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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Thrown into question. The government issues tough new tax rules that threaten Pfizer`s $160 billion takeover of Ireland`s Allergan (NYSE:AGN).
For rent. Why the hot market for apartments may be cooling off.
And weird write-offs. Yes, some oddball deductions that could save you money as Tax Day approaches.
All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, April 5th.
Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen will join us with a report from Seattle in just a few moments.
But we begin in Washington where the government is getting tough on tax loopholes. President Obama is urging Congress to take action and stop American companies from taking advantage of regulations that allow them to pay a lot less in taxes.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I`ve been pushing for years to eliminate some of the injustices in our tax system. So, I`m very pleased that the Treasury Department has taken new action to prevent more corporations from taking advantage of one of the most insidious tax loopholes out there and fleeing the country just to get out of paying their taxes.
(END VIDEO CLIP)
HERERA: While Congress has been slow to act in the past, many see the Treasury Department`s new rules as taking direct aim at Pfizer`s $160 billion takeover of Ireland`s Allergan (NYSE:AGN). That sent shares of Allergan (NYSE:AGN) tumbling more than 14 percent while Pfizer (NYSE:PFE) shares rose.
Meg Tirrell has more on whether this crackdown could potentially crack the biggest pharmaceutical deal ever.
(BEGIN VIDEOTAPE)
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was the third set of rules as urged by the Treasury Department to curb so-called "inversions", mergers designed to move an American company`s tax base overseas. And many say this time they`ll succeed in stopping the biggest inversion deal of all, Pfizer`s merger with Allergan (NYSE:AGN).
LES FUNTLEYDER, ESQUARED PORTFOLIO MANAGER: I`m leaning with the market which suggests the deal looks mostly done as in not going to happen.
TIRRELL: The deal was worth $160 billion when it was announced last November. And that`s a more stringent structure required by earlier treasury rules to allow Pfizer (NYSE:PFE) to invert.
Allergan (NYSE:AGN) shareholders would own 44 percent of the combined company. But the new provisions would change that, prompting many to assert Treasury specifically targeted this deal. The rules are complicated but they come down to how big the foreign company is compared with the American company.
The new guidelines would exclude acquisitions made by the foreign company of U.S. assets in the last three years. This would mean two megadeals Allergan (NYSE:AGN) completed in 2014 and 2015 wouldn`t count in calculating its size compared with Pfizer (NYSE:PFE), putting it back under the thresholds that would allow Pfizer (NYSE:PFE) to invert.
FUNTLEYDER: It makes the action less valuable for Pfizer (NYSE:PFE). And so, I would expect that Pfizer (NYSE:PFE) would then walk away without the benefits of the tax minimization strategy.
TIRRELL: Pfizer (NYSE:PFE) and Allergan (NYSE:AGN) said in a joint statement last night that they are reviewing the Treasury`s actions and won`t speculate on any potential impact.
As for Pfizer (NYSE:PFE) and Allergan (NYSE:AGN) on their own, most analysts see bright prospects for both. Pfizer (NYSE:PFE), they say, could potentially split itself into two smaller companies. Allergan (NYSE:AGN) is close to closing the sale of its generic business to Teva, with more than $40 billion in proceeds headed its way. Both are expected to remain buyers if they remain independent from one another.
And this deal may be thwarted by the new rules, President Obama said today the only way to stop inversions completely is for Congress to enact tax reform. Lowering the corporate tax rate in the U.S. appears to be just about the only thing both sides agree on.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
(END VIDEOTAPE)
HERERA: One well-known businessman made clear what he thinks about so- called inversions and the corporate tax code.
Tyler Mathisen spoke to him at an entrepreneurial conference in Seattle.
(BEGIN VIDEOTAPE)
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Hi, Sue. I`ve spent the day, as you know, in Seattle, at the Iconic Conference, a celebration basically of entrepreneurship. We had one of the most famous voices in entrepreneurship here today. And I asked him view about tax inversion.
Listen to what Kevin O`Leary of O`Leary Financial and "Shark Tank" fame had to say.
KEVIN O`LEARY, O`LEARY FINANCIAL GROUP: We are the most uncompetitive corporate tax rate in the world today. And so, our great companies like Pfizer (NYSE:PFE), which have billions of dollars they want to repatriate to bring back home to America can`t do it. That`s problem number one.
Number two is they`re not competitive. They don`t have the save income statement that all their competitors have. So, we`re at a disadvantage. We can`t spend as much because we`re paying so much tax.
The last administration was focused on the distribution of wealth and health care. That mandate is over. The next administration, man or woman, who`s ever running America, must fix our corporate tax rates or we will fall to the wayside of competitors globally and Pfizer (NYSE:PFE) is a case study.
MATHISEN: O`Leary is certainly not alone in believing that it is imperative that we fix or corporate tax system, whoever the next president may be.
From Seattle in the Iconic Conference, Tyler Mathisen, NBR.
Back to you, Sue.
(END VIDEOTAPE)
HERERA: Thanks, Ty.
Well, we just want to point out that Kevin O`Leary is also a shareholder of Pfizer (NYSE:PFE) stock.
The president today also said tax avoidance is a huge problem worldwide and not just a strategy used by some American companies to lower their tax rates.
(BEGIN VIDEO CLIP)
OBAMA: Tax avoidance is a big global problem. It`s not unique to other countries because, frankly, there are folks here in America who are taking advantage of the same stuff. A lot of it`s legal but that`s exactly the problem. It`s not that they`re breaking the law. It`s that the laws are so poorly designed that they allow people if they`ve got enough lawyers and enough accountants to wiggle out of responsibilities that ordinary citizens are having to abide by.
(END VIDEO CLIP)
HERERA: Eamon Javers has been following the story for us.
Eamon, the president tied tax avoidance today to the "Panama Papers". What`s the connection there?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, the connection is the difference between the elites and the rest of us. And that`s the theme you`re hearing playing out on the campaign trail in the Donald Trump campaign and also in the Bernie Sanders campaign among Democrats. You`re hearing this whole suspicion among American voters that elites somehow get a better deal than the rest of us get.
And that`s what the president was trying to tap into with that comment that wealthy people in corporations with better accountants and lawyers are out there playing by a different set of rules. That`s politically powerful stuff. We`ll see whether it works in this case.
HERERA: We saw the first casualty of the Panama Papers. Iceland`s prime minister was forced to resign. What do we know?
JAVERS: Well, a bizarre situation in Iceland today. We saw massive protests in that country, which was so hard hit by the global financial crisis, after the prime minister there, his name and his wife`s name showed up in these documents that were revealed over the weekend from a law firm in Panama, which sets up shell corporations.
The political pressure on the prime minister there was intense to step down. His deputy said he was going to step down. And then he later clarified may be he wasn`t going to step down. Maybe must a temporary basis. But in the end, it appears he has succumbed to the political pressure and will withdraw from that office. That may be just the first of other presidents around the world who are impacted by this scandal.
HERERA: Yes. British Prime Minister David Cameron is also taking heat in his country. What did he say?
JAVERS: Well, he said he has no beneficial ownership. He doesn`t have any shares. He`s never used an offshore account.
But the reason he was forced to answer the question was because in the Panama Papers documents that were released over the weekend, his late father`s name shows up as potentially one of the people who owned one of those offshore accounts. So, Cameron, very clear in his comments today saying that he does not own any shares now. One of the questions is going to be, did he ever, did his family ever and what benefitted the family get historically?
HERERA: All right. Eamon, thank you very much. Eamon Javers for us in Washington.
Well, a rough session on Wall Street as stocks fell for a second straight day. The decline here followed a drop in markets overseas. So, by the finish, the Dow Jones Industrial Average was off more than 133 points to 17,603, the NASDAQ declined 47, I should say, and the S&P 500 fell 20.
Hiring in the U.S. reached a nine-year high in February. The Labor Department reported that 5.4 million people found jobs that month. That`s nearly a 6 percent increase from January and the most since November of 2006. More Americans also quit their job, a sign of a healthy labor market and worker confidence.
Growth in the services sector, which accounts for about 80 percent of the economy picked up for the first time in months. The Institute for Supply Management`s non-farming manufacturing index rose in March from the prior month. The report eases some fears that slowdown overseas was spilling over here into the U.S. economy.
HERERA: The housing economy and the red hot apartment market in particular is starting to show some cracks. Rents are still rising but not by as much. And a huge supply of new apartments coming to market nationwide has banks and developers nervous.
Diana Olick explains.
(BEGIN VIDEOTAPE)
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: At brand new Cathedral Commons in Washington, D.C., 94 percent of the 145 apartments are filled. High end buildings like this one are multiplying fast, and that is taking a toll on what have been red hot rising rent. Annual rent growth in first quarter of this year was 4.5 percent. Still strong but a significant slow down from the 5 percent annual gains in the previous quarter. Vacancies have been rising now for three straight quarters.
RYAN SEVERINO, REIS, INC.: Banks are starting to pull back on construction lending. So, I do believe that banks are somewhat concerned as it relates to the amount of dollars they have out on multi-family properties right now.
OLICK: New construction during the first quarter of this year was at the highest level since 1999 when REIS started tracking this. Over the last 12 months, just over 200,000 new units were completed, the highest year over year tally since 1988. That has banks who lend to this market worried.
WILLY WALKER, CEO WALKER & DUNLOP: Supply is really starting out strip demand. Contrary to some of the conventional wisdom, there isn`t this insatiable pool of demand because of the significant number of millennials. And not that there aren`t a lot of them, but it`s not infinite.
OLICK: Which maybe healthy for the high end glut, but not so good for young renters, because the supply of affordable rental housing is still very low. Still, some argue that the oversupply of luxury buildings like this one will actually fuel more affordable housing.
SEVERINO: The way you create C class properties is add new A`s and the A`s turned to B`s and the B`s turn to C`s. And so, quote/unquote, "affordable housing" and building affordable housing, there are very few developers out there that are building affordable housing. So, what happens overtime is you get new supplies of A`s which push everything down.
OLICK: That however takes everything down, which means that while the rent burden may ease for some high end renters, those struggling most will get no relief.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
(END VIDEOTAPE)
HERERA: Still ahead, cord cutting, declining cable viewership as if Disney (NYSE:DIS) shareholders didn`t have enough to worry about. Now, there`s something else.
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HERERA: Ford will invest more than one and a half billion dollars to build a new plant in Mexico. The move will create more than 2,800 jobs by the year 2020. The automaker says it remains committed to adding jobs in the U.S., even as it expands south of the border. Ford has been criticized by GOP front-runner for its manufacturing operations outside the U.S. Today, Trump called Ford`s move a disgrace.
The governor of Mississippi has signed a controversial Religious Freedom Bill into law. Governor Phil Bryant signed the legislation despite opposition from gay rights groups and some businesses who say it`s discriminatory. The legislation allows businesses to deny services to members of the gay and lesbian community based on religious beliefs. North Carolina recently enacted a similar law.
And in response to that North Carolina law, PayPal says it`s abandoning plans to expand into Charlotte. That move would have added millions of dollars to the local economy and create about 400 jobs. But PayPal says the new law perpetuates discrimination and violates the values at the core of PayPal`s mission.
From North Carolina to Ohio, where that state has seen its auto and steel industry slow. But now, the Buckeye State is reinventing its economy, shifting from manufacturing to a future in e-commerce.
Courtney Reagan reports from Troy Township, Ohio.
(BEGIN VIDEOTAPE)
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Part of the beauty of online shopping is the ability to shop when ever from wherever. And there is a hub for retailers to locate ecommerce fulfillment centers, not a major shopping area, but the Buckeye States.
FRANK LAYO, KURT SALMON PARTNER & RETAIL STRATEGIST: For new development fulfillment centers, Ohio is usually at the top of the list for retailers. If you`re going to have one distribution center, or one fulfillment center, they can serve most of the nation from that area.
REAGAN: Home Depot (NYSE:HD) says this Troy Township, Ohio location, allows it to deliver to 90 percent of its customers within two days. The choice to locate has added nearly 600 jobs to the area. And Home Depot (NYSE:HD) calls the labor force good when it comes to the availability of high quality employees.
LAYO: Our clients have, who have a fulfillment or distribution presence in Ohio typically have a more tenured or a more skilled work force, and the way that manifests itself is the labor productivity.
REAGAN: In the U.S., the growth rate for warehouse jobs has outpaced total job growth since the Great Recession. In Ohio, the industry contributed more than 3,000 job jobs, the largest gain since 2007. And the state`s many colleges and universities are adding programs. Some with help of federal grant money to keep those jobs here.
DOUG BOWLING, CINCINNATI STATE DEAD, CTR FOR INNOVATIVE TECHNOLOGIES: We just opened up our supply chain career development center. And it covers a variety of different training and educational opportunities in the supply chain logistics area. We offer training in forklift operation, or industrial truck certification, global logistics certificates, to one year certificates, to associate degree.
REAGAN: And while states compete with incentives for businesses to locate their operation, Ohio is often the top choice for retailers of late. The state now hosts nearly 800 warehouse and storage establishments, double those in Tennessee, though still fewer than Pennsylvania. Two other states considered ideal for distribution.
In addition to proximity to population and the strong labor force, Ohio is a less expensive option. The major interstates, rail lines and air cargo hubs make it less expensive to move goods into and out of state quickly. Plus, some private equity investors estimate tax incentives and cheaper land can save a retailer as much as 20 percent in operating costs.
Kurt Salmon retail consultant Frank Layo also says an added benefit is a collegiality of Ohio`s retail network, a group of companies even shared shipping containers during last year`s port crisis.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan, in Troy Township, Ohio.
(END VIDEOTAPE)
HERERA: Revenue at Walgreens Boots alliance misses estimates and that is where we begin tonight`s "Market Focus".
The drugstore is blaming a slow flu season for weak demand for cold medicine. Profit however rose, thanks in part to cost-cutting efforts and higher prescription sales. The company also raised its yearly guidance on its earnings. That wasn`t enough, though. Walgreens shares fell more than 3 percent to $83.36.
Some positive news for Valeant Pharmaceuticals. The company says it will not have to restate financial statements pertaining to pharmacy Philidor and that no outstanding issues were found in Valeant`s accounting practices. The company says it expects to release its 2015 financial report by April 29th. Shares rose a full 10 percent to $28.73.
Marvel Technology CEO and president have been ousted. This after an internal investigation revealed ethical issues within the company`s management. The co-founders are expected to maintain their seats on the company`s board of directors. Shares were up 13 percent to $10.88.
The Justice Department will reportedly file a lawsuit this week to stop the proposed merger between oil service providers Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI). As first reported by Bloomberg, officials will say the deal violates antitrust laws. The two oil companies have not commented on that report. Shares of Halliburton (NYSE:HAL) up a percent to $34.40, while Baker Hughes (NYSE:BHI) shares fell 5 percent to $39.36.
A surprise departure at Disney (NYSE:DIS). The company`s chief operating officer and heir apparent to CEO Bob Iger says he`s leaving the company. And the move has Disney (NYSE:DIS) shareholders concerned. The stock fell more than 1 1/2 percent in trading today.
Julia Boorstin has more on the big question mark now hanging over one of the most well-known and widely held companies.
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: Please welcome, Tom Staggs.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tom Staggs, heir apparent to Disney (NYSE:DIS) CEO Bob Iger stepping down from his position in May, shocking Hollywood insiders and Disney (NYSE:DIS) investors.
JAMES STEWART, NEW YORK TIMES COLUMNIST: Iger I thought he was doing a fantastic job as he`s done many aspects of management, and laying the groundwork for succession, a smooth transition, highly qualified, very popular, very smart, great candidate in Tom Staggs.
BOORSTIN: When Staggs was appointed COO last February, he seemed perfectly position to take over from Iger when his contract expired in June 2018. Staggs was CFO for a dozen years and well-liked by Wall Street analysts and investors, and then ran the parks and resorts division for five years, overseeing high tech wrist bands My Magic Plus, and laying the groundwork for the launch of Disney (NYSE:DIS) Shanghai coming up in June.
So, what happened? It had been a year since Staggs became COO, a source close to the situation telling me Disney`s board wasn`t ready to assure him he`d be Iger`s successor in two years. Without that guarantee and with the board wanting to explore other options, it didn`t make sense for Staggs to stay.
DOUG CREUTZ, COWEN & CO. ANALYST: It`s surprising and a little mystifying, frankly. I mean, Tom`s been a senior executive at Disney (NYSE:DIS) for two decades. You know, one would have thought that he was pretty known quantity and they evaluated him thoroughly and that he was the heir apparent, and obviously seems like the board made a difference decision.
BOORSTIN: Now, Disney`s board is making an executive search a to priority, saying it will, quote, "broaden the scope of the planning process to identify and evaluate a robust slate of candidates for consideration."
A source telling me Disney (NYSE:DIS) is particularly focused on looking for candidates outside the company, and that it`s far too soon for any speculation to be meaningful. And while Disney (NYSE:DIS) says Iger does intend to step down when his contracts expires, it`s possible that the acclaimed CEO could extend his contract again.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
(END VIDEOTAPE)
HERERA: Twitter has bought the rights to live stream ten Thursday night NFL games as they air on NBC or CBS (NYSE:CBS), beating out Amazon (NASDAQ:AMZN) and Verizon (NYSE:VZ). The win allows the social media company to stream the games through its app on mobile devices and game consoles without requiring users to sign up.
Matt Ufford, editor at large and video host with any sports news website SB Nation, joins us to explain what this means for Twitter and, obviously, for our viewers as well.
Welcome, Matt. Nice to have you here.
MATT UFFORD, SB NATION EDITOR-AT-LARGE & VIDEO HOST: Hi. It`s good to be here.
HERERA: So, what do you make of this deal with Twitter?
UFFORD: In the simplest terms possible, I`d say it`s a win-win in that Twitter, which has struggled a little bit on the business side, gets this great package in the NFL and the NFL, by giving it to Twitter, gets probably the best social media platform for responding to live events.
HERERA: Yes. They`ve been -- they really had a hard time growing their users base. That`s been disappointing to Wall Street and somewhat surprising initially to Wall Street. Does this help them achieve that?
UFFORD: I think so. The way that Twitter is going to air the games, you don`t have to be a user to be able to watch the Thursday night games. So, you can go and I`m guessing how they`re going to air that, you`re going to have the opportunity to sign up and make an account and talk with all the other people in sports media who are complaining about the Thursday night quality of the games.
HERERA: You know, they got this deal for a bargain when you compare what Yahoo (NASDAQ:YHOO) paid to stream one game last year, which was $20 million. Twitter got ten games for $10 million. Does any of that have to do with Anthony Noto who is the CFO at Twitter but was the CFO at the NFL?
UFFORD: Certainly, there`s a relationship between Twitter and the NFL. Last year, Twitter and the NFL came to an agreement by giving Twitter the right to air certain NFL highlights. But more to the point is that Twitter is going to be streaming the NBC or CBS (NYSE:CBS) feed. They`re not going to have the same advertising opportunities. When Yahoo (NASDAQ:YHOO) aired the London game last year, they were also responsible for the broadcast and all the advertising opportunities that came with that.
HERERA: We`ve talked about what it means for Twitter. But what does it mean for the NFL?
UFFORD: I think this just one more opportunity for the NFL to make sure that it is in every American`s face every day of the year despite there only being 16 regular season games a year. It`s a 365-day news cycle for them.
HERERA: How much does it have to do with international reach, she tried to say?
UFFORD: You know, that`s a good point. I think that last year game was streamed on Yahoo (NASDAQ:YHOO), 33 percent of the streams came from international users. I think that, you know, Twitter is the live social media platform, whether it`s Arab spring or the Oscars or the Super Bowl, this is something the world can use to react to a live event.
HERERA: All right. Matt, thanks so much. Appreciate it.
UFFORD: Thank you.
HERERA: Matt Ufford with SB Nation.
Coming up, they may sound strange but some oddball deductions may help you lower your tax bill.
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HERERA: Come tax season, everyone wants to know how to make the most of every deduction so they can lower that tax bill. So, we did some digging or Sharon did, and found a few very strange but very legal federal deductions.
Sharon Epperson joins us now.
Good to see you, Sharon, as always.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to be here.
HERERA: Are there any deductions that, you know, maybe fly underneath the radar, but are applicable to a wide group of people?
EPPERSON: Well, a lot of people are taking classes these days to reinvent themselves and their career, just to stay fresh with job skills, graphic skills, social networking classes, graphic design, maybe learning another language. You could possibly get a $2,000 credit on your taxes for taking the classes, a lifetime learning credit. So, that`s something to consider.
HERERA: Absolutely.
EPPERSON: The other thing that a lot of people --
HERERA: Does it count for common core math?
(CROSSTALK)
EPPERSON: I`ll get to the kids in a minute, I`ll get to the kids in a minute.
But pet moving expenses. When you move and relocate you`re changing jobs and moving out of state. You need get your pets there, too. Yes, you can deduct the moving expenses for your cat, dog, cat. That`s something a lot of people do not consider either.
The other one is smoking cessation programs. That, you may be able to have a deductible expense for that.
And one about kids that we know but we know that a lot of our friends don`t know is about summer camp. Your kids under 13 years old, you can take a child dependent care. If you have two or more kids, they`re under 13, up to $2,100 because they`re the day camp. Just to make sure you keep the records.
HERERA: Yes, exactly. You have to keep the records.
And that could cover, if it`s not sleep away camp, that`s a very expensive. But if it`s like a day camp.
EPPERSON: No, it`s only for day camp. It`s not for overnight camp, but it can cover a lot of the costs. Some of these day camps are very expensive as well.
HERERA: You know, do people -- what kind of documentation do you have to have with some of this stuff?
(CROSSTALK)
EPPERSON: Yes, I have to get to that. But for one, I have to tell you about some really crazy ones, first. Let me tell you about some really crazy ones that people don`t know, which is gambling losses.
You can usual -- you have to claim the income on the winnings, but if you have losses, that can offset that. The other one that`s crazy to people can`t believe is a swimming pool in your house that you might need for medical treatment. There has been case where someone has been able to deduct that expense.