xfdci QUEST-MEANS-BUSINESS-01
Control of Congress? - Part 1> Guillermo Arduino> gain by it? Obama faces losing his Democratic stronghold on Congress in the upcoming midterm elections. New Jersey is installing 200,000 "smart" solar panels on utility poles.> Industry; Corporate Earnings; Stock Markets; Politics; Unemployment; Midterm Elections; Democrats; Republicans; Candidates; Barack Obama; Wind Power; Solar Power; Alternative Energies; New Technology; Job Creation> RICHARD QUEST, HOST, QUEST MEANS BUSINESS: If at first you don't
succeed, BHP Billiton goes hostile, in a bid for Potash.
From here to the White House, to a backyard in Ohio, President Obama
takes his economic policies on the road.
And a black mark for investors and the chief executive tells me he's
partly to blame.
I'm Richard Quest. It is the midweek version and we both mean
business.
Good evening.
Tonight, BHP Billiton is going hostile and wagering $39 billion on a
bid to corner the market in Potash. What is potash? Well, without it a
lot more people will be going without food. No wonder BHP is desperate to
get its hands on the stuff. The bid has been announced. It has already
been rejected. Jim Boulden is here to explain what it is all about, and
why in the dog days of summer, this has everyone talking.
JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: Well, at $39 billion this
would be the biggest takeover bid of any kind so far this year. And yet
the board of the target, Potash Corporation of Canada says it is grossly
inadequate.
Well, what is this all about? Well, Potash shareholders will now have
to consider BHP's hostile $39 billion offer that was announced Wednesday.
And BHP is putting its credit rating on the line as well. Because Moody's
the rating agency warns of a possible review. So a lot of cash, and this
rating, possibly put on the line. And if that looks like a hefty price for
BHP to pay, for a whole lot of fertilizer, well, let's show you what it is
all about.
This, food, crops, rapid development in China and India means a huge
demand for food crops. And potash is a key ingredient in fertilizer, vital
to make these crops grow. And there is no substitute. Simply put, potash
means food. In 2008 potash prices shot up to $1,000 a ton, but then
crashed in the recession like so many other commodities. But there is so
much more scope for growth. Success would make BHP the biggest player in
the world for potash. And it is a tough market to get into with only a few
key players, and I can tell you it takes a very long time to get one of
those mines up and running.
Now, let's see what the share prices did. At the open, Potash
Corporation was up more than 2.5 percent on Wednesday. That followed (ph)
on at 28 percent rise on Tuesday. Now shares in BHP ended nearly down 3.5
percent in London. Of course, the fear is the company will have to fork
out even more cash to get what it wants.
QUEST: There is one other aspect to this, isn't there? Potash has
loaded itself with a poison pill against this take over.
BOULDEN: Yes, remember the term poison pill started in the early
'80s, it was a way for the board to try to do anything it can to look for
the acquirer to have a lot of pain once they took that company over. Now,
it is interesting, we had it with Yahoo, recently, against Microsoft, a
poison pill. But shareholders don't always like this and shareholders
sometimes sue the boards to try to stop a poison pill. Canadian law allows
it to be overturned, this so-called poison pill, it if has been agreed to.
So, very interesting to see whether this one will work.
QUEST: And apparently Australian law doesn't allow poison pills at
all.
BOULDEN: Neither does U.K.
QUEST: Well, we'll talk more about that in just a moment. Jim, many
thanks indeed.
If the BHP deal goes through it will be the biggest that we've seen
this year. As you can see it is well above America Mobile's offer for
Carso Global Telecom, the previous number one for the air, according to
Reuters.com
It outranks International Power's bid for GDF Suez, Century Link's
acquisition of Qwest Communications International, and NewsCorp's bid to
own BSkyB, British Sky Broadcasting, the bits it doesn't own already.
BHP Billiton, though, has been here before and lost. Two years ago it
announced a massive offer for one of its closest rivals, Rio Tinto. It
fought off the overtures, Rio did on that occasion. BHP's new bid is
raising hopes that M A activity is on the way back. Charles Kernot is the
director of Metals and Mining at the investment bank, Evolution Securities.
Charles, good evening.
CHARLES KERNOT, DIR., METALS MINING, EVOLUTION SECURITIES: Good
evening.
QUEST: First of all, why does this-I mean, is this a commodities
play? Is it a mines play? What sort of play is this?
KERNOT: Well, for BHP Billiton it is a matter of diversification.
They have exposure to a whole raft of commodities, but one of the areas
where they see very strong growth in the future is in the fertilizer
business and they don't have any exposure to that, at the moment. So, it
is really a matter of diversifying their income stream, diversifying the
group, so that it can weather the troughs of any future downturn.
QUEST: It is not quite conglomerating it, is it? It is not going
into an area that it doesn't actually-it is all sort of out of the ground
stuff?
KERNOT: Oh, very definitely. I mean, BHP is the world's largest
natural resources company in terms of mining and oil and gas. So they have
a lot of expertise about digging stuff out of the ground. And essentially
that is all this is going to be.
QUEST: Charles, does it make sense, this deal? Do you like the sniff
of it?
KERNOT: I think it does. I mean, BHP has got some exposure in
undeveloped deposits at the moment. And this actually brings them the
expertise to turn those deposits into reality, into future cash flow.
QUEST: But why the now? Why the Potash deal now?
KERNOT: Now is because, first, they actually need to get that
expertise in house, to that they can move through the development process,
but also in terms of timing. Think back to only a month and a half ago,
when Potash's share price was only about $85.
QUEST: Should have moved then.
(CROSS TALK)
KERNOT: Very well, those people that were buying then, clearly they
have made a fantastic profit. But people with that sort of memory will be
worried about any future downturn, any double-dip downturn. And therefore,
$130, or maybe a little bit more, would look, or could look quite
attractive.
QUEST: OK, time to come off the fence and I know this bid has got
some way to go, certainly if it is hostile. Do you think the deal will be
done, but it probably won't be done at $130?
KERNOT: Yes, no, I think it will be. I think Marius Kloppers has
actually got a lot riding on it, because of the failure at Rio Tinto.
QUEST: Yes, let's talk about that. I mean, that was a huge
humiliation for BHP, wasn't it?
KERNOT: It was.
QUEST: A very high profile, hundreds of millions?
KERNOT: Yes, $450 million was the cost of a failed bid. So, you
know, management would have a lot to answer for if they failed at this one
as well.
QUEST: OK, Rio failed, why? And how will they not avoid the mistakes
again?
KERNOT: It failed, I suppose, for a couple of reasons. Of course,
there was the down turn that came along in 2008. And so that really made
BHP Billiton think again. But also I think the strategy was probably
misplaced. That they weren't really showing themselves to be as determined
enough, to push through and succeed.
QUEST: But you get the feeling this one's got legs and will run to
the finish line?
KERNOT: Oh, yes. Very definitely.
QUEST: Care to speculate a price?
KERNOT: I think that it might have to go up to about $150.
QUEST: We won't hold you to that.
KERNOT: Thanks.
QUEST: Charles, many thanks indeed.
KERNOT: Thank you.
QUEST: Potentially, a lot of M A money flying around. In the
European stock markets investors were taking money off the table. The risk
aversion had just slipped back into the market. Well, shares had risen
four days in a row. So the main markets-
(DESK BELL CHIMES)
-the European markets ended lower. Oil companies lost ground amid
weaker prices in the energy market. Cost of a barrel of oil is down nearly
10 percent over the past two weeks, roughly $75 and change. We have
already seen what happened to BHP Billiton today. The markets (ph) and the
financials pulled the indices down.
To New York, where the Dow had a very strong session, but now just it
is still up, 43 points, just half of 0.4 of a percent. But it is-we are
now in the very quiet days of August.
But those quiet days shouldn't deny the fact that Barack Obama is now
well and truly turning his hand to kitchen table politics with the midterms
only a few months away. And with Americans loosing their appetite for his
economic policies the president meets a family that says it is better off
because of those policies. We'll talk to Bill Schneider in a moment.
(COMMERCIAL BREAK)
QUEST: President Obama has been talking about the U.S. recovery. The
president took to the road today, he sat down with a family in Ohio, and
they discussed economic stimulus and how it is working. In a speech later
on he said the housing market remained a big drag on the U.S. economy; all
those houses in foreclosure, and now underwater or in negative equity. The
president offered an update on the plight of the millions who are still
looking for work.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The main message that I
want to deliver, before I start taking questions, and I said this to Joe
and Rhonda, is slowly, but surely, we are moving in the right direction.
We are on the right track. The economy is getting stronger, but it really
suffered a big trauma.
And we're not going to get all 8 million jobs that were lost, back
overnight. It is going to take some time. And businesses are still trying
to get more confident out there, before they start hiring. And people,
consumers, are not going to start spending until they feel a little more
confident that the economy is getting stronger.
And so what we're trying to do is create sort of a virtuous cycle
where people start feeling better and better about the economy. And a lot
of it is sort of like recovering from an illness. You get a little bit
stronger each day. And you take a few more steps each day. And that is
where our economy is at right now.
(END VIDEO CLIP)
QUEST: Now, President Obama pledged that the U.S. Social Security
system would not be privatized. Republican lawmakers have called for the
government pension scheme to be replaced with private savings accounts. He
may have a fight on his hands in the next few months. He has definitely
got a fight on his hands, midterm elections to Congress are looming and
they could shift the balance of power. The voters go to the polls in
November.
So this is the way the situation looks at the moment. Remember there
are two houses in the U.S. Congress. In the House of Representatives there
are 256 Democrats, and a 179 Republicans. So, Democrats clearly have the
majority there. But, of course, members face election every two years.
In the 100-member Senate, there are 59 Democrats, including two
independents who usually vote with Democrats, and 41 Republicans. Each
Senator serves a six-year term and there are elections and there are 37
seats, so far this year. So that is the state of power now. We already
know, of course, that President Obama lost his super majority, after Ted
Kennedy died and that midterm election, or that election. So there we are.
That is the way the state of play.
U.S. political analyst Bill Schneider joins me now live, from
Washington, to put this into perspective.
Bill, first of all, let's take this at a clipped pace. President
Obama is in trouble, but is it because what will happen in the House,, or
the Senate?
WILLIAM SCHNEIDER, CNN SR. U.S. POLITICAL ANALYST: Well, both. There
is more of a danger in the House, where there is a real threat that
Democrats could loose their majority. And if Republicans take over the
House they are going to try to block just about everything the president
has done, and the Democratic Congress have done. They may try to repeal
certain things. He'll never sign, say, a repeal of health care, but there
are other things they can do, like try to cut off funds for his health care
plan.
They can make real trouble. And if the Republicans control the House
of Representatives, they'll have subpoena power. And they can start
criminal investigations on certain members of the administration for what
they suspect could be wrongdoing. They can really harass this White House.
QUEST: But as I looked at those numbers. The Democrat majority in
the House is a comfortable number. So, if they are going to loose control
then that is a, you know, in British political terms, that is quite a
swing-o-meter towards the Republicans.
SCHNEIDER: It certainly is. The Republicans would have to gain 39
seats in the 435 member House, which is quite a considerable number. But
most analysts, right now, are putting the expected gains for Republicans,
that is losses for Democrats, at somewhere between 35 and 45 seats, which
means it is right on the line. The Senate is more likely to stay in
Democratic hands, because the Republicans would have to pick up 10 seats,
out of 100, in the Senate. But people are not dismissing that as a
possibility with the economy in such big trouble.
QUEST: Let's talk about that, in detail. The president has actually
had a very strong legislative agenda, which has been successful in getting
through Congress, health care, financial reform, stimulus package, and so
forth. But he's not getting any credit for any of it at the moment.
SCHNEIDER: That is exactly right. It is very frustrating, because
this Democratic Congress for the last two years, and the president, have
really had a tremendous, impressive legislative agenda. Health care
reform, financial regulation, the economic stimulus bill, some educational
financing reforms; it has been one of the most ambitious congresses, and
the most successful agendas, really since the Great Society of the 1960s.
But you know what, when you ask people do they acknowledge that this
has been a good president, a good Congress? They say, no. They only have
one thing that the voters are asking. Where are the jobs? The
administration said that unemployment would go down to 8 percent. It is
still close to 10 percent.
QUEST: Right.
SCHNEIDER: Where are the jobs? That is the only question, the only
criterion, that American voters are using.
QUEST: Talking U.S. politics with Bill Schneider is a treat and a
pleasure.
So, I'm going to throw a few more quickies at you, Bill, if I may?
SCHNEIDER: OK.
QUEST: Any danger to Obama being on the ticket in '12?
SCHNEIDER: Well, two is an enormous-it's an eternity in politics.
Harold Wilson once said a week is a long time in politics. Let me just
remind you, Bill Clinton suffered a terrible devastating loss in his first
midterm, after two years in office. The Democrats lost control of Congress
for the first time in 40 years. He got handsomely re-elected in 1996. So,
I don't want to make any predictions for two years down the line.
QUEST: I saw in my weekend reading the scintilla of suggestion that
Joe Biden gets dumped and Hillary becomes the number two. Are you giving
any credence to that?
SCHNEIDER: Could happen. Could happen. Joe Biden may decide he
wants to retire. I don't know if the president will give him the push, but
the president could select anyone, Secretary Clinton to be his running
mate. And that would be a way of grooming her to be his successor on the
ticket in 2016.
QUEST: A long way ahead. Bill, many thanks, indeed. Lovely to have
you with us. Bill Schneider, U.S. analyst, joining us from Washington.
In a moment, a company that sets itself an ambitious goal to change
the worldwide energy industry. They saw a change of their own today.
Their share price fell by a fifth. I'll explain after the break.
(COMMERCIAL BREAK)
QUEST: Shares in the world's biggest turbine maker lost nearly a
quarter of their value this session. The Danish company Vestas Wind
Systems, plunged more than 23 percent in Copenhagen, after it said it was
loosing more money than expected.
Now, Vestas, slipped into the red by a $153 million in Q2. That
really isn't the big problem. The loss will have made a profit in the
first, even though it wasn't expected. It was the outlook that is looking
bleak. A $1.3 billion worth of orders on hold, and it is that, that the
market decided it didn't really like the look of. Vestas is in the wind
business for the long haul. It's mission statement reads, failure is not
an option. I spoke Ditlev Engel, the chief executive at Vestas, and I
asked him, looking at the numbers, why did he think the market reacted as
it did?
(BEGIN VIDEOTAPE)
DITLEV ENGEL, CEO, VESTAS WIND SYSTEMS: What has gone wrong is the
timing of certain projects that we expected to execute in the second half
of 2010. Which we can see now, will not happen in 2010. Even though they
will come to Vestas, but it will not be, let's say, soon enough to impact
2010.
QUEST: Do you bear some of the blame for not having telegraphed to
the market that this was going to be the case. Because to loose a fifth of
your share price in one day is pretty dramatic.
ENGEL: It is. I have to say, of course, we bear the blame. No doubt
about it. But we can only tell people what we know. And when we are
looking ahead, what we are saying is this is a forecasting, right. So when
we have now reviewed this, we said, we are now in doubt that this is going
to happen. So, we have to change the forecast. So we couldn't tell people
before.
QUEST: But Chairman, you have not only given lower guidance, you have
failed to meet on the existing numbers. Well, I think it is important to
say that if you look at the company as such, and in 2009, we had our best
year ever. In 2010, we said it is going to be very challenging because of
the financial crisis. We saw a 50, 5-0, percent drop of order intake in
2009. The orders are coming back. They are significantly back. But it
does have a delayed impact on the revenues and earnings in 2010.
QUEST: So, why has there been this mismatch between what the market
was expecting and what you were clearly experiencing?
ENGEL: That's a good question. And, of course, something we have to
reflect over. But we have said all the time that we did expect that second
half 2010 would be where things would be happening. We would be very
backend loaded. And this is exactly, this backend loading some of it is
slipping out of 2010.
QUEST: Will you be profitable by the end of the year again?
ENGEL: Yes.
QUEST: And into 2011?
ENGEL: 2011, we'll talk about at the end of Q3, but basically, it is
a night and day scenario. A huge loss in the first half, and we'll have a
rebound in earnings in the second half.
QUEST: I suppose what I'm really trying to get you to say, sort of,
in blunt terms, is the crisis over?
ENGEL: In our view, yes. Because we do expect the orders to grow by
250 to 300 percent in 2010 compared to 2009. But this is not over the
counter products, even it if looks like this here today. These are
products that takes a while before you get the order in and before you
produce them and ship them.
QUEST: Let's talk about them. Because (UNINTELLIGIBLE). I mean, it
is rather pretty this, isn't it?
ENGEL: I think so.
QUEST: But you know, how long does it take to make one of these
things, install it, from the-if I decided I was going to move into wind
turbine technology?
ENGEL: Yes?
QUEST: From the moment I say I want to do it and I'm going to get it,
how long should I be thinking about it.
ENGEL: Oh, I have to tell you that this is much more complicated than
it looks. How many parts would you think to such a turbine?
QUEST: How many parts?
ENGEL: Yes.
QUEST: I don't know. One, two, three.
(LAUGHTER)
ENGEL: Totally there is more than 9,000 components in a wind turbine,
which is more than three times what you will have in your car. So my point
is, really, that the technology barriers here are extremely high. And a
lot of analysts in the world have said that if you are looking for
renewable energy, the highest barrier to entry is into wind, because there
are so many disciplines that you need to understand.
QUEST: But once it is up and running, does it just keep running? I
mean, what I want to-
ENGEL: It depends on the maker.
QUEST: OK.
(LAUGHTER)
QUEST: Good answer, good answer.
All right. What I need to know, I've never understood, let's say so
we have one of these things going around in my back garden. How much
energy will this produce? And how much-what will it power?
ENGEL: Well, this is a three megawatt turbine.
QUEST: Right.
ENGEL: And that means, basically, you are, without knowing your
household, but on average, a European household consumes that in a year.
So, in one hour it will give enough electricity for you, for a whole year.
(END VIDEOTAPE)
QUEST: There's a thought.
Today's earnings from Vestas contrasts sharply with the fortunes of
another renewable energy company. Based in New Jersey, this start up has
developed what it calls a game changer for the solar power industry.
So, first from wind, now to sun; Patricia Wu joins us now from New
York to talk more about this.
(DESK BELL CHIMES)
Everybody is in the market for renewable energies, and this is an
interesting one, too, solar power.
PATRICIA WU, CNN CORRESPONDENT: It certainly is, Richard. This so-
called game changing solar panel is actually assembled at a small factory
in the U.S. state of New Jersey. The company recently landed a huge
contract with the state's largest utility to set up one of the largest
single solar energy systems in the U.S. And the company is green in more
ways than one. It is also creating jobs and lifting the local economy.
(BEGIN VIDEOTAPE)
WU (On camera): You drive this road everyday and-
HUSSAM ALATRASH, PETRA SOLAR ENGINEER: Yes, this is the most
fantastic road, because this is actually where I first saw the solar panels
come up. And they increased over time. So, just seeing them lined up like
that, it is just fantastic.
WU (voice over): Hussam Alatrash is a engineer for Petra Solar, a
small New Jersey company that is making a big impact on the state's
electricity grid.
ALATRASH: First of all it is the solar energy generated. Second of
all, it acts as a sensor that communicates back and forth to the utility.
It actually does a lot of intelligence analysis on the local conditions of
the grid.
WU (On camera): This is a panel and then that is the intelligence,
right there?
SHIHAB KURAN, CEO, PETRA SOLAR: That is the intelligence, exactly.
WU: And that little box is the game changer?
KURAN: That little box is the game changer. And well, really, the
simplest way of saying that is pick up an iPhone. One might say, well, it
is just a phone, while it is a camera, a communications device, it has
memory, it has a processor. It has software.
WU (voice over): Petra Solar is installing 200,000 of what it calls
smart solar panels on utility polls all over New Jersey. Smart, because
they don't just generate energy, they monitor the grid for potential
problems, and that could mean fewer blackouts. New Jersey's largest
utility, PSE G, is paying $200 million for the installation. Some of the
cost is being passed on to customers.
UNIDENTIFIED MALE: Rate payer initially will pay about 10 cents per
month for this investment, and then that diminishes over time.
WU: The overall costs still bothers some critics of the project.
They say solar investments are driving up the price of conventional
electricity for homeowners and businesses. But the mayor here disagrees.
MAYOR CHARLES BUTRICO, SOUTH PLAINFIELD, NEW JERSEY: It is not only
that we have a company that is-you know, it is green technology doing great
things for the environment. But it is creating jobs within Petra-and
impacting the surrounding communities.
WU: Petra's workforce grew tenfold over the last year. It expects to
add hundreds or even thousands more jobs, if it can land contracts with
other utilities.
KURAN: We created practically a full spectrum of jobs, Ph.D.s that
work for Petra Solar as well as highly intensive labor work that we have
for assembling the system. We are very proud, but we're humble at the same
time. But we are very proud of, given the economic environment that
surrounds us.
(END VIDEOTAPE)
WU: Petra has global aspirations. It is talking to companies in
Europe, the Middle East, Australia and Asia, hoping to land new contracts
and says its business model can create jobs wherever it goes, Richard.
QUEST: I am just not quite sure that I think they are very
attractive, all those solar panels by the side of the road. But there we
are, different views, different people, many thanks. Interesting stuff,
renewable energy on QUEST MEANS BUSINESS.
In a second or three, two competitive for its own good. That is the
charge that is leveled at Germany. With critics claiming that its success
is threatening the global recovery. After all, if everyone was to export,
who is going to buy? In a moment.
(COMMERCIAL BREAK)QUEST: Hello. I'm Richard Quest, QUEST MEANS BUSINESS. This is CNN. And here, the news always comes first. The United Nations now says it has received less than half of the
emergency aid needed for flood-ravaged Pakistan. The U.N. says $460
million is what is necessary to deal with the disaster. Some 20 million
people have been affected. The country's prime minister says donors can be
sure that relief funds will end up in the right hands. Saturday's general election in Australia seems set for a photo finish.
Recent polls now show that Prime Minister Julia Gillard's Labour Party has
only a narrow lead over the opposition. Ms. Gillard and the Conservative
challenger, Tony Abbott, faced voters in a town hall forum on Wednesday,
answering questions on everything from the state of the economy to same-sex
marriage. A new report by British police shows a huge spike in cannabis
production. According to the study, nearly 7,000 marijuana farms and
factories were busted in Britain over the past two years. The report also
shows what so-called gardeners, who are often migrants, including teenaged
children, trafficked into the U.K. from China and Vietnam. Two dozens doctors are fighting to save seven badly burned newborns
after a fire on Monday at a maternity hospital in Bucharest Romania killed
four of the babies. Prosecutors say no one was working in the intensive
care unit for an hour while flames spread. The hospital's managers have
been suspended while the fire is investigated. But the health minister
says he wants them fired.
