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and Rogue States; Cruz Says Voters have "Rejected" Trump; Clinton Looks to
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E.U. He says that democracy goes hand-in-hand with prosperity and that
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Elections; Business; Cyber Security>
[16:00:00]
RICHARD QUEST, HOST: Closing bell is ringing on wall street. Dow Jones is up over 113 points, it's a strong performance for the U.S. Market reversing some weakness over recent days. And as the gavel is hit, oh, yes, go for it, you can do it. The robust gavel that brings trading around the world to a close. It's Wednesday. It's the 6th of April.
(BEGIN VIDEO CLIP)
QUEST: Tonight, one of history's biggest mergers is scrapped, and you can blame or thank the U.S. government for doing it. The Republican party is heading for a very unconventional convention. And Mark Zuckerberg calls it the golden age of video. Facebook is going live.
(END VIDEO CLIP)
QUEST: I'm Richard Quest. I mean business.
Good evening. A $150 billion deal gone. The proposed merger between Pfizer and Allergan has become the first and quickest casualty of new U.S. rules that crack down on so-called corporate inversions. It would have been the largest pharmaceutical deal in history.
(BEGIN VIDEO CLIP)
QUEST: Remember, Pfizer, which is based in New York, has been vocal in criticizing the U.S. tax code. By moving its headquarters to Ireland, reverse inversioning into Allergan, it would have greatly benefitted from lower tax rates.
(END VIDEO CLIP)
QUEST: But new U.S. rules came into play from the treasury. And it took only two days for the rules to scuffle the merger. It's all about whether uncle Sam can tax a new merged company.
These are the rules that are complicated, but bear with me.
(BEGIN VIDEO CLIP)
QUEST: Any foreign company taken over by an American rival will pay U.S. taxes if the new business is 60% owned by the U.S. shareholders. So the goal, get below 60%. If the foreign company can make itself look larger by buying smaller companies, then that 60% gets harder to hit. So Allergan banked on the merger loophole with lots of other transactions, all of which would make it difficult to hit 60%.
However, that's what Allergan was hoping to do, but these new rules say that in the last three years deals done no longer count when deciding how big a company was. All those earlier deals of Allergan simply don't count.
(END VIDEO CLIP)
QUEST: On Tuesday President Obama said those kind of loopholes were unfair to the middle class.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: When companies exploit loopholes like this, it makes it harder to invest in the things that are going to keep America's economy going strong for future generations. It sticks the rest of us with the tab. And it makes hard working Americans feel like the deck is stacked against them.
(END VIDEO CLIP)
QUEST: Now, the proposed merger between Pfizer and Allergan, it's not the only one that's in the works. Join me at the super screens and you'll see what I'm talking about.
(BEGIN VIDEO CLIP)
QUEST: So you have IHS and Market in the United Kingdom, that's two deals that are possibly now a little bit more risky. You've got Johnson Controls and Tyco in Ireland. And you've got Waste Connections and Progressive Waste Solutions in Canada. Now, so far none of them show any signs of being scrapped because possibly the new rules don't hit the way these companies have actually run so far.
The rules introduced by the treasury on Monday night were very specific with this three-year limit. It was very much designed because they knew that if you took away the three-year limit then Allergan wouldn't hit 60%.
(END VIDEO CLIP)
Sandy Levin represents the State of Michigan in congress, he's the ranking member on the Powerful Ways and Means Committee. We're honored to have you, sir, with us. You were with me earlier in the year and you very much made it clear you wanted these inversions stopped. So you applaud, obviously, the measures by the treasury of what they've taken.
REP. SANDY LEVIN, D-MI: For sure. You've described it very well. I think you used the word gimmick. And that's really true. And what the treasury said was, look, there were serial inversions here. And then there was an effort to use them to get around U.S. Law. And essentially for Pfizer to maintain itself in this country, gain all the benefits but go to Ireland to get a lower tax. And the average citizen in the U.S. can't simply change their residence, their address and pay a lower tax. Neither should Pfizer. That's really what this is all about.
[16:05:18]
QUEST: But is it right that the treasury should change the rules in the middle of the game? I can understand how this would be relevant for a future transaction, but Pfizer and Allergan had already put together their deal under existing rules. Surely they should be entitled to complete it under existing rules.
LEVIN: I don't think so. Look, Pfizer had adequate notice. We've been introducing legislation for years, and we were on your show earlier to discuss it.
(BEGIN VIDEO CLIP)
LEVIN: So there's been fair warning to countries and to companies that action needed to be taken. It was going to be taken by congress hopefully. If not treasury would continue to use its authority.
(END VIDEO CLIP)
LEVIN: And that's what the treasury has done. So no one can claim they're innocent in terms of some kind of notice that we're going to crack down on inversions when the main purpose is to escape taxation. You know, people in this country the same is true in Europe, are tired of people using loopholes to take advantage and lower their taxes when the average citizen can't do that. That's what's this is all about. And the average company can't do that either. The average small business in this country can't simply change their address and pay lower taxes. So why should Pfizer be able to do that? Why should they be able to do that? That's what's being asked by us, by treasury, by the President.
QUEST: When we look at -- and I would just like to get your thoughts. When we look at the Pfizer, the treasury, the inversions questions and the "Panama Papers," which you'll be familiar with, the offshore which is now being revealed. Do you believe that there will be many examples of improper use of offshore companies in the U.S. that will come out as a result of "Panama Papers?"
LEVIN: I don't know. We passed when the free trade agreement with Panama was put together, we insisted Panama signed onto what's called a tier, so there would be transparency, we insisted on that, Panama signed onto that, and we want to make sure Panama has been enforcing it. That was a requirement for FTA that a number of us insisted on. So we'll see what happens with that. But it's another example in other countries where people, these very wealthy people or powerful people are using loopholes including people who head up governments. And the people are sick and tired of it. They can't do it, why should the big-wigs be able to do it?
QUEST: But I always come back - whenever and I'm always delighted to have you on the program, sir. But I always come back to this problem. Why blame people for using loopholes that maybe lawmakers like you have allowed to exist in the legislation?
LEVIN: Because we're trying to close them. We're trying to close them. We introduced legislation to close them. And so companies are trying to just quickly skirt the requirements are coming on. They know there's an effort to crack down, and they're trying to essentially use a loophole before we close it. There's a race to loopholes. And we want to stop it through legislation if possible, the Republicans hold it up. And if it can't be done through legislation, through treasury using their authority. They're using their authority. And they should up to the letter of the law. And then we're going to have to change the law, but no one should say they don't know it's coming. It's coming.
QUEST: Sir, we're grateful that you came along this afternoon and spoke to us on "Quest Means Business." good to see you as always, and looking well.
Now, a $35 billion merger between two giant oil companies is also under pressure. This time it's antitrust lawsuits from the U.S. Department of Justice. It's lovely to have Cristina Alesci here to talk about this. Great that we're talking about good old fashioned business, M & A, mergers. What's this one all about?
CRISTINA ALESCI, CNN MONEY CORRESPONDENT: Well, the bankers are unhappy about this, right? There's these two deals that are in peril in the last two days. I mean Pfizer-Allergan dead as you just pointed out and now Baker Hughes Halliburton. But oddly enough when it comes to Halliburton and Baker Hughes their stocks were up today perhaps because investors think that you know Baker-Hughes is a target for someone else. There's also a $3.5 billion breakup fee potentially heading in the direction of Baker Hughes.
[16:10:03]
QUEST: But this - this objection by the U.S. Department of Justice, is this good old fashioned antitrust it's simply believed the two companies are too big?
ALESCI: Oh yes, totally. The Justice Department -- I'm sorry, the government is saying right now that the two companies combined would have 90% of the sales in the U.S. But what Halliburton and Baker Hughes are arguing is that, look, this is global competition. We're trying to compete with the likes of Slumberge and in the environment that we're in where oil is so low, you know, the industry kind of needs to get together and consolidate to be a global competitor and that's what this is really all about. But the government is certainly coming out very strong against this deal.
QUEST: To the markets. And what - I mean how much of what we saw today was the market going up 113 points or so Fed minutes released in the afternoon?
ALESCI: So that's a good point. The Fed came out with minutes that said - that basically reaffirmed what Janet Yellen said already, which is no April rate hike.
(BEGIN VIDEO CLIP)
ALESCI: Right she didn't say it explicitly, but she may well have done that because now there's a zero chance for a rate hike in April. Traders are putting the chances of a rate hike in June at about 23%, which is still pretty low. So we have this rally.
(END VIDEO CLIP)
ALESCI: And let me not forget to mention corporate earnings, even though they're on track to be the worst since 2009 companies are projecting an 8% decline in earnings, CEOs may have set the bar so low that they are setting themselves up for success at the end of the day, right?
QUEST: It's not the first time we've had that, you know --
ALSECI: No, exactly.
QUEST: We've had expectations so low that you - if you - you know you're got to beat it or at least meet it.
ALESCI: And that's exactly the point. But at the end of the day there are a lot of market participants that really say this rally is losing steam.
QUEST: Thank you.
ALESCI: Thank you very much.
QUEST: Thank you very much indeed.
The Democratic and Republican candidates have found some surprising points of agreement when it comes to laying out a populous economic message. The political divisions are as deep as ever.
Ted Cruz and Bernie Sanders picked up momentum with wins in Wisconsin. Now, this is how they look so far, but they have a long way to go before they catch up with Donald Trump and Hillary Clinton in their respective leadership roles.
(BEGIN VIDEO CLIP)
QUEST: Let's take a look, for example, with the Democrats. Now, look Senator Sanders has won seven of the last eight contests. Seven of the last eight, but he will need to win 77% of the remaining delegates to get to the convention or to at least be safe and free. So there you've got the delegates to date. There you've got the delegates remaining. Hillary Clinton only needs 36% of those remaining to get to the magic number, he needs 77%. And this is why we talk about the mathematics of it all.
Same for the Republicans where you're looking at Donald Trump. Donald trump wants to get to 1237 delegates. 1237, that makes him foolproof. That makes him the nominee without any question, call or qualm. He's got 743 so far, Cruz is 510 and Kasich. These are how many are remaining. To get that to that to that he needs to win 60%, he needs to win 88%, well, let's not worry about what John Kasich needs to get, he needs to get 125%.
It looks very likely that the Republicans will have the first contested convention in 40 years. Those are the positions, and this is how we get to this. If you take, for example, the road to the White House. First of all, you've got to get to New York. You've got the delegates from New York, 95, the Republicans 25. Senator Clinton or Secretary Clinton is looking past Wyoming to New York. She, Clinton and Trump are both expected to perform well, remember, Trump is based in New York. Clinton represented the state in the U.S. Senate.
Then you go from New York onto Pennsylvania. Most of these votes biggest is in Pennsylvania with 17 and 189. From there you've got dozen states between that and the conventions. You've got the Republicans Cleveland, the Democrats go to Philadelphia. With Ted Cruz acknowledging the nomination is unlikely to be decided by then.
TED CRUZ, REPUBLICAN PRESIDENTIAL CANDIDATE: Either before Cleveland or at the convention in Cleveland together we will win a majority of the delegates. And together we will beat Hillary Clinton in November. [ cheers and applause ]
(END VIDEO CLIP)
QUEST: David Gregory, you're too young to remember the last contested convention.
DAVID GREGORY, CNN POLITICAL ANALYST: I am. Thankfully.
QUEST: But you've read about it.
GREGORY: But I've read about it. Yes, exactly.
[16:15:05]
QUEST: So tell me, it's looking remarkably likely now that the Republicans will have a contested convention.
GREGORY: Yes, I just don't want to buy into that completely because, remember, this would be an open convention if Trump doesn't get to 1237. If he's shy of 1237, the question becomes how far away is he. I mean, I've talked to some big time Republicans who are doing math along with everybody else and they say look at the polling, Trump is doing well right now in the polls in New York, his home state, in Pennsylvania, New Jersey, kind of home territory for him. He could run up some delegate math there and get very close to 1237. And then you get to the convention and you could do some negotiations. And you could get to 1237 on the first ballot. That is still possible. If it doesn't happen, then we get to an open convention and then you get, you know all bets are off at that point.
But I still think that as bad as today is for Trump, bad couple of weeks, potential unraveling, losing big in Wisconsin, he's got an ability to come back here at least in terms of how to secure the nomination.
QUEST: So we need to understand, and humor me if you will because let's face it being you know, journalists we want the most lively scenario that we can possibly come up in our fevered brains. And that's a second vote if it does go to a contested convention on a second vote with delegates free to vote how they will. You can see Trump saying, hang on, I've polled millions more votes than all the others. I have got very close to the number. And you're still going to deny me the nomination?
GREGORY: Well, again, if he's close to the number, and if he's that close that he can do some negotiations to secure that in the first ballot, and that is what happened in '76, that the first ballot actually, you know, that he wins and that he gets the nomination, and there's all of that horse trading that goes on before, fine. If it gets past that, then, look, the rules are the rules and they're set up that way for a reason. And then you can have more of a consensus.
Look there are delegates who might be pledge Trump delegates on the first go around. These are local folks who are you know appointed or elected in states who are part of the party apparatus, the Republican party apparatus. They could look and say, you know, look, this is not a good general election candidate. If you look at some of the demographics, how poorly Trump is doing among women and how big a share of the white vote that he would have to win that then people could say, no, we're going to put something else together.
He may walk out literally or figuratively, Richard, there's no question he could bolt to a third party, he could just do something dramatic. Whatever it is. But those are still within the rules. And he may have a decent argument, but this is how the party has set up the rules.
QUEST: And as you survey the ground at the moment, I mean, is it still mathematically possible but highly unlikely for Sanders to dethrone or at least prevent Hillary Clinton from getting the coronation?
GREGORY: I think it's extremely difficult. I mean, he would have to win overwhelmingly in states like New Jersey, like New York, California, down the road. Remember, the way that you get delegates as a Democrat is different than in a Republican party. You don't have this winner take all scenario.
So even last night he only got 10 more delegates than she did, and he beat her handily. So that's why this deficit of whatever it is 200-plus, 250, is so difficult to overcome. And she's got the super delegates as well.
He's got money, he's got some momentum, he's got enthusiasm, of course supporters. She's going to be very hard to deny. And this is an important fact, six of the last nine contests in 2008 President Obama, then Senator Obama lost and he lost to Hillary Clinton by a pretty good margin and he still got the nomination. This is really about doing the math and not just looking at the message.
QUEST: Brokered conventions, contested conventions, we'll all be brushing up on what happened all those years ago. Good to see you, David. You'll be there to help us understand it. Many thanks indeed.
Think about broadcasting with bells and whistles. Facebook is now upping its live video features. And I'll be discussing it with CNN's -- oh, for goodness sake, where on earth is Samuel? He's in the corridor streaming, going live with Richard Quest, there's 113 viewers at the moment watching him. And he'll be with us in a moment.
SAMUEL BURKE, CNN MONEY CORRESPONDENT: You're always right over my shoulder, Richard.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
[15:21:20]
QUEST: We have reached a sad state in the world. It is not enough to actually live your life. You have to actually be seen to be living your life and watching it while other people are living it at the same time. Because while I'm doing this, he's doing that. And over in the other part of the studio there's another man who's -- what are -- we're coming to you in just a minute.
BURKE: That's the next guest.
UNIDENTIFIED MALE: And I'm on Facebook live too.
QUEST: Go back over there for a moment.
UNIDENTIFIED MALE: Hello everybody. Why do I have to go back over there? It's a free country.
QUEST: I'll be with you in a minute. It's a free country, but as you can easily tell anarchy has broken out on Quest --
BURKE: He doesn't let me touch the bell.
QUEST: You're not old enough to use this equipment. And what is this?
BURKE: This is Facebook live. You and I are used to being live on television but now whether it's periscope which really kicked this all off in the social networks a little bit after (inaudible) or Facebook live, all the social networks are betting big on being able to live stream, not delayed video, live stream.
QUEST: Why?
BURKE: Because, Richard, if it didn't happen on social media, did it ever really happen? People don't want to wait to post something. Posting something an hour later is now passe, Richard. And now the social networks are cashing in. Today Facebook's rolling out a lot of new features for it.
QUEST: What would you stream?
BURKE: Well, me for example I went indoor sky diving the other day. So instead of waiting for it to air on CNN --
QUEST: But you stream yourself having breakfast?
BURKE: No, it has to be a little bit more pertinent than that but I've seen people live stream --
QUEST: Would you stream yourself having sex?
BURKE: The other person wouldn't agree to that.
QUEST: Would you stream yourself in the shower?
BURKE: Absolutely not.
QUEST: So the point I'm asking is what's the point of all this streaming other than to simply say -- I mean, this is the equivalent of, hello, dear, I'm on the train.
BURKE: Your point is well taken. In fact, Facebook, there are reports that they're starting to pay big important people like the "New York Times" to stream. It's just like anything else on social media. If you don't do it well, it's not going to be successful. You have to do something pertinent and important. And then you'll get the traction and the attention that you want. Not the ubiquitous things you're speaking of, Richard.
QUEST: You may do those things ubiquitously some of us save it until Friday nights with the lights off. Let's talk a little bit about the downside to all of this. The hacking issues, the questions of, you know, security, the questions of -- I mean, this all comes out of periscope and meercat.
BURKE: Yes, those were the first ones to do it and I think in a lot of ways we're moving past those type of security concerns because people are choosing to put their lives out for everybody to see. They're choosing to turn the camera on. It makes the reality show -- it makes reality shows seem pass,.
Yes, the delay I think here is about ten seconds, but the real point here, Richard, is that Facebook is the one that's moving ahead. Today they unleashed features that are -- that go farther than periscopes, that go way beyond YouTube. YouTube was supposed to be the king of the internet and this is only available on Samsung phones right now whereas Facebook has rolled it out for everybody right now.
QUEST: Have you read a book lately?
BURKE: Was it on Facebook?
QUEST: Samuel Burke, thank you.
Now from broadcasting yourself live to security. If you use WhatsApp you already know the Facebook messaging service that they arguably overpaid for.
(BEGIN VIDEO CLIP)
[16:25:00]
QUEST: It has added end-to-end encryption making it impossible for third party to hack into a conversation. The news comes after Apple's major legal battle with the FBI over encryption. Faced -- WhatsApp founders say "while we recognize the important work of law enforcement and keeping people safe, efforts to weaken encryption risk exposing people's information to abuse from cybercriminals, hackers and rogue states."
(END VIDEO CLIP)
QUEST: Joining me to discuss this is Steve Case, the former CEO and co- founder of AOL, the author of "The Third Wave." The Third Wave, let's have a look, we'll plug the book as well. "The Third Wave" an entrepreneur's vision of the future. Steve, first of all, what is the third wave and how does it differ from the first and the second?
STEVE CASE, FORMER CEO AOL: Well, I guess I should now turn this off so I can talk to you.
QUEST: Exactly. It's called conversation.
CASE: OK, conversation. Good-bye everybody on Facebook live. All right. First wave was building the internet, the second wave was building absence services on top of the internet and the third wave is really integrating the internet throughout our lives, education, healthcare, transportation, energy, even food and so we've seen a lot of investment, a lot of innovation in the first wave. Companies like AOL we started 30 years ago, only 3% of people were online, people thought we were crazy. Now everybody's online.
The second wave we saw Facebook and Twitter and many apps extremely successful, but the third wave creates a new opportunity for innovation but also I think it requires a new playbook which is why I decided to write the book.
QUEST: Right, this new playbook, because it's a transformation, it's not even an evolution or revolution, it's a transformation isn't it. And we fundamentally do not understand how the internet whether it's the IOT, whether it's just the will integrate into our lives.
CASE: Correct. And I think it has the potential to empower us in new ways provide more personalized approaches to health, more adaptive approaches to learning. But it's also going to create challenges and it's going to require more partnership between entrepreneurs and big companies and also more dialogue between innovators and governments all around the world. Because some of these things are typical in terms of privacy issues and other kinds of, you know, challenges. How do you get the benefits that are possible in the third wave while trying to minimize some of the risk.
QUEST: So what do you say, and I'm asking people of your ilk, what do you say to the FBI in answer to the FBI who says, we need to stop this encryption, stop this end-to-end encryption, stop building a phone that we can't get into, we need to be able to get into it. Mr. Case, you are a tech -- you are an entrepreneur in technology companies. My job, sir, is to keep people safe from being blown to smithereens. What's your answer to them?
CASE: My response to that is, I understand that, I respect that and we need to figure out what's the right way to leverage technology into the future that strikes the right balance where people's privacy is protected, where technology companies can innovate, where security is a key part of that.
QUEST: But you supported Apple not cooperating with the FBI --
CASE: I did not - I did not, I have not looked enough at the details to basically have a strong view, but I think what's required particularly in this third wave is exactly this kind of conversation. It's not the technology, it's the policymaker view, you need to have a dialogue and figure out what's the right balance between enabling people and protecting people, both are important challenges.
QUEST: So how -- what's the fourer for this discussion for this debate? Which has to be - which not only which has to happen both at a national level and at a global level --
CASE: Absolutely.
QUEST: What's the avenues and vehicles for it?
CASE: It starts by building more of a bridge within this country between what's happening with the policymaker in D.C. and what's happening with innovators all around the country but particular in places like Silicon Valley. Right now, they're kind of separate worlds. The innovators basically don't like government, they think government will screw things up and slow things down, and obviously there's some truth to that. At the same time the people in our society do think there's a role for government to make sure the food their kids eat is safe, that the drugs people take are going to be helpful, not unhelpful, to make sure like a drone doesn't land in their kids' playground and hurt somebody. So how do you make this technology possible, all the benefits of this technology possible while at the same time creating a society where people feel kind of protected. And there's a role for government, there's a role for innovators, what's missing and it's one of the themes of this book, is more of that bridge and dialogue between these worlds.