasis supply, exclusivity, the fact there's waiting list, and the fact we maintain the tight customer relationship. over and over again he made it clear to me that's really what they're going to be talking about. as far as the issues go, there's going to be a number of them but we'll talk about it in the next few minutes. important thing, ferrari $57.51. >> thank you very much. you mentioned mr. marchionne has made his way to post 9 as ferrari debuts at the big board just moments ago. last trade $57.83. phil lebeau joins us as well. phil, good morning. sergio, good morning to you. phil, do you want to kick us off. >> let's start with the main question. you talked about it a little bit. you know everybody is concerned that you've got such an exclusive brand and that you're going to dilute it over time as you grow. i know you have heard this question many times but how do you reassure people you can grow yet keep that exclusivity? >> the objective and we have reiterated this position throughout the road show is that
what is at the heart of the brand is this intimate relationship between us and the customer base. we have 60% of the people that buy our cars every year are returning customers, and, therefore, it would be almost suicidal to try and expand volumes to the detriment of that relationship. so one of the things we've done, we're going to close the year at 7,700 cars. we're going to get to about 9,000 by the end of the planning period, and we think it's just available from the utilization of two cars, one is the california and the other is thef f which i think probably needs more space in the market and i think from simple geographic coverage of the rest of the world. it's a big world. we only have 204 points of sales. we only have 180 salesmen that really cover that network. i think the potential is much larger. high net worth individual. the population keeps on going up. >> where are those high net
individuals going to come from? >> they're everywhere. to be perfectly honest. there's a large number of them here in in country, they're in the middle east and asia. they're everywhere. >> and right now they're buying what instead? >> they're buying cars that i think that are not on par with the ferrari. i don't want to make derogatory remarks about the competition but if you have to wait over 12 months to get a car, people have a tendency in some cases to go somewhere else. >> you have done a markable job with the company and also with chrysler, with jeep. but would you want to sell the rest of your stock which you're free to trade in 2016? >> i think this stock is going to be distributed to all shareholders at the beginning of january next year. we've done the 10% placement to bring down the debt. the rest of the position is going to be given to our shareholders just for free. >> free. >> we will be distributing all the stock out to the shareholders at the beginning of january. >> can you make -- let's say 7,200 units. can you double that and will
they buy them in china given the fact that the communist party is trying to crack down -- >> no. i think doubling that number is not within the realm of possible. i think we need to maintain, look, this company was founded o on one simple principle. you only produce one car less than the demand for the real car. you don't exceed that equation. we need to grow the demand side before we try and supply it and destroy the exclusivity of the brand. it's a very careful walk and a very, very tight relationship between us and the dealer body. >> jur going to be the chairman. you are the chairman of ferrari, but there are a lot of people who are saying ultimately you will be the man who makes the calls when it comes to ferrari, and you will essentially be the ceo. who will be the ceo of ferrari over time? >> we have a ceo in place now. i should actually thank him publicly for all these done over the last years. the cars you see out there are
his stepchildren and he has been at the heart of the technical development of ferrari for a long period of time. he's the best engineer i have known in my whole life and i think we owe him a lot because he's continued to refine the brand and push the technical limits of the vehicles to places where nobody else -- >> but over time you have no interest in being ceo. >> it doesn't matter. i think one of the things i did over a year ago was to make sure we had adequate succession mechanism to deal with the eventual handover to other people. amadeo is 69. eventually he's going to get tired. we all get tired. i think we have to make sure somebody can pick up the baton from him. >> we've been talking about these unbelievable run rates and unit sales in this country and then we also watch the labor negotiations. what do you say to people who say the unions deserve a piece of this extraordinary year?
>> i am totally in line with the fact that i think wealth distribution for carmakers needs to be redimensioned to allow labor to take a piece of that wealth distribution. you're preaching to the converted. i'm not the guy who is the diehard. the problem is you need to create true enduring wealth in order to allow that to happen and you can't institutionalize costs. >> sergio, when you make a car in mexico, it's $5 an hour, health care paid. really good workforce. why should anyone make a car in the united states? >> because i think that the level of technical skills seen in this country, especially with the amount of engagement of uaw is displayed in terms of the resurrection of manufacturing puts them in a unique position to do many things. there's a large chunk for the automotive space where their skills can come to bear. >> one thing that's made in this country is a tesla. i know you haven't been that big
a fan perhaps in the fast. >> i'm a phenomenal fan of elon musk. he's a disrupt er and a great marketer. >> like showman. >> no, i think he's a great marketer. >> what about an electric car for fiat? >> we have an electric car. >> and what about the threat that represents. and do you think apple will make a car? >> yes. >> why? >> because i think the space in which they can exhibit their skills. it's something that -- the question that you asked is not sure i answered it properly. are they going it get a car made or build a car? those are two separate questions. i doubt it very much they will set up infrastructure to manufacture cars. they will rely on somebody. they have not approached us. >> could fiat become the fox con for cars? >> i'm not sure i like the parallel with fox con given the margin distribution but ignoring that issue, i think that this
industry in general is -- needs to open up to disrupters whether it's the google car, the apple car, this notion we're seeing now with autonomous driving, assisted driving. it's going to change the traditional nature of carmaking. it's going to change the nature of cars in the marketplace, and it's going to change the demand/supply equation. all these things will happen in the next five to ten years, and i think you need to be ready for that. >> are you talking like transmission or interface, user interface, both? >> everything. >> everything. >> i think these cars will be completely revolutionized and i think we're here for ferrari, but ferrari has learned about hybrids in the formula 1 circuit. it now has a hybrid in one of the cars outside, the ferrari, which is the most expensive car we make, over $1.5 million, but we do run hybrids. hybrids are going to continue to be the mainstay of the automotive industry in the next phase of development.
you cannot do without them. not full electric. >> are the traditional automakers, the big three, have they been lapped by the technology companies out in silicon valley in terms of innovation? not in terms of understanding where the market is going but in terms of the real innovation is happening in silicon valley. >> i think we have been late to the party. do i think it's not a recoverable delay? the answer is no. i mean, to be perfectly honest, as much as i reiterated my affection for elon, there's nothing that elon does that we cannot do. we just -- we cannot make the business model work at that scale. >> i recently tried to buy a jeep for my daughter. geez, 55 gs? you can command that. >> yes. >> and that is because -- what has changed to make it so that -- this was -- you were priced over lexus. >> yeah. >> how? >> because jeep is jeep. there's only one jeep in the world. only one ferrari in the world. there's some unique brands that
really deserve premium pricing because of the uniqueness. jeep represents a way of life. it's not just a car. it's like ferrari. i'm sure that the pricing equation is somewhat different for a jeep, thank god, but it's a unique brand and i think it needs to be treated with respect. i think the products that we put into that brand and we nurture that product portfolio needs to be carefully managed. i have no doubt this is a brand that can run 2 million cars a year. in europe in first nine months of this year we sold more cars than we sold in the whole of 2014 of jeeps. in a market that's relatively flat or benigbenign, but jeep h done in nine months what it did in 12 months the year before. >> are you done trying to convince mary barra to do what you want her to do? >> i don't think i ever tried to do any particular act with mary barra. i think we've had an exchange in writing which has come to an end. the thesis that we pitched and
which i have been rather public on does not change. i saw the results this morning from general motors and i compliment them on their achievements but the underlying thesis that we presented in terms of capital consumption is an issue that will not go away. it won't go away because regardless of how well we perform, we're not talking about performance at the peak of the cycle. we're not going to be here forever. we will go through a downturn and when we go through a downturn they will not be achieving margins of this caliber. the question of being able to save capital remains on the table. >> when do we see major consolidation within the auto industry? within two years or further out? >> i think there's a great chance you see something in the next months. it's no use of me trying to hypothesis who the marriage of partners are. >> and will fiat chrysler be part of the consolidation move? >> i have no doubt they will try to play a role. we were successful in getting it done or not i can't tell.
>> very impressive turn that you have done. just wanted to tell you that. i have always felt if i ever got to meet you. >> thank you. >> you just did it and i just think it's important sometimes to sit back and say, congratulations. >> thank you. >> did you recently sell one or change the model that you own of ferrari? >> no. >> which one do you have? >> most of them. but i'm a ferrari collector. >> have you seen jay leno's show? >> yeah. >> what do you think? >> yeah. >> sergio, thank you for coming in and congratulations on a good start. phil, thanks so you as well. our gphil lebeau. what a segment. jim, what's on "mad" tonight. >> i can't even think about it. okay. all right. tupperware, better quarter. steve singh. it's very rare -- i'm not speechless. sometimes i'm in awe of what people have accomplished in life.
they have done it in way not for show but because it's the right thing-to-do. >> we'll see you tonight. let's catch up with bob pisani. >> morninger importathe importa got done. price talk was $48 to $52. they priced it at $52. it opened a few moments ago at $60. right trading a little off that, $56. still up about 7%. two things i think stand out about this number. number one, they priced only 10% of the company. the strategy a lot of these companies price a small number of shares, increases demand. obviously creates natural demand. secondly, they didn't go above the indication. at the top end, $52. didn't go to $53. wanted to leave some stuff on the table. make sure you get some first day pop. this is a big ipo. and in a lot of way it's an unusual ipo. it's not typical of the recent ipo market. this one is unique because it oozes sexiness and because of that very special relationship
between the customer and the company itself. it's something sergio marchionne talks about all the time. we want market share but we're not doing it at the expense of our relationship with the customer. that's the most important thing. there are issues owe tlut. 7,200 cars out there. they said they want to increase that number and, of course, that means they're going to have to ramp up production. a lot of people have said that they're going to have to cut prices if they want to get to, say, 15,000. if they want to double the cars. marchionne was very emphatic to me this morning, he's not cutting the prices. they're going to maintain quality and maintain the margins as well which are very handsome, not typical automotive margins but very nice margins for them overall here. of course, there's a lot of issues with the ipo market right now and that's what i mean when i say it's not really representative of what's going on in the ipo market. we have seen some real price cuts. there's been 14 ipos in the last month. only 2 of the 14 have priced within the range. this would be 15 now and this
would be only 3 that priced actually within the range now. the average price of the ipos in the last month, 22% below the midrange. that's according to renaissance capital. that's really a big haircut and that's really what's going on in the ipo market. the good news overall is that this has increased interest in the ipo market. ipos are trading better in the last month after they had cut their prices. so we're seeing ipo prices increase an average of 6%, 7%, 8%, 9% since the first day of trading in the last month. that's good news for the kpts, for the people interested in investing in the ipo market. nobody wants to see what we saw in the middle of the year, the ipos are pricing $5 above where the anticipated range was and then a month later they're below their initial price. they want to cut the price and then make sure prices stay to the upside. right now ferrari trading at $55.33 after pricing at $52.
gi guys, back to you. >> thank you very much. robert frank joins thus morning at post 9 this morning to talk about what it means for the brand at large. what did you think -- sergio is an interesting man. >> a dynamic ceo but the real challenge for ferrari begins today and that is the battle for the soul and the economics of this company. for years ferrari created enormous amounts of wealth for collectors, for auction companies, for ferrari restorers because ferrari is the only car where if you bought one today at a dealership and turned it in next year, you can pretty much get the same price that you paid for it. it's truly an investment. that's because they build so few of them. if that changes, he's going from 7,000 to 9,000. doesn't sound like a huge number. but collectors, owners, dealers, telling me they are very worried about shareholder pressure and what that will do to this company. >> yet if you listen to what sergio marchionne said, he would grow -- the classic phrase is we only produce one car less than the demand.
we need to raise our demand before we increase our supply, and then saying in the middle east and i think i got him correctly here, you might have a 12-month wait period for a car. of course, people are going elsewhere. if we can sort out our supply, if we can deliver on the shorter time scale, then instantly you could presumably bump that up by hundreds of cars and then you get towards the sort of figures you're talking about. >> you don't want it to be so exclusive it's unattainable. there's still room to grow. look, i did a chart yesterday showing the number of potential ferrari customers out there. those people were 30 million or more. that population has more than doubled since 2008. ferrari production is up only 10% over that period. so if you say ferrari should keep pace with the multimillionaires who can afford them, they should be doubling production. they have more room to grow, but having said that, there are a lot of collectors and owners who have made a lot of money and justified their ferrari purchases as investments who are very worried. >> but there are many places
where you presumably can't by a ferrari because it's so low slung and the roads are so bad. it's a real issue. >> there's emissions standards which are becoming tougher in china and the u.s. off slowdown in china. they had a decline in china sales in the double digits in the most recent six months. no one is talking about that. so they need emerging markets to come back here to really get their growth. one hedge fund manager told me yesterday, this is the ultimate rebate programs for rich guys that buy ferraris. you can buy shares of ferraris and capture some of the profits you're paying when you buy a ferrari. so a lot of people are buying these shares as a hedge against their own ferrari purchase. >> that's pretty good. >> maybe that's why they wrote to everybody last summer saying we're coming through. nice to see you, robert. ferra racing past its ipo price, trading around $55. now that ferrari is public, how will it impact the broader auto industry?
joining us now, richard hillgot. richard, would you buy the stock here? >> we don't have any numbers out on this yet, so i can't give you a fair value estimate. in our preipo research we did on the stock, we did have a valuation on the company of $12 billion for enterprise value and around a $10 billion number for the equity value. so to us it looks like it's reasonably valued, but i don't have a fair value estimate for you per share to give you on ferrari today. >> interesting. but you're generous in your figures today. before we discuss the auto industry overall -- >> i don't think we're generous at all to be honest with you. i think it's right in line with where it should be. >> okay. fair enough. before we talk about the automotive industry overall, what about the way in which they conducted the ipo and this
argument that march yon uionne throughout the radio show that it's a luxury player. he was even going through the allotment deciding who would get this stock that he's now trading and who would not. i mean, has he succeeded in your view in making it a very different deal, a very different offering to shareholders? >> look, i don't care what either one of them say. i think if you do the research and the reason why i'm giving it the valuation that i do is that i did look at what the history of this company has been in terms of its revenue growth, which has been around 9%, what its value growth has been which has been about 4%. this indicates substantial pricing. it's got average revenue per unit that exceeds $500,000, u.s. dollars, per year. the next closest is lamborghini and its below $350,000 per year. so it's got substantial pricing power. it just sold out 40 units of a very high priced $3 million per
unit model in december by making a few phone calls to its existing customer base. it solgd out by invitation only. 40 units at over $3 million a piece. so this company doesn't grow by, you know, the volume or whether it's got market availability for units. it's got pricing power. that sounds to me like it's got an economic moat from its brand and that brand i think if you take a look at this company and how it compares on standard deviation of revenue, standard deviation of ebitda, the standard deviation of the ebitda percent, the profitability as well as the high amount of margin that it generates on a regular basis, it looks like a luxury goods company. it looks like -- >> richard, just to zero in on that point a little more -- >> one second real quick. one last point, look, calling this an automotive company is like calling tiffany a glass
company. >> i think that's a good point. i was looking back actually historical revenue growth during the financial crisis, and you saw ferrari sales take a little bit of a dip but they came back pretty fast and pretty strong. usually automakers are very economically sensitive. is ferrari recession-proof? >> it is. it's much more so recession-proof than any other automaker on the face of the planet, and, again, this is why it looks like more so a luxury goods company than it does a car company. it's not a car company. >> what happens to the share price, richard, when they distribute the other 80% of the company in january? that would seem to be a very big overhang for people who might be buying the stock now. >> yes, it could be, and it could also be an overhang for fiat chrysler because obviously you've got a lot of folks that are trying to buy up fiat chrysler to get the ferrari shares at a lower discount based on where the shares are trading
at today. but i think that, yeah, that is an overhang but i think that there are so many people around the world that are so fanatical about f-1 racing. we don't understand this quite as much in the united states because it's not as popular. but everywhere else in the world, it's like european football or soccer as we call it, they're fanatical about it. i think we're going to see a lot more demand for the stock with the ipo -- or with the spinoff in january of this year. >> richard, you're really clear in your analysis. we appreciated you joining us. richard hilgert from morningstar. >> with a lot of fancy cars outside the new york stock exchange, phil lebeau is here on the floor. let's get his take on the early pricing action. >> you know what strikes me about talking with sergio marchionne is morning is this question of exclusivity when it comes to the ferrari brand and this question that has come up from people saying, well, look, there are a lot of luxury
automobiles around the world, ultra luxury automobiles around the world. what makes ferrari different? not only here in the u.s. but around the world? here is what he had to say. >> they're buying cars that i think they are not at par with the ferrari. i don't want to make derogatory remarks about the competition. but if you have to wait over 12 months for a car, people have a tendency to go somewhere else. >> if you spend any time overseas particularly in china you will notice the appeal of ferrari. i have seen it in the middle east when i have been in dubai, i have seen it in asia, particularly in china. there's so much focus in this country understandably looking at the ultra wealthy in the u.s. and north america and what they're buying but you have to look at asia. as sergio said to us within the last half hour, it's a big world out there and ferrari intends to meet the demand out there for this car. >> but, phil, just to be clear on the china point, when you guys asked him specifically, he
said he wouldn't get double digit increases there. partly because of the crackdown and it was clearly a tough market for them to grow. in fairness to the point you're making. >> he's not expecting double digit increases but he's expecting steady growth and my guess is based on what -- we've heard back from people who specialize on the china market, especially when it comes to luxury autos, there will be substantial growth there. not double digit and that's not just for ferrari but that's for all automakers, but there is still plenty of growth there. >> phil, you know, to your point, they are not anymore the only game in town. you have mclaren ramping up with new models that are by some measures better than ferrari at a lower price. you have audi with the r-8. there are a lot more choices for buyers and ferrari's share of the performance market is declining. so they are not the only game in town. >> they aren't but one advantage they've had and people will say it may not last as well as it has in the past, ferraris hold
their value better than almost any other ultra luxury car, especially at the volumes they're being made at. the question is does it hold that value in the future? i understand the argument against it. sergio's argument is we can still grow and hold that value. >> phil, thanks so much for that. our phil lebeau and robert frank at post 9. a lot of excitement on the floor regarding ferrari. we'll talk about that and keep an eye on the price action. meantime, s&p has gone back to the flight line. dow is up 18. don't go away. hello, ken jennings. i haven't seen you since that tv quiz show. hello, watson. you can see now? i can recognize people, analyze images and watch movies. well i wrote a few books, did a speaking tour, i... i've been helping people plan for retirement. and i help doctors identify cancer treatments. is that all? i recently learned japanese... yeah, i was being sarcastic.
our phil lebeau and robert frank the drought is affecting all of us. at pg&e we've definitely put a focus on helping our agricultural customers through the drought. when they do an energy efficiency project and save that money they feel it right in their pocket book. it's exciting to help a customer with an energy efficiency project because not only are they saving energy but they are saving water. we have a lot of projects at pg&e that can help them with that and that's extremely important while we're in a drought. it's a win for the customer and it's a win for california. together, we're building a better california.
big day at the new york stock exchange. turns out since the mid-august market crash, ferrari is the first ipo to price at the top end of its range. here to talk more about the turbulent ipo market lately, kathleen smith, principle of ipo etf manager at renaissance capital. does fer srari say anything abo the ipo market? >> it's a helpful data point because we've had challenging data points. it's been a turbulent market for issuers. most of them have had on average, the ones that have priced over the last 30 days, have had to discount their prices 20-some percent below the
midpoint of the range. it's nice to see one priced and trading fairly well so far. >> do you think it will encourage some of those that have decided to wait like albertson's to go public? >> i think we have a lot of work to do to repair the ipo market. so it's a data point, but i think we need a little bit more time to see these other companies do so well. >> fiat chrysler is selling 9.1% of the business in this deal. just refresh our memories as to what the normal float would be. is that representative of the people that were recently coming to market, less ambitious, more ambitious? >> you can look at photos of percent am of total market size. there's enough shares in the market to be traded. the issue we have with ferrari is they're going to be about 150 million new shares delivered into shareholder hands, fiat shareholder hands in january. so if you -- >> so it's a big overhang.
just on the specifics of getting an ipo off and getting a nice little bounce at the open, what typically, what size of the business do they normally float in order to ensure that demand is restricted enough so you get a decent pop? >> i think some of that calculus is from the issuer side is really not that important. >> okay. >> so from a stock market side, if there's a small deal, it can be squeezed up, but ultimately that's a short-term trading thing. i think that the issuers don't really look at it that way. >> i ask because so many ipos do well at the open and then for a couple days and then sink afterwards. >> some of it has to do with a lot of maybe positive media, positive attention to the company, and perhaps not a good connection with the fundamentals. >> you said we have a lot of work to do on the ipo market. it's a point bob pisani has been making all morning long. in terms of market conditions it has been calmer and the stock market has rallied over the last three weeks. what do you still need to see? >> i think the positive market
backdrop is a good thing, but the ipo market itself if you look at the deals that have been trading in 2015, on average they're down about 2%. so if you're an investor and willing to invest in this segment, you're going to need to see some improvement in the ones that are already trading. we're starting to see a little bit of that, and we do know that over the last -- those that have been discounted so heavily are generally trading nicely above their ipo prices, so that's how we're working away this price reset that has to happen. >> that would be where the opportunity lice surely, quality companies that come to market but discount in order to do so. that's a win/win all around. >> generally it's the larger, more stable businesses that come out at attractive valuations in that type of market environment. that should be a good thing for ipo investors. >> s&p and says their ipo and spinoff index is up 2%. it still beats the market. still beating the overall market.
>> i think we have to see a little more time in that and the strong outperformance and then we'll see a better environment. >> and do you see any change to the tech, biotech, health care trend or does this lend credence to the rebound in consumer discretionary? >> we would say with the ipo market, the bubble we've had is in biotech, and that buge bble starting it deflate. the rest of the market, technology is starting to look a little better. we'll have a good test of it with the square ipo that's lining up to get done. mobile payments company. and that's going to be the issue of a unicorn with a $6 billion valuation and how it reconciles itself in the publicly traded market. >> what about the behemoths, uber's ceo said in california last night don't expect their ipo anytime soon. he felt it was years away. there's airbnb other big players like that. as you go through a business cycle, are people able to ipo all the way through or if uber
held off now, could it be locked out because it's so big for four or five years? how does it tend to work? >> i think the issue with the very large airbnb and uber, those large valuations, is there is a disconnect between that valuation and i think what the public markets would pay. so we think the reason they're waiting has everything to do with the fact that they don't want to mark down that last very high valuation, that the public markets won't understand how to get to auto $50 billion for you be ear. >> another one we're watching is match. do you expect that to go on time? >> match should be very interesting. they will probably do their deal before the end of the year. one of the ones i'm looking at is ballast brewery. a craft brewing company. almost $100 billion in revenue and has the stock symbol pint,
p-i-n-t. >> how very un-american. should go to" london. >> thanks for being here. kathleen smith, renaissance capital. david? >> sara, i want to take a look at shares of valeant because they're in essentially what's free fall. sort of just been focused here on this. take a look if you can at vrx. we've been talking a lot about valeant for a long, long time, during its incredible run up over the last couple of years on its acquisition strategy, of course, which involves buying companies to a certain extent, using not just being able to use debt and willing to operate with a decent amount of leverage but also what was a rising stock, whether it was the bausch & lomb deal, and the generally positive reviews it would always get from the likes of investors. that is reversing. we got to get to speaker boehner right now who is speaking, of course, on the potential i would assume for congressman ryan to take over. let's listen in.
i'll come back on the other side and give you more on valeant. >> -- for our troops in the kridkri critical mission they have ahead. >> good morning, all. quickly give you a little snapshot of what we have this week. i know we have a lot going on, a lot of other issues you what tonight talk about. >> that went well. >> that was quite edifying, wasn't it? that's the problem with me talking too much. but let's quickly finish on valeant -- >> the blooiottom line is octob 28th is the date of the full vote. the 28th is the day of our debate. it will set up an interesting discussion. >> and the fed meeting. >> ryan has not said he will take the job. >> he will take it under certain conditions. >> we don't know the conditions will be met. it's a discussion that's up in the air. >> i don't know what their other options are? >> a fight because they like to fight. >> back to valeant for a moment. let me, of course, don't forget, your money, your vote, october 28th.
valeant, let's take another look at the stock. i'm not sure if it has continued to move down or stabilized in any way. now it's in complete free fall. citron, which is a noted investment research firm that focuses typically on the short side, has come out with a report this morning, and listen, these are allegations, of course, and often times you don't want to be -- i can't be in a position to necessarily tell you whether they are true or not, but they're focused on a drug called filadore and they are claiming there is a connection between the two that is very close. it has to do with invoices that were sent from valeant to so-called r and o and they at least are claiming phantom accounts, smoking gun, all the kinds of things that would concern shareholders. let's give it some time here. let me take some time to take a look into this. but that seems to have sparked
the recent sell-off in a stock that's come off dramatically over the last few weeks. yesterday the company reported earnings. was it two days ago? there was great disappointment with what people believed was a change in strategy. valeant would say that's not the case but nonetheless, it is a company that has focused on not delivering a lot of r & d, raising their prices and now i'm told the stock is -- >> halted. >> halted. i would assume that's not news. it my be on an imbalance. >> stock circuit breaker. >> as an order of magnitude this is about $18 billion of wealth that has been destroyed in that move. just as a rough calculation. this is a big market -- >> down 40% in one week. ouch. >> yeah. and the stock, of course, the high on the year was $260 and it wasn't even that long ago that we were at that number. you're talking about a stock that is heavily owned by hedge funds amongst them, of course,
pershing square run by bill ackman. long time owner of this has been value act, the extraordinarily successful so-called activist fund. they have had board membership as well for a long time and they have been a key proponent for the strategy pursued by michael pearson. again, want to read through the citron report and do some reporting because i think that's important. >> i wonder how many times hillary clinton have been mentioned or marco rubio. >> they got caught in that as a result of turing pharmaceuticals and that incredible price increase for that small company but then a focus largely speaking on how often prices were raised by valeant and others of existing drugs that were required and immediately sent up in terms of the prices. so, yeah, they've been coming under some scrutiny and, again, in the presentation that came along with their earnings release the other day, valeant
seemed to indicate they were going to be spending more on r & d and their pineline and sort of a change to a certain extent that seemed to alienate on those who were focused on and believed in the strategy that had been followed so far to great success until recently by mr. pearson. >> we'll keep an eye on the stock and tell you when it opens. it has been halted down 27%. coming up, the consolidation continues in the chip sector. western digital buying sandisk for $19 billion. the ceo of western digital joins us for an exclusive interview right here. we'll be right back.
welcome back to "squawk on the street." i'm bertha coombs at the nymex. weekly inventory numbers are out, and they are even worse than some had feared. much more bearish. we had an 8 million barrel build in crude stocks. that was higher than any of the expectations, even higher than the petroleum institute's bearish number last night which was just over seven. of that we saw a 1.1 million barrel build it looked like at cushing, the delivery hub for
nymex. meantime, gasoline inventories fell less than expected, down 1.5 million barrels. distillates were down 2.6 million barrels. we're watching oil right now trading at just below $45, falling to $44 and change. already we were on the downside this morning with concerns about another sell-off in china with no move towards easing in china, and the fact that, carl, we have that opec technical meeting with nonmembers and it appears according to folks who were in that meeting that there was no discussion at all about trying to limit production or set some sort of price floor. back to you. >> thank you very much, bertha coombs. we're keeping our eye on shares of vrx. valeant has reopened after being halted for a circuit halt, down as you can see about 16%, 17% as this report from a firm called citron research makes some very
bold, bearish calls about the structure of the business model and lowers their price target to $50. we'll watch the price action to see if other analysts take stock of that and follow suit. >> calls the whole thing a fraud. pretty bearish although the loss is being cut a little bit, down 20%. >> still ahead, semiconductors a focus. western digital buying sandisk for $19 billion. the ceo of western digital will join us for an exclusive interview. we're back over this quick break.
i'm sue herera and here is your cnbc house update. john boehner has said october 28th is the date house republicans will select their nominee for his replacement. the full chamber will vote next day. last night representative paul ryan said he would be open to the speaker's job but only if republicans unite behind him. syrian president bashar al assad met with russian president vladimir putin last night to discuss future military operations. it's the first trip abroad for assad since civil war broke out in his country since 2011. israeli prime minister benjamin netanyahu is under fire for suggesting a world war ii palestinian leader convinced hitler to adopt his final
solution. the german government responded by saying the responsibility for the holocaust rests with germans. stanford engineers have built an electric delaurean to do research. if you didn't know it, today is the day the cast of requests back to the future 2" journeyed from 1985 to 2015. various events are being held across the country common rating that film. and you're up to date. sara, back to you. >> got some nike news on that later in the program as well op those self lacing shoes. i want to thank you, sue. a check on coca-cola. the stock has been unchanged. it's up now slightly after it reported profit that beat estimates at 51 cents a share though revenue missed. big problem for coca-cola is currencies. especially in the emerging markets where the dollar has strengthened against the chinese currency, brazilian currency and
the mekts cxican currency. one positive is the volume growth which is a key metric for coca-cola and for the beverage companies in general. 3% overall. that was driven primarily by noncano noncarbonated drink. soda continues to be a weak spot. one particular bright spot there was the packaged bottled water up 11%. i talked to the cf o kathy waller. she said macros continue to be challenging. currencies took a bigger chunk than expected, 8%. though analysts and investors are encouraged by the volume numbers and the aggressive productivity. diet cola is still a problem. she said, kathy waller, we're still having challenges with diets and lights, however it's not going anywhere. still the number two beverage and she believes we have loyal diet coke customers. she explained part of the volume
declines is consumers making the shift from diet coke to coke zero. it will still be a big question mark going forward as they try to rebalance the portfolio focusing more on sport drinks, focusing more on their premium dairy product, fair life, which is the cf o told me continues to do very well and they're going to continue to build a pipeline for this product. overall though, it's a pricing story when it comes to growth and profits. that is coke's smaller packages, more profits per ounce, and, of course, the cost cutting story. they still are in a transition year. so for a transition year executives are happy they're on strategy and living up to expectations and it looks like investors are, too. >> i'd like to lie permanently in a transition year. it's always a brighter year. >> from the stock standpoint it's basically flat. people are giving buffett a lot of difficulty owning that name, but better than deere this year,
american express, procter & gamble, and ibm. >> fast moving consumer goods are in difficulty overall not least because of china and the big move there is online. >> the share price performance, carl, a lot of it has to do with deal speculation. when you have deals like inbev, there was speculation they would go for the biggie and buy coca-cola. it doesn't look imminent but it has been moving stocks up especially in consumer staples. when it comes to loyalty schemes offered by the big four hotel groups, it looks like marriott is the most generous. in the first ever survey researchers make an apples to apples calculation of the dollar value of the payback you get per $100 you spend. their conclusion is that starward is the least generous of the big four, paying back
$6. $6.10. marriott pays $9.40. rewards for loyalty that are often seen as critical in the fight back against airbnb. researchers also found that the payback you get from each hotel group remains constant as you travel internationally which surprised them because that's not what you normally find when you survey airlines. >> frequent flyer programs typically are more generous for travel in the u.s. and less generous for travel overseas, and i was influenced by that practice of frequent flyer perhaps, and i expected it to extend to the frequent guest programs, but it does not. there was a consistency across the globe. >> idea works normally survey the airlines. you have the profit warnings, on the other hand you have intercontinental with good numbers. two other earnings before we go to break, and that is boeing
and general motors. boeing came out with a quarter that was better than expected. also raised its outlook. profit climbing 25%. obviously higher orders of commercial jets and then let's also check out general motors. another beat this morning on the top line. north america margins were a particular benefit. also china doing well despite the fact they had that charge for the justice department. both stocks are trading higher. general motors up more than 5%. >> when we come back, ferrari had its first trade at the nyse earlier this morning. stocks currently $56.55. we'll talk about that when "squawk on the street" continues.
dad: of course. kid: how much? dad: i don't know exactly. kid: what if you're not happy? does he have to pay you back? dad: nope. kid: why not? dad: it doesn't work that way. kid: why not? vo: are you asking enough questions about the way your wealth is managed? wealth management at charles schwab wanted to update you on
shares of valeant which have been extraordinarily volatile all on the downward side of things. have reopened after being down 27%. briefly halted on various breakers and things of that nature. reopened but still down enormously. this is a company that has lost well more than half its value. in fact, the stock was up around $250 a share not that long ago. now down to around $125. the latest reason, a report from citron, this is a company that does tend to focus on short selling ideas alleging any number of things and very incendiary language talking about relationships in terms of ownership with specialty pharma or i should say -- yeah. dispensaries so to speak of pharmaceuticals that are owned by valeant, not that rare a thing actually to actually have your specialty pharma owned by
the specialty pharmaceutical company. nonetheless, coming to an allegation that involves channel stuff, and we've heard nothing back yet from valeant. i have encouraged their executives to provide some sort of response here. the stock coming back rather sharply as you see right now. also hearing valeant which just reported earnings a couple days ago can start to buy back stock, may be doing that quite actively right now in terms of pursuing its buyback. that stock now well off the lows but still down over 13%. simon? >> let's just have a quick check on where we are with ferrari. the big news of the day, ipo'ing within the last hour. actually deflating somewhat but still at $56.99 as you can see. more "squawk on the street" after this.
looking at a gain of 10%. >> that was an $11.5 billion market cap at the height coming back down towards the $10 billion where they priced. >> but overall, if you're a banker on this ipo or management, got management, you got to be happy. it's a successful debut. we're also watching shares of chipolte. they missed earnings numbers after the bell. escalating cost. for more let's bring in david palmer at rbc capital market. this has been one of the hottest stocks. last year we were seeing 15% to 20% same store sales rose. what happened in the past year? >> there was volatility in the stock as well. we're seeing it again this quarter as people are digesting the trough of their same-store sales cycle as they're lapping these monster same-store sales a
moment ago. what is the real earnings and comp growth going to be over the next year for this? the exit rate in october. >> is it healthy? obviously it's expected as the suspect has expabded to almost 2,000 stores, but is there a bigger problem here when it comes to their control of spending, their expanding even farther? can they actually capture the sales growth that they need to bring the stock higher? >> you know, there's some very real evolutionary things going on here.
>> mobl order seems like a good opportunity. they just hired the chief information officer from starbucks, and it looks like mobile order will be an emphasis in the years ahead and is an opportunity for comps. >> would you be buying on this dip? >> we would be. we think this is a stock that trades volatile on these earnings and trades disproportionately on the weeks after the quarter? this is an opportunity to buy a long-term grower in low 20s earnings growth, and it's reasonable in the low 30s pe range with something in this return and this sort of growth. how much of the interest in the stock is what you could call hot money that might leave suddenly? how worried should people be about that? >> well, it's something that gets traded around a lot, and the visibility the street has on
comps is one of the reasons you see that volatility. the fact that these guys could update us on recent weeks and the stock gets knocked around by 6%, 7% is evidence of the low visibility on that. going forward, there's reasons to hope that the comps will reaccelerate. certainly the comparisons get easier, and they're going to be doing stuff on mobile order. this brand is the choice of a new swrrgs. it's the millenials favorite fast casual brand. there's reasons to really be hopeful that they're going to get it going on comps. >> i know you cover mcdonald's, and you have been positive on mcdonald's, david. investors have jumped on the bandwagon here with you. are you expecting them to spin off some real estate? what's the next catalyst for this stock and to continue the momentum? >> yeah. you know, with mcdonald's, their sales are doing well since the all day breakfast where are their sales got a boost in september. probably because the competitors discounted less. some that is feeding the sentiment on mcdonald's.
it's hard to know how it's going to -- their analyst day in november will be a little bit more of a catalyst and a clearer view as to what this company is going to be doing into 16 which is probably the turnaround year for these guys. >> dave palmer, thanks very much. rbc capital markets on restaurants. >> singenta -- investors are disgruntled. they pressured the ceo out of his job. the cfo will take over temporarily. it's up in europe about 6% as things stand at the moment. maybe mondaysanto will go back. do you think, david? >> no time soon. >> because of takeover rules? >> they really gave is t a strong shot and gave if a lot of
effort. it can be very distracting, and so i -- my anticipation is they won't do it for a bit. shares actually up. it's about $19 billion. continuous. a lot of consolidation that we're seeing in the semiconductor industry. specifically in this part of the industry. here to shed light on some of the details of the deal, steve milligan, ceo of western milligan and will be the ceo of the combined company which will be -- continue to be head quartered in irvine, california, where with they had a lot of traffic basically from what i understand. >> why did you want to own san disk? >> one of the things we've done -- our story is really all about what we're seeing from a digital data perspective.
today western digital has the broadest array of digital data storage devices in the market, but there are segments in the market that we have not been able to participate in and that is really those markets that take advantage of the solid state device and solid state market and so we wanted to make sure that we had a broad portfolio of products to take advantage of the data explosion that we're seeing in the tech market today. >> part dependent on the recent investment you announce coming in from uni -- splend o. that's leading some to think is that deal not going to happen? let me ask you the question, is that deal in jeopardy of some
kind. we do need to get through the regulatory approval process that will take a little bit of time, but we feel very good about the way that we straushgted that transaction from a -- we're highly confident that that money will be approved and that transaction will be approved as part of the process. what gives you the confidence -- >> we've done an extensive amount of analysis as it relates to the sandisk -- we've looked at it. we will be able to get cost benefits as it relates to being vertically integrated, as it relates to our enterprise business. also, we do think that there's
some operating expense synergy that is we'll realize. we're highly confident in our ability to realize the $500 million financial synergies as part of the transaction. >> you know, today we also got some guidance from sandisk itself. it preannounced what some people are calling sort of mixed results. not bad on the top line, but people are a bit concerned about the gross margins. is that a concern at all for you? >> sandisk has run into execution problems, but we believe that from a long-term perspective, this is a great transaction for us. it's a great transaction for our shareholders. it's a great transaction for our customers. we're very comfortable with the long-term view as it relates to our company and the perspective for the combined company. >> you're going to be running with a decent amount of debt. won't be investment grade. will you delever it quickly. any concerns at all in terms of
running somewhat highly leveraged technology company? >> well, we evaluate in theed very carefully. we -- we have been very careful allocators of capital over a number of years, and obviously this is an incredible -- increased amount of leverage for us, but we're highly confident in our ability to generate free cash flow over time. we'll look to that to quickly delever the balance sheet. and position this for further growth opportunities as we go forward. we're very comfortable with the financial terms of the transaction. >> well, it's all a response to that explosion. our story over the next several years has all been about how do we take advantage from company
perspective, how do we take advantage of a technology perspective, this explosion that we're seeing from a data perspective. we want to make sure that we have the broadest set of stories devices in the industry. we want to make sure -- we want to use that platform to create even more unique devices for our customers and add even more value. fundamentally, this transaction is all about the growth and digital data that all of us are seeing in our personal lives and from a business perspective. that is really the fundamental thesis behind this transaction. >> later is a third quarter close. it doesn't seem to face any significant anti-trust hurdles to close. where give us so much time in temz of potential when you can close the deal? >> well, obviously we're going to look to close the transaction as quickly as we with can. western ta