tv Nightly Business Report PBS November 5, 2013 1:00am-1:31am PST
mathew mart this is nightly business report, with tyler mathisen and susie gharib. brought to you in part by. street.com, up to the minute stock market news and indepth analysis, providing objective opinions daily. learn more at street.com. lockout for blackberry. the device maker takes another hit. the tentative deal collapses, the ceo departs, the stock plunges, what happens next to the company that put the smart in smartphone. and snap, crackle, and no pop. kellogg cuts jobs as competition heats up. now, the company has a new plan to win back all the breakfast dealers. and guilty plea, sac, one of
the most profitable company, admits to wrongdoing and is set to pay a record fine. all that and more tonight on "nightly business report" tod on monday, november 4th. good evening, i'm tyler mathisen, it was not all that long ago that blackberry was the envy of the tech world, everybody wanted one of the oh-so-cool smartphones. but that was before apple's iphones and smartphones and android, offering faster access to the internet. shares saw modest gains and big names did consider buying the company. but now everything has changed. the company is not for sale anymore. its ceo is on the way out and its biggest shareholder wants to pump a billion more cash into
it. shares fell no more than 16% today to a ten-year low. so can blackberry be saved. josh lipton has the story. it is a dramatic fall from grace for a company that basically created the smartphone craze. everyone had them at work. but now blackberry is a shadow of its former self, with a market cap at just $4 billion, a 95% drop in just five years. big changes announced today. the ceo, thorston hynes will be ousted. they say that hynes is really the fall guy for the company's troubles. >> he can get blamed, but my position is the structure was largely locked in place from years previous. >> the question is, what happens next. we could still see a so-called take-under, meaning the company
sells itself on the cheap below the sale price. another option, sell off pieces like the patents and messaging services. one spokesperson said the company could exit the hardware business and concentrate on just software and services, but it looks challenging. >> at least in the near term, blackberry has very limited options. and they are just two moving parts of the puzzle. but longer term, i think these guys have the ability to create a niche within the mobile space. >> investors are seeing what the strategy will be, the question is, how much cash did blackberry burn, how many subscribers are left? how many people abandoned the platform? stocks posted modest gains to kick off the new week, inching closer to last week's highs, the gains were just enough for all ten sectors to close up, the dow finished up 23
points, the nasdaq was up 14, and the s&p 500 added six. investors were closely following the words of a top official today. james bullard said the plan fos tapering back the stimulus plans will indicate what he called cumulus progress in the job market. >> this notion of cumulative progress is the one you want to think about. and we have had coupumulus progress, every job report shows there are more jobs being created. and the tick down of the unemployment rate means the probability of a taper goes up. >> and mr. bullard said the central bank should not rush to pull back just because inflation is so low right now. and another official is blaming washington for the slow economic recovery. in prepared remarks to economists in australia today,
richard fisher said an ineffective and fiscally irresponsible government has calculated the fed's money stimulus measures. unlike the rest of the economy, he says the federal government moves with the adaptability of a koala, without being anywhere near as cute. meanwhile, washington says they need to borrow more money, $2 billion more than forecast for the quarter, expected to issue $266 billion of new debt. the treasury also says it is expected to issue another $265 billion in debt for the january to march fiscal quarter. and with the major stock averages near record highs and so much money going into equities, a lot of money is coming out of bond funds. so much so that now bill gross' pimco total return fund is no longer the world's biggest
mutual fund. they reported $4.4 billion worth of outflows for the quarter, the sixth consecutive month of draws. it is still the world's largest bond fund. and millions heading out without breakfast, they are forcing kellogg to cut 7% of its work force. profits still rose last quarter and shares rose a fraction higher today. dominic shue takes a look at cost savings for the company. >> reporter: those job cuts are a result of slowing business at one of the nation's biggest food companies. kelloggs, which is home to brands like eggo waffles and cereals says it is part of the broader effort to reduce costs. it expects to save in the range of 1.2 to $1.4 billion.
the ceo says that kellogg is making tough choices about expenses in order to position itself for growth opportunities down the line. the company is dealing with the same head winds other companies are dealing with, including changes and slower consumer spending, first, the competition among the cold breakfast cereals is stiff. for the most part, the products are different, but not that different, second, the product has evolved and become more complex. just look down your grocery store item and notice many granola bars, nutrition bars and shakes and countless yogurt bars. and that doesn't even include other items that are gaining in popularity, think starbucks with mcdonald's in the mix, with the dollar menu, investors is saying that kellogg is doing what it has to to move forward.
>> margins are getting squeezed and squeezed. margins are down. >> reporter: cost cuts are just part of the story. now kellogg needs to figure out how to add a little more snap, crackle and pop to its gross sales reporting. and another big household name paying out big bucks to settle allegations. johnson & johnson will pay $2.2 billion to settle criminal charges that it marketed a powerful anti-psychotic drug to children, even paying for kickbacks to use the drugs not approved by the fda. and another massive settlement paid by the hedge fund sac capital, $1.1 billion to resolve claims on hedge fund
issues. >> reporter: today's settlement between government prosecutors and the hedge fund sac capital is significant for a number of reasons. for one thing, the size of the fine, the $1.8 billion and the guilty pleas to four counts of securities fraud and one of wire fraud are unprecedented in nature. but a key bit of context here is that sac is truly a major player, managing $6 billion at its peak a year ago, employing a thousand people, and some accounting for the stock trading value on any given day. now that papers have been filed, two federal judges must approve the deals and schedule procedural hearings, including one where representatives of sac will actually plead guilty. one that happens, sac will begin the process of returning all the money it manages from mikhail youzhny investors, which could take up to two years and will be monitored by a government approved compliance officer. after that, it is free to become a so-called family office,
managing money to certain employees and family, as well. cohen, by the way, is a notable omission in today's case. and a number of reporters today asked the attorney why. he assured that the investigation would go on. he also quoted gordon gecko. >> greed sometimes is not good. and there are at least 75 convicted insider trading defendants who today would likely agree. but the individual guilt is not the whole of our mission. sometimes, blameworthy institutions need to be held accountable, too. no institution should rest easy in the belief that it is too big to jail. >> tough words indeed for both sac and its founder. for nightly business report, i'm kate kelly, in new york. steven cohen is not just a high-profile defendant, he is
also a high art collector, a number of works at christies. we'll bring you more details on the art world later in the program. also ahead, as twitter prepares to start to trade as a public company, which other tech companies might be next. interest is growing in twitter's initial stock price offering, today, twitter boosted the range of the price from 23 to $25, up from a previous plan to offer shares from $17 to $20
apiece. and despite the boost in the expected price range, interest in twitter may be waning just a bit. a new poll found that nearly half of all investors fear that twitter will be a bad investor, while only 6% think it will be a good investment, and only 35% of investors believe that twitter will be successful about five years from now. and about half believe that the rival, facebook, will be successful in the next five years. and shares expected to climb wednesday night, after twitter, what is the next technology company to get talked up in silicon valley? john fort takes a look. >> reporter: as the business world prepares for a twitter ipo, which we expect to price in just a few days, lots of questions about what kinds of tech companies may be next in the pipeline. what we probably won't see are a lot of prices with companies like twitter, many are in the
category and are not exactly chomping at the bit. >> i think we'll see fewer consumer companies, they're waiting longer. i mean, drop box is a good example, if you know the underlying fundamentals of the story, they could have been a public company a while ago and are obviously waiting until they're further along in the cycle. there is no reason for them to be public. on the other hand, there is just a wave of products and infrastructure. >> why? a lot of those companies have done well lately, including work day and splun k.they named a couple of companies that fit the profile. box is another enterprise start-up we'll hear a lot more from in the next year. so what about the consumer names? many like drop box and evernote
seem focused on working the kinks out of their investments. younger companies that are pretty far from going public, still paying attention to revenue. >> the platform is explicitly focusing on shopping. the customers say why would we go anywhere else when we can get the shopping right here? we do know we convert very well. >> they may not be anxious to go public, but if twitter goes well, there will be a lot more names out there to take the plunge. and whether it is another tech ipo that grabs investors' attention, the ipo market is the strongest it has been since the financial crisis began. but how do you know when or when not to buy into an initial public offering? joining us is jay ritter, cor
cordell professor of finance at the university of florida, professor ritter, good to have you with us. let's get one thing straight here at the top. who can get in on an ipo and who can't? >> the ipos are generally allocated to the most profitable of brokers, whether it is an institution or an individual. if you're not a profitable customer it is very difficult to get in on the most desirable ipos. >> approach, though, if the company goes public and say trades for a day or two, how do you know whether or not it is a good idea to get into something so newly issued? >> you don't. there is a lot of risk with young companies, twitter, for instance, might be very successful. or it might have temporary success like blackberry, and then run into some big problems. with any individual company, especially a young technology company it is very difficult to forecast the future. >> what are the facts with
respect to whether ipo's trade typically higher six months, two years, than they do on their opening day or lower? >> on average, ipos do jump up on the first day of trading, although it doesn't happen with all of them. but then once they have started to trade, they're basically no different than any other stock. the ly types of ipos that consistently under-perform are companies that are very early in their life cycle. but a company like twitter, which has already demonstrated that it can have annual sales of at least $500 million has demonstrated that it has a product that is generating revenue, even if it has not generated profits yet. but just like any other company, whether it is apple or blackberry, it could go up. it could go down. >> yeah, professor it seems to me that not all ipos are created equal in that there are a number
of companyies that have come public, where the insiders, those who work at the company, those who founded the company, hold an extraordinarily high number of those shares. i would assume that that is very important to pay attention to. because i think a lot of people think that once a company goes public that all of those shares are offered to the public, but that is not always the case. >> correct, usually it is the company issuing some or all of the shares, as in twitter's case. but then, roughly six months after the company goes public the pre-issue shareholders that do did not sell in the offering whether it is a private firm or venture capital firm or employees, they then typically start to sell some of their shares. in the case of top executives, they typically sell some, but not all. >> let's say i'm not one of those favored customers,
profitable customers and i can't get the allotment of the initial shares, should i try to buy into an offering maybe on the first day of trading, or maybe on the second day. should i feel like that is not that big an advantage? >> it is no different than buying any other stock once it starts to trade. there is a danger with companies such as twitter, where investors have built in very optimistic expectations. the company basically has to execute
or it's going to be a disappointing investment. >> all right, professor ritter, thank you very much for joining us. jay ritter, professor of finance at the university of florida. and one big tech executive speaking out against speaking at one of the data bases. google's chairman, eric schmidt, said that widespread spying by the government on the company's
spying would be wrong. he said his company has registered complaints with the nsa, president obama
and congress. and one of of the country's big home builders is where we begin the focus, tri-point homes is buying it for $2.7 billion, the transaction will give tri-point access to land in key markets and make the company one of the ten biggest markets in the united states. the shares rose to 15.16, wearhouse up a fraction, to 3730. and shares of cisco rose, the giant faced higher food profits and business, which was down from last year, the stock went up more than 4% to 33.96. and active investment certainly working for icahn,
they say now is the time to be an activist investor because of local rates and management at u.s. companies. shares at icahn rose to 108.95. and a comeback helped vulcan. their net income more than doubled in the third quarter, revenues trumped consensus. the stock became the best performing stock in the s&p 500 today. and lululemon's problems surfaced again today. they are hit with complaints that some of their pants are see-through, shares plummeted when they had to recall their new line. shares rose 2% to 69.33. and we've all heard the stories about the problems with
the healthcare.gov website. now a new poll shows what people's experiences with the on-line marketplace insurance has been like. 65% of people eligible say they are aware of the marketplaces. but only 17% have actually logged on to check out the options. also, roughly one in five investors to the sites, according to the poll, actually enrolled in a new plan. for anyone looking at sears, they announce they will open their doors at 6 a.m. on local time thanksgiving day and stay open round the clock through 11:00 p.m. on black friday. and coming up, buying jefferson the most sought after pieces, as the fall art buying season gets under way.
the justice department is looking to avoid a trial scheduled to start this month regarding the u.s. airway's merger. they are currently talking to both carriers, pushing for them to divest some of the key carriers. as a condition for dropping the lawsuit. as an example, in the complaint to stop the merger, the justice department said the combined mergers would control 60% of the landing and take-off slots. shares went higher for both. and if you can't afford to fly, driving just got a little
cheaper. the price of gasoline is at the lowest, averaging $3.20 nationwide. triple a reports that 35 states now have stations posting prices less than $3 a gallon. and honda voluntarily recalling 400 mini vans to fix a software glitch. the mini vans from 2007 and 2008 can experience a build-up of pressure in the braking system, leading to sudden and unexpectedly hard stops without the brake lights going on. and finally tonight, it is fall, the busiest time of the year for high-end art auctions, two of the nation's biggest houses, sotheby's and christies, are among them. >> it is the auction season again in new york city. the big auctions this week and next expected xt top more than $1.6 billion that would surpass last year's total of $1.2
billion. so what is selling? as far as top price paintings, it is wall to wall warhols's. christies is selling it for between 40 and $60 million. what makes this special, warhol this painting d by hand, rather than done with a silk screen. warhol's car crash is expected to sell for 60 million, the only one of its kind in private hands, and there is one for between 20 and $30 million. there are some non-warhol's among them. christies is selling one from between 60 and $80 million, but it could sell for a lot more. there is another barnet/newman.
this one could get from 18 to $25 million. and this is a favorite, the balloon dog, in orange, from between 35 and $55 million. it is 12 feet tall. we'll see if the market whom some say is a bubble, will keep floating. >> you know, i don't have a room for it in my house. >> why not the front lawn? >> well, i guess i could put that on my front lawn, the neighbors would love it. you would have to dust it, though. >> i know, i'm more of an impressionist type of girl, if you will. >> it will be interesting to see some of the prices and how hot andy warhol is. >> all right, that is it for night lly business report. i'm sue herrera. nightly business report harass been brought to you by
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