tv Nightly Business Report PBS October 30, 2015 1:00am-1:31am PDT
>> announcer: this is "nightly business report," with tyler mathisen and sue herera. blockbuster deal. two massive drug companies are work on what could be the biggest acquisition of the year. anemic growth. what caused the economy toit the brakes and slow considerably in the third quarter. new way to invest. why ordinary people may soon be able to fund projects that were once out of reach and get a share of the profits. all that and more tonight on "nightly business report" for thursday october 29th. good evening, sxenks thanks for joining us. it could be a deal like no other. pfizer and allergan are in early talks to merge. the combined company would create the world's largest drugmaker. shares of both companies rose today, allergan gaining nearly 6%, as you see there, though
pfizer did turn negative late in the day. the potential tie-up is a complicated one, and it puts pfizer in a familiar position. last year it unsuccessfully pursued astra zeneca, but as meg tirrell reports it now hopes for a different outcome. >> reporter: pfizer confirmed today it's in friendly discussions about a potential combination with irish drug company allergan, the maker of botox. analysts expect the deal value could total $150 billion. this comes a year and a half after pfizer abandoned its $120 billion bid for astrazeneca. after the british drugmaker resisted its advances in a nasty month-long battle. many think allergan will be more willing. the company is led by serial dealmaker brent saunders, who in just two years has amassed almost $150 billion in deal activity. he started at eye company bausch & lomb where as ceo he sold the company to valeant for almost $9 billion in 2013. less than a year later at the
head of forest labs he engineered a $25 billion sale to activeus. after unexpectedly taking the ceo job there sanders bought botox maker allergan for $66 billion out from under competitor valeant. then he changed activeus's name to allergan. finally this summer he agreed to sell allergan's general ericks business to teva for about $40 billion. so why does this make allergan a target for pfizer? the new york-based drug giant has been looking for a way to lower its corporate tax rate. with allergan in ireland, pfizer could pursue an inversion deal, moving its headquarters overseas. and though the move would be bound to draw political scrutiny, analysts at bernstein estimate it could take pfizer's tax rate down from about 25% to 18%. an overseas deal would also let pfizer tap into its cash held outside the u.s. about 2/3 of its $30 billion horde. and analysts say it would strengthen the so-called innovative products part of pfizer's business. for a potential split of the company in a couple years.
not to mention blockbuster drugs in botox and alzheimer's treatment namenda. some wonder if it's an especially good time for dealmaking in the drug world with valuations depressed in the last few months. >> we've seen lots of negative sentiment on drug prices, on pricing for drugs andgs biotech products. that's created some pressure in the space, some lower valuations, and we think that that can help lead to some transactions. >> reporter: before the news today allergan's stock was down 15% in the last three months. but pfizer ceo ian reed on the company's quarterly earnings call this week said that just because valuations have come down, expectations haven't. that's why analysts peg a potential deal for allergan now trading around 305 at $350 to $400 a share. for "nightly business report" i'm meg tirrell. >> so why are we seeing a pickup in m&a activity, and who might be next? sidney dillard, the head of corporate investment banking at loop capital, joins us now to discuss her outlook. welcome, sidney.
nice to have you here. >> thank you. it's great to be with you. >> what is it in the backdrop right now that is making these deals so attractive? >> well, one of the things that always makes m&a attractive is just that companies are looking for how can we grow? now, in the pfizer allergan transaction that's been rumored -- or that pfizer has confirmed that they're having discussions, there's also the tax inversion opportunity for pfizer in terms of driving down their tax rate. but there's also an opportunity for them to get growth from products that they don't have and specifically botox, which is one of the world's best-known drug products. >> are they buying growth, or are they buying their way to higher earnings per share by cost cuts? or a little of both? >> both. so there's obviously -- there's definitely growth with the product set that allergan has and that pfizer's obviously
looking to fill in to its product set which hasn't been growingearly as much. allergan has probably like a 10% growth rate that they have, which is the highest amongst, you know, most of the pharma companies. so there's significant opportunity there that's obviously of interest to pfizer in addition to the tax inversion which could, you know, probably give them just pfizer's regular business about a billion dollars more to the bottom line. >> so who might be next if this m&a activity looks as attractive as apparently it does? what other companies are you looking at as possible merger partners? >> well, you could have -- let's throw this out here. so you could have -- google could be looking at uber or lyft as an example. or you could have yahoo! looking at yelp. you know, are the kind of names that we're all familiar with and we hear a lot.
if you could have things like that going on. you could have others in the energy sector, particularly, you know, kind of given what's going on in that sector and what's happened to valuations. so but you know, those are some examples. >> are these tax inversions, going back to the allergan-pfizer possible tie-up, are they good for america? >> reporter: that is a really interesting question. you may recall that when walgreen's and boots allianz combined, when walgreen's acquired butz allianz, there was a lot of talk about walgreen's doing a tax inversion with that acquisition. they ultimately decided not to. there was obviously a big firestorm in washington about that. i mean, i think ultimately, though, the ceos of those companies are focused on how it is that they create shareholder value. and so i think the bigger question is what their charge
is, and so that is their charge. if that's the charge they're focused on all the ways you'd do that including tax inversion. particularly dealing with what we're dealing with here in terms of our corporate tax rates in the u.s. >> sidney, thank you so much. appreciate your perspective. sidney dillard. on wall street stocks fell on mixed earnings results and weaker than expected economic reports. more on that in a moment. by the closing bell the dow jones industrial average fell 23 points to 17,755. nasdaq ended 21 lower. and the s&p 500 was off by nearly a point. to the economy, which slowed sharply in the third quarter. the commerce department reported modest growth of 1.5% from july through september. that marks a deceleration from the second quarter, which saw growth of 3.9%. hampton pearson takes a look at what's holding the economy back and whether investors should be concerned. >> reporter: a slowdown in
spending by consumers, and businesses cutting back on restocking warehouses due to an inventory glut were the key factors in an economy that cooled off in the third quarter. leading economists, however, say there's no cause for alarm because the inventory drag is temporary. >> this is going to be your first new car? >> and consumers are spending more on big ticket durable goods including automobiles. >> i think the composition underlying that top line decline was actually telling a more positive story. consumers were still out spending. businesses were still investing, albeit at a slower pace than we saw in the second quarter. >> but there are concerns the economic expansion could be losing steam. year-over-year economic growth is just 2%. and job growth has slowed. monthly job gains averaging just 167,000 workers over the last three months, compared to 260,000 per month in all of 2014. and wage growth remains flat.
factors that could impact future consumer spending. >> the fed has said that they understand transitory effects are depressing inflation, namely a stronger dollar and lower energy prices. these are transitory effects that are holding back economic growth right now. >> reporter: leading economists say to get out of the 2% rut better fiscal policy from the federal government is needed. >> a whole laundry list of things including tax reform, immigration, and other things that congress and the president could pass to get the ball rolling again. >> reporter: the two-year budget deal could be a start. it includes increased spending for defense and domestic programs, and it puts an end to market anxiety about the debt ceiling. for "nightly business report" i'm hampton pearson in washington. the number of homes that went under contract last month fell. the national association of realtors reports that pending home sales dropped 2.3% to the second lowest level of the year. that is the second consecutive
monthly drop. the national association of realtors attributed the latest decline to a shortage of home listings. the number of americans filing new applications for unemployment benefits rose slightly last week. jobless claims were up 1,000 to 260,000, a level that remains consistent with a strengthening job market. this is the 34th straight week claims were below 300,000. from the u.s. economy to china, where the leaders of that company approved a five-year plan that sets new growth targets and aims to double the size of the economy by 2020. as a way to stimulate the economy the government abolished a major social policy. eunice yoon reports from beijing. >> reporter: china has decided to end its policy restricting most families here to one child. instead, all couples across the country will be able to have two children. the government made the change at a major conference here where leaders got together to map out the social and economic agenda
for the next five years. the official state media said that leaders here wanted to address china's demographic issues, its rapidly aging population and its shrinking workforce, two problems that could act as a drag on growth. the change follows a reform two years ago when the government decided to loosen the policy to allow some families to have more children. but some demographics experts worry that this latest policy change is coming too little too late, and they say that as chinese people have become wealthier they're already choosing to have fewer children. the one-child policy is also considered a human rights issue. it's led to all sorts of abuses like stolen children and forced abortions. so some activists say this latest policy move is a step in the right direction to allow more people to have bigger families. for "nightly business report" i'm eunice yoon in beijing. >> and on that theory shares of baby formula maker mead johnson rose today. as many believe it could indeed benefit from the elimination of china's one-child policy.
the company generates nearly a third of its sales from china. that's the company's biggest market. william lee joins us now to talk more about china and the u.s. economy. he's the head of north american economics at city. bill, welcome. my question for you is is the u.s. economy slowing and is it likely to stay slow? and if it is, why is the federal reserve pointedly saying it will raise interest rates in december? >> well, tyler, i think the u.s. economy's actually doing quite well. it's growing in the 2%, 2 1/2% growth path. this quarter we actually had some good adjustments because we're trying to right the inventory drag that's been there because of the build-up in the first half of the year. so this inventory decumulation we're seeing is a good thing and puts the economy on a more balanced growth path. >> do you still feel, bill, as you did before that the u.s. economy is the most resilient around the globe despite the fact that europe has made considerable inroads to strength? >> in your intro you showed the
economy has mixed data. some data are strong, some are weak. that's exactly what we'd expect at this stage of the recovery. but overall this economy has been the most bulletproof economy we've seen in years. all of this changes we've made since the great financial crisis have really made the economy much stronger. >> so you see the 1.5% growth rate in the third quarter as the outlier to the down side and that the more sustainable rat of growth is what? >> i think the more sustainable rate is given by domestic final sales, which is close to 3%. so i think we are clearly in that path where aside from inventories the bit of bad news in the horizon would be the drag that we're going to get from the appreciated dollar and i think that's what the fed is also aware of as well. >> so do you think they will raise rates in december, or do you think they'll wait until 2016 or does it depend on the inflation forecast? >> i think the story that was told to us in this last october statement was so confounding it
was amazing. in september we were told they were ready to go because of the strong domestic economy but because of china and everything else they decided to wait. now we're told that, well, we are determined to move in december regardless. now, you've got to ask yourself, what is it that drives the fed? i'm pretty convinced it's the markets that drive the fed because it was the market reactions that caused the fed to be spooked, not china. >> let's talk about china. what do you expect there? this five-year plan i think has growth growing at about, oh, 6% or thereabouts the next few years. they want to double their economy by the year 2020. is that achievable? >> it's going to be a hope and a prayer right now, i think, because right now china's going through that awful transition of trying to move to a consumer society. given the population growth has slowed down. the slowing down is i think putting china on a much more su sustainable growth path and more consumption. and with more consumption you need more people to generate more income.
and that's where i think china's running into a problem. the elderly is becoming a greater and greater burden on china. what we call the dependency ratio. the number of old and young people that the young working-age population's got to support is starting to rise pretty significantly. so we think that this policy goes a little bit in that right direction. >> bill, interesting analysis. we appreciate it. william lee with city. thanks. >> thanks for having me. and still ahead, how committed are some of the world's biggest oil companies to their dividends? as they continue to face the new reality of low crude prices. ♪
♪ the oil super majors are starting to release their quarterly results amid the continuing slum np oil prices. conoco philips reported a wider than expected loss of more than $1 billion and made big changes to its spending plans. morgan brennan has more on the fallout for big oil. >> reporter: the energy row is take another bite out of oil companies. as the world's largest producers see profits plunge. take conoco phillips, the largest oil producer in the u.s. without refining operations. conoco today reported a net loss of more than $1 billion. it also again cut capital expenditures as it braces f oil price that's are likely to stay lower for longer. >> conoco, if you step back and look at it, did a pretty good
job of bringing their spending levels within their cash flows and certainly i think that's going to be more important and the focus will be on how do you maintain that in a lower for longer environment, especially with a company that pays almost $4 billion in dividends annually. >> reporter: and conoco isn't alone. uk-based oil dutch shell also reported huge loss for the third quarter, racking up $8 billion in impairment charges after it abandoned massive projects in canada and the arctic. as the price collapse continues to drag on, analysts say the trends are a little different than the previous quarters. >> production growth has started to flatten out, in some cases decline. and when you look at the big picture on both commodities, oil and natural gas, certainly it's all part of the balancing equation. we didn't see that in the second quarter. we saw growth and pretty rampant growth. now that's starting to slow down quite a bit.
certainly that's going to be the focus continually into 2016. >> and there will be more for investors to digest come friday, when the two biggest u.s. oil giants, exxonmobil and chevron, report results before the bell. analysts expect both companies to log their weakest third quarter profits in more than a decade. and like others that have reported already, the focus will be on production expectations and spending targets. yet despite plunging profits, suspended projects, job cuts and some asset sales, or maybe really with the help of them, some oil majors are maintaining payouts to investors. conoco phillips says it remains committed to its "compelling dividend," which is about 5%, and ahead of tomorrow's result both exxon and chevron have boosted their dividend. for "nightly business report" i'm morgan brennan. a disappointing outlook from starbucks is where we begin tonight's "market focus." the coffee chain's sales and profit growth came in strong, but for the holiday quarter the company isn't expecting results to meet analyst estimates. shares slipped initially in
after-hours trading before coming back slightly during the regular session. shares were off more than 1%. they finished at $62.50. linkedin beat forecast as the company gained traction in china. the social network for professionals earned more from its recruitment services and business and saw sales rise nearly 40% from the previous year. shares popped in initial afterhours trading. during the regular session they rose nearly 2% to $217. aetna reported mixed quarterlies, adjusted earnings topped consensus while revenue came in below forecast. the company did hike its full-year earnings forecast, despite reporting a slight dip in medical membership. shares up more than 3% to 114.86. and mastercard's numbers better than expected, but revenue was below consensus. consumer incentives weighed on the payment company's top line results. still the stock rose a fraction today to $100.59. mgm unveiled plans to create a real estate investment trust,
or a reit that will be made up of ten of its properties. the ceo explained the logic behind the deal. >> we got together with our advisers and thought about how do we create the most amount of value for all of our shareholders? we wanted to create not one but two really healthy companies that had great balance sheets, that had great growth potential. >> separately the company's earnings and revenues beat estimates. shares popped nearly 5% to 22.80. mixed results from sherwin williams. revenue was shy of forecasts but the paint company is upping its full-year outlook based on an increase in sales when compared to last year. the stock rose 4 1/2% to 258.11. a disappointing outlook weighed on shares of mxp semiconductor in today's session. the company is predicting a revenue decline in the fourth quarter, this as orders have fallen because of the slowing global economy. shares tumbled a full 20% to 73 even. and investors getting a chance
to react today to an earnings and revenue miss from gopro. the action camera maker also offered a weak holiday earnings outlook, but the ceo said a closer look at quarterlies showed positive signs. >> it's too easy to focus specifically only on the fact that we missed expectations for the quarter. it actually still is a terrific quarter. we grew 43% year over year for the quarter. for the first three quarters year to date. we're up 55% year over year. >> shares slid nonetheless by 15% to 25.62. deutschebank plans to shed 35,000 jobs. it will also close operations in ten companies. the german bank report aid quarterly loss of around 6.5 billion. today the co-ceo said the company's making some hard decisions, it's reorganizing to make it less complex, and hopefully more profitable. representative paul ryan has been elected the 54th speaker of the house. the vote today followed the recent passage of a sweeping
two-year bipartisan budget deal. the wisconsin republican replaces john boehner, who retires from congress tomorrow. in a speech following the vote ryan said there's a lot of work to get done. >> let's be frank. the house is broken. we're not solving problems. we're adding to them. and i am not interested in laying blame. we are not settling scores. we are wiping the slate clean. >> just nine hard-line conservatives voted against ryan. coming up, why tomorrow may ring in a new era of investing for ordinary people like you and me. ♪ ♪
♪ ♪ here's a look at what to watch for tomorrow. dow components exxon and chevron report earnings. a read on the consumer with the personal and consumer spending reports. also consumer sentiment is out. and that is what to watch for on friday. microsoft now plans a $13 billion u.s. bond sale. the tech giant's biggest ever. according to reports, the company, which has a aaa rating, will sell the debt in as many as seven parts. the longest portion is a 40-year bond that may yield 1.8%.
cvs and express scripps are cutting off association with valeant pharmaceuticals. claims have surfaced that valeant uses a fill called fillador. valeant has reviewed its practices but says it has hired a committee to review its relationships. shares sold initially in after hours. the securities and exchange commission is expected to approve a rule that will allow start-ups to raise money from ordinary people. the rule would lift a ban that only basically lets wealthy people invest in these projects. and while it may sound like the playing field is being leveled, as bob pisani tells us, there are a lot of risks involved. >> reporter: mom and pop crowdfunding for start-ups is about to become a reality. now, that's good news, but it also comes with a lot of red flags. tomorrow the s.e.c. is expected to issue a final rule that will allow small companies to directly raise debt or equity from friends, from families, and interested investors. this is a radical idea.
since the 1930s only accredited investors, these are rich people with a million dollars in net workout or who earn at least 200,000 per year, have been allowed to invest in start-ups. that's about to change, and soon anyone will be able to invest through websites called funding portals that will be maintained by broker-dealers. so think of it as kickstarter for non-public companies. but it's a little different than kickstarter. when you invest in a kickstarter project like a movie, for example, you don't have any equity in it. you only get a reward like a copy of the movie. but this is equity. you would actually own a piece of the company here. it sounds terrific, doesn't it? why should only rich people investing in hedge funds and venture capital firms and angel investors and all that be able to get in on the future ubers of the world? how about the middle class? so you can see why this is generating a lot of excitement. lefrnlth internet to grow companies, job creation, wealth creation, less red tape, less costly regulation, but you can also see why the s.e.c. has taken three years to look carefully at this.
how do you strike a balance between protecting investors against fraud and making the regulations so onerous that it's prohibitively expensive to raise money? we don't know. we'll find out tomorrow. for "nightly business report" i'm bob pisani at the new york stock exchange. and that's "nightly business report" for tonight. i'm sue herera. thanks for watching. >> and thanks from me as well. i'm tyler mathisen. have a great evening, everybody, and we hope to see you right back here tomorrow night. ♪
kacyra: it kind of was, like, the bang that set off the night. rogers: that is the funkiest restaurant. thomas: the honey-walnut prawns will make your insides smile. [ laughter ] klugman: more tortillas, please! khazar: what is comfort od if it isn't gluten and grease? braff: i love crème brûlée. sobel: the octopus should have been, like, quadripus, because it was really small. w sbrocco: and you know that when you split something, all the calories evaporate, and then there's none. whalen: that's right.