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Josh Lipton, Eamon Javers, Kayla Tausche>
World Affairs; Marijuana; Microsoft; Business>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Power struggle. Ninety-three- year-old Sumner Redstone purges Viacom`s board of directors, deepening the turmoil at one of America`s most iconic media companies.
Global hot spot. From political uncertainty in Britain to economic chaos in Venezuela, the global risks to the market are rising.
And a business first. Microsoft breaks a corporate taboo, partnering with a company that operates in the fast-growing marijuana industry.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, June 16th.
Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen is on assignment tonight.
The next episode of the Viacom drama is here. Controlling shareholder Sumner Redstone kicked five of Viacom`s directors, including CEO Philippe Dauman off the company`s board. The move deepens the turmoil and extends the incredible battle over Redstone`s iconic media empire. Shares of Viacom rallied on the news, climbing more than 6 percent.
Viacom meanwhile issued a statement, pointing fingers at Redstone`s daughter Shari, saying, quote, "This is a brazen and demonstrably invalid attempt by Ms. Redstone to gain control of Viacom and its management," end quote.
So, how does this one play out?
Tom Eagan, media analyst at Telsey Advisory Group joins us now.
Tom, welcome. Nice to have you.
TOM EAGAN, TELSEY ADVISORY GROUP SR. MEDIA ANALYST: Thanks, Sue.
HERERA: I guess one of the questions is, who do you think actually made this move? Sumner Redstone, Ms. Redstone, or the Board of National Amusements, because when the story first came out, it was billed as a National Amusement Board move. Who do you think did it?
EAGAN: You know, I`m not really sure if it matters whether it`s Sumner or daughter Shari at this point. I think that, you know, since they have this -- since they really control National Amusements and the they have 80 percent control of Viacom, again, I think that`s what`s going to speak here.
HERERA: What does this do for the company? Does it basically release some value for the company? Or not?
EAGAN: Well, you know, Viacom trades at about eight times its EPS. That`s below, you know, 12, 13, 14 for other major media companies. So, part of it is, their performance over the past couple of years. But it`s also sentiment. The sentiment on the stock is terrible.
So, I think that what you`ve seen over the past month or so, what you`re going to continue to see is sentiment improving on the stock.
HERERA: What do you think happens next?
EAGAN: I think the next event is probably the -- this new board trying to oust Philippe Dauman as CEO of the company. It would appear that they have been talking to other potential CEOs. Maybe they`re farther along than we had expected.
HERERA: Well, the story when it came out today was that those directors were out, including Dauman, and they were going to Delaware court to have that declared legal. You think maybe there`s a second chapter to that?
EAGAN: Well, you know, the provision in the Delaware court that is different from other courts, it allows the individuals here to seek validation from the court. So, both the National Amusements side and the Viacom board side have both gone to the court.
HERERA: All right.
EAGAN: So to your point, Sue, so maybe one of the next events here will be the court ruling.
HERERA: Right. What about consolidation in that industry, say a Viacom/CBS, you know, merger of those two properties? Is that a viable option next or not?
EAGAN: Well, I think it`s an option. It`s one that we don`t think makes sense. I mean, we did an analysis that said, if CBS were to fall by 5 percent to 10 percent, should they merge, then Viacom would have to increase by 15 percent to 20 percent to be market cap neutral. So, I don`t think you get that kind of move up. So, to us it doesn`t really make sense, it would be value-destroying.
HERERA: All right. Thank you, Tom. Pleasure.
EAGAN: Of course.
HERERA: Tom Eagan with Telsey Advisory Group.
Well, a massive u-turn on Wall Street today. The Dow breaking its five-day losing streak after reversing course midday, ending higher after falling nearly 170 points. By the close the Dow Jones Industrial Average climbed 92 points to 17,733. The NASDAQ added nearly 10. And the S&P 500 gained 6.
But the higher finish doesn`t mean all of the market anxiety is gone, far from it. If anything, what we saw today confirms that there`s still a lot of confusion among investors.
Japan`s central bank, along with the Bank of England kept interest rates unchanged and signaled increased concerns about the health of the global economy. And that sent government bond yields to near three-year lows. And gold prices rose while oil prices fell.
And many say that the biggest risk to the market is the possible exit of the United Kingdom from the European Union. Central banks around the world are acknowledging it as Britons get ready to go to the polls one week from today.
Wilfred Frost tells us what investors should watch if they vote to leave the E.U.
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WILFRED FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT: If Britain votes to leave, what should you watch out for? The first thing is pressure on U.K. Prime Minister David Cameron to resign. If he does, the government is dissolved but we do not get fresh nationwide elections as all members of parliament remain the same.
We would see a battle within the conservative party to be the new party leader, which would take a few months.
Forrest Johnson would be the clear favorite. However, election rules mean this is not a simple populist vote and other candidates would certainly have a chance.
Second, watch for immediate and systemic financial contagion. The risk though of this is very low because the exit vote would just mark the start of separation negotiations.
Furthermore, the U.K. is not part of a single currency so immediate banking contagion fears are reduced. This is perhaps why we`ve not yet seen a sharp reduction in U.S. equities.
Third, over the medium term, watch for the impact on U.K. and European growth. Negotiations will likely take anywhere from two to seven years depending who you listen to, this will reduce investment and with it, growth.
Finally, and perhaps most importantly, in the longer term, watch for a political reaction across Europe. Do the anti-E.U. parties like the National Front in France, Podemos in Spain, and AfD in Germany gain support? The key will be maintaining the pro-E.U. status quo in terms of governments in French and German elections in 2017 would be crucial for the long-term future of the rest of the European Union.
For NIGHTLY BUSINESS REPORT, I`m Wilfred Frost.
(END VIDEOTAPE)
HERERA: And there is another global hot spot, Venezuela. That country`s economy is under intense strain because of the long-running collapse in oil prices and economic mismanagement.
And as Michelle Caruso-Cabrera reports, the pain is intensifying.
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MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Food riots and protests erupting throughout Venezuela on a daily basis as people grow desperate for basic goods. Outside supermarkets, people can be seen standing in line for hours, only to find out there is nothing left. Looting has become common.
This is surveillance video showing people storming and ransacking a bakery in Caracas because basics such as flour and rice have become impossible to get. Just yesterday, hundreds were arrested after ransacking dozens of supermarkets. Look at images of these supermarket shelves left empty.
Economic mismanagement made worse by a drop in oil production and oil prices has driven the South American nation into crisis. Now, there is growing pressure on Venezuelan President Nicolas Maduro to allow a recall vote on his presidency, something the national assembly wants but Maduro has stopped.
I spoke with one of the leaders of the opposition and asked him if the vote don`t happen, is a military coup possible? He said, yes, but that`s not what they want.
CARLOS VECCHIO, VENEZUELAN OPPOSITION MEMBER: A military coup would be a total disaster in Venezuela. We don`t want to get to that point. We`re in a totally collapsed country right now, it`s not working. If we don`t find a solution quickly, I mean, any option could be possible.
CARUSO-CABRERA: A growing chorus of leaders around the world are backing the recall vote on Maduro. U.S. Secretary of State John Kerry became the latest to do so earlier this week.
JOHN KERRY, U.S. SECRETARY OF STATE: Like all people of the Americas, Venezuelans have the right to use constitutional mechanisms to express their will in a peaceful and a Democratic manner.
CARUSO-CABRERA: Many Wall Street hedge funds are closely watching the situation in Venezuela because they own Venezuelan debt. Thus far, the government promises to pay it even though it`s clear it`s running out of money.
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.
(END VIDEOTAPE)
HERERA: Here in the U.S., the number of Americans filing for unemployment benefits rose more than expected last week. According to the Labor Department, initial claims for state unemployment benefits increased 13,000 to 277,000. Claims have been below the key 300,000 level for 67 straight weeks. That`s its longest streak since 1973.
Consumer prices climbed in May. They were driven by rising energy costs and biggest increase in rent in nine years. The consumer price index which measures what Americans pay for everything from clothing to cars increased 0.2 percent last month, making it the third straight monthly rise.
And home builders are feeling more optimistic. A gauge of sentiment issued by the National Association of Home Builders rose in June. The report showed that builders are feeling pretty good about the upcoming six months. They are seeing better traffic and more committed buyers supported by steady job gains and low mortgage rates.
Speaking of those low mortgage rates, Freddie Mac reports that the popular 30-year fixed rate mortgage is averaging 3.54 percent, down from the prior week and the lowest level since May of 2013.
HERERA: So what does all of this global uncertainty around the world mean for the domestic economy and markets right here at home?
Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds, joins us now.
Welcome. It`s good to have you here again, Brian.
BRIAN JACOBSEN, WELLS FARGO FUNDS CHIEF PORTFOLIO STRATEGIST: Thanks, Sue.
HERERA: You know, it does seem as though the market has an awful lot on its plate, especially when you look at what`s going on overseas. But what impact do you think, if any, all of this will have on the market and the U.S. economy?
JACOBSEN: I think that it`s a matter of your time frame here. If we`re talking about what might it mean for the market over the next week or so, I think it`s very significant. Today is a good illustration of that. The market basically turned around when it looked as though there might be some sort of shift in the outcome for the Brexit vote.
The unfortunate killing of that member of parliament who was in support of remaining by somebody who was in support of leaving the European Union may have shifted the odds a little bit as far as what the outcome may be and it was basically at that point that the market began to turn around. So I think that until the Brexit issue is resolved we`ll likely continue to see some of this volatility.
After that, I`m actually a little bit more sanguine about what the outlook is. I think that corporate earnings in the United States are beginning to turn positive for the first quarter, they were negative about 8 percent year on year. But for the second quarter, it`s looking a little bit better. So, it`s not perfect but things are getting better.
HERERA: And I see from my notes that you think that the U.S. market may be a beneficiary because of all the uncertainty overseas?
JACOBSEN: It is and unfortunately when the markets are going down, it`s about a relative game about where`s relative shelter here? So, we`re not insulated from the storm that`s taking place but European markets are down 6 percent, the U.S. markets were down 2 percent.
So, we`re a relative beneficiary as people were seeking safe havens in the storm.
HERERA: I notice that you also like Japan and cash, which we don`t actually hear very often, the cash aspect of it. Why that and why Japan?
JACOBSEN: Yes, as far as the cash aspect, I think that cash management is a really key component of any good financial plan. It can help remind you about why it is that you can be a patient investor, because investing does require patience. If you have about six months of spending in cash, it allows you to ride out some of the volatility and take on a little bit more risk in seeking return.
I like Japan mainly because it`s done so poorly. I feel as though the Bank of Japan has really done something that it shouldn`t have done, stand pat, when the fed made it clear they could have eased. Instead they did nothing. But the yen strengthens significantly. I think the Ministry of Finance will probably need to intervene to weaken the yen and the Japanese market overall could begin to turn from this point. So, just a lot of bad stuff has already happened, maybe the worst is behind us.
HERERA: On that note, optimistic note, Brian, good to see you. Brian Jacobsen at Wells Fargo Funds.
Well, China as you know plays a big role in the global economy. And today, the U.S. treasury secretary had a warning for the world`s second-largest economy. Secretary Lew is calling that country`s business practices unfair and urges it not to weaken its currency.
(BEGIN VIDEO CLIP)
JACK LEW, TREASURY SECRETARY: China still has work to do to achieve the goal of creating the conditions for an orderly transition to a market- determined exchange rate. And this month`s S&ED, China committed to continue to advance those reforms allowing for two-way flexibility in the exchange rate. China must demonstrate its actions not just its words, its commitment to that two-way flexibility.
(END VIDEO CLIP)
HERERA: The treasury secretary says that any reversion to old foreign exchange policies to artificially boost exports would trigger tension.
Still ahead, Microsoft goes where no big-name corporation has gone before - - into the marijuana industry.
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HERERA: Volkswagen says its next nine years will be driven by more electric vehicles and a shift away from the constant quest to become the world`s largest automaker. It is all part of VW trying to plot a new path even as it continues to wrestle with the diesel emissions scandal that is far from resolved.
Phil LeBeau has more.
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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: VW is shifting gears after a tumultuous year filled with scandal, billions in losses, and the ouster of its long-time CEO Volkswagen`s current boss says the company has learned from its mistakes.
MATTHIAS MULLER, VOLKSWAGEN CEO (through translator): The current crisis is a catalyst for us here. At Volkswagen, doors have opened up. Readiness for change has grown considerably.
LEBEAU: Muller laid out VW`s plan for how it will change between now and 2025. First, more electric vehicles. In fact, the company hopes to sell 2 million to 3 million annually by 2025. Meanwhile, VW will push mobility solutions like car-sharing and ride services.
Finally, there will be a focus on sustained profits. But more importantly, Volkswagen is no longer proclaiming it will become the world`s largest automaker, a goal it embraced for years.
Critics blame that ambition as one reason VW executives lied about diesel emissions rather than deal with an issue that could have slowed sales.
Volkswagen is still a long ways from getting past the diesel emissions scandal. In the next week, it is expected to finalize details for how almost 600,000 Volkswagen owners will be compensated for having defective diesel models. After that, it will take months to settle those claims.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
(END VIDEOTAPE)
HERERA: A surge in sales in Oracle`s cloud business helped the company`s quarterly results. The business software maker earned 81 cents a share. That was in line with estimates. Revenue was slightly higher than expectations, coming in at $10.5 billion, though that was 1 percent lower than a year ago. The results help shares rise initially in after-hours trading.
Josh Lipton has more on Oracle`s quarter.
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JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Six hundred and ninety million dollars. That was the big number in Oracle`s latest earnings report. It refers to the company`s cloud of businesses known as software as a service and platform as a service. More importantly, the company also said bookings in Q4 were strong and that means Oracle could raise its guidance for Q1 cloud revenue growth, now expected to be between 75 percent and 80 percent.
Brad Reback of Stifel Nicolaus, an Oracle bull, says the results validate this company`s transition. Like other legacy I.T. vendors, Oracle is moving as fast as it can toward a model where customers access its software over the web as a subscription rather than buying and installing software on their own servers.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
(END VIDEOTAPE)
HERERA: Profit soars nearly 10 percent at Kroeger and that is where we begin tonight`s "Market Focus."
Results were better than expected, thanks to strong sales of wine and deli meats. But overall revenue at the grocery store chain wasn`t good enough to top estimates. Kroeger anticipates earnings for the year to come in at the low end to midpoint of its previously issued guidance. Kroeger shares down a fraction to $35.47.
Rite Aid reports a disappointing quarter. The drugstore chain posted worse than expected profit and revenue as pharmacy reimbursement rates weighed on results, something the CEO anticipates will continue into the near term. In addition, Rite Aid still expects its merger with rival Walgreens to close by the end of this year. Shares of Rite Aid down just a tick to $7.81.
Walmart is slashing jobs. The world`s biggest retailer is expected to cut as many as 1,500 accounting and invoice positions across 500 stores as it looks to move its bookkeeping practices to its headquarters. The company also expects to add as much as a $60 billion in new sales over the next three years. Shares of Walmart up a fraction to $71.30.
Cavium which makes computer network chips will buy QLogic in a deal valued at nearly $1.4 billion. The merger is expected to increase the company`s 2017 earnings per share by 60 cents to 70 cents. Cavium shares plunged 17.5 percent to $39.60. QLogic shares surged 9 percent to $14.80.
Cosmetic company Revlon will acquire its rival Elizabeth Arden in an all- cash deal for about $870 million. Revlon said the merger will provide the company with a significant presence across all major beauty channels. Elizabeth Arden stock surged more than 49 percent in the extended session, but ended the regular session down just a tick to $9.41. Revlon rose in after-hours trading but finished up marginally to $31.15.
Marijuana is going more mainstream. Microsoft has become the first big well-known company to partner with a firm that operates in the fast-growing marijuana business.
Eamon Javers has been following the story from Washington and joins us now.
Good to see you, Eamon.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. Hi, Sue.
HERERA: So, Why is Microsoft making this move?
JAVERS: Well, look, the marijuana industry is growing. So many states having legalized either medical marijuana or just plain old recreational marijuana. That means it`s a big business, but there are a lot of companies out there having real trouble in terms of compliance because it`s not legal on the federal level yet.
A lot of banks won`t touch the marijuana business. And so, there`s an operating space for companies that help the marijuana businesses deal with compliance. That`s the type of company that Microsoft is partnering with here. They`re partnering with a firm called Kind Financial which makes software for marijuana businesses to help them stay in compliance with all the state rules and regulations.
HERERA: Do you think that Microsoft is the first of many or of other companies that might do this?
JAVERS: No doubt, no doubt. There`s so much money to be made in this marijuana industry as it begins to grow. The expectation is that more and more states will continue to legalize marijuana because of the massive revenues that those states can receive in terms of tax payouts. So, it`s clear Microsoft is not going to be the last of these companies.
This deal, though, is just a software partnership but think of this as going into the shallow end of the marijuana industry pool. It`s software, it deals with compliance and regulations. This is not Microsoft coming up with new bong designs or something like that.
HERERA: Right.
JAVERS: This is Microsoft doing tax compliance software. That`s sort of its government business sweet spot and they`re sticking to that for now. All this is going to continue to expand.
HERERA: So, does this mitigate any reputational risk that Microsoft might incur in the because, you know, the legalization of marijuana on a state level was controversial?
JAVERS: Well, absolutely. And look, for kind financial, think about the small startup company based in Los Angeles. This really validates their business plan. It validates the entire industry in a way to have a big, giant American corporation like Microsoft come in and put their sort of good government seal of approval on it.
It`s huge for the marijuana industry. For Microsoft, you know, this was a threshold that they wanted to cross eventually and now they`re doing it deed.
HERERA: Eamon, thanks as always. Eamon Javers in Washington.
Coming up, money in the bank. The newest perk a growing number of companies are offering to attract the best workers.
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HERERA: Macy`s and its union avert a strike. A tentative deal for a new labor contract was reached avoiding what would have been the first strike in about 40 years at the nation`s biggest department store. One of the issues was over the cost of health insurance coverage. The union had also been pushing for higher wages and changes to the retailers commissions policy. Details of the agreement have not yet been made available.
And while Macy`s averts a strike, Atlantic City workers are threatening one. Union workers at more than half of Atlantic City`s hotel casinos are expected to authorize a strike during the busy July Fourth weekend. If the walkout extends into the summer, it could hurt the busy July through August season as well, and in turn damage Atlantic City`s already-fragile finances.
Now to the changing workplace. It was once enough for companies to offer employees benefits like 401(k), health insurance. But now, many companies are providing a new perk to attract the millennial generation that is saddled with student debt.
Kayla Tausche has more.
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KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Jennifer Hanson, an HR executive at Boston money manager Fidelity, started noticing something worrisome among employees last year.
JENNIFER HANSON, FIDELITY HEAD OF BENEFITS: We really heard from both our managers and our associates that student debt was a significant impediment to their ability to move forward in life, whether it was buying their first home or getting married, for one person, even dating.
TAUSCHE: Over the next few months, Fidelity put together a plan to help, giving employees up to $10,000 apiece with very few strings attached.
HANSON: The only service requirement is they`ve been here for six months.
TAUSCHE: Robert Garland is one of 6,000 employees that took them up on it, still saddled with debt from undergrad and business school.
ROBERT GARLAND, FIDELITY EMPLOYEE: That pretty much put me into $50,000 worth of debt.
TAUSCHE: He found himself paying more towards that than his mortgage. That`s not even counting his wife`s student loans. Help paying it off is becoming more than just a company perk, it`s priority.
GARLAND: 401(k) is really nice but I can tell you that I`ve accumulated a lot of student debt and this one`s really important to me.
TAUSCHE: There`s currently more student loan debt than credit card debt in the U.S. This year`s graduating class owes nearly $30,000 on average. Experts say for job applicants, these benefits may be a deciding factor.
BRUCE ELLIOTT, SHRM COMPENSATION & BENEFITS: If the salary is close to comparable, maybe $1,000, $2,000, $5,000 apart, go with the company that`s offering to help you pay off that student loan debt. It`s a differentiator.
TAUSCHE: For now, only 4 percent of U.S. companies have these programs but that`s growing. And they vary in size. But a survey by Nerd Wallet found by saving employees $4,100 on average, they can pay off their loans three years early.
ELLIOTT: It is actually a fairly lucrative and fairly innovative benefit. We haven`t seen anything like this before.
TAUSCHE: For the Garland family, they`ll see financial freedom a year sooner than expected.
GARLAND: For the last five years we have been, with $1,300 a month, we have paying off our past are. With the extra money and the ability to pay it down sooner, we can start thinking about our future.
TAUSCHE: And that is money in the bank.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in New York.
(END VIDEOTAPE)
HERERA: Here`s another look at the day on Wall Street for you. The Dow climbed 92 points to 17,733. At one point, it had been down nearly 170. The NASDAQ added nearly 10. And the S&P 500 gained 6.
And that will do it for us on NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks for watching and have a great evening. We`ll see you here tomorrow.
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