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Diana Olick, Phil LeBeau, Dina Gusovsky>
Elections; Economy; Labor; Politics>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: New era. A historic trip to Cuba has American CEOs seeing big potential and even bigger obstacles.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Marriott sweetens its bid for Starwood Hotels and it may be willing to go even higher.
HERERA: Big promises. Presidential candidates promise to bring back lost manufacturing jobs. But the key question is how.
All of that and more tonight on NIGHTLY BUSINESS REPORT for Monday, March 21st.
MATHISEN: Good evening, everyone, and welcome.
Grand potential and big pitfalls, that is how U.S. business leaders view Cuba. Today President Obama along with chief executives from Marriott and Xerox (NYSE:XRX), among others, made an historic trip to Havana.
Atop the agenda, reestablishing deep commercial ties between the United States and Cuba.
But as Michelle Caruso-Cabrera reports tonight from Havana, reaching that goal won`t be easy and is anything but assured.
(BEGIN VIDEOTAPE)
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: A historic handshake in Havana as President Obama met with Cuban Leader Raul Castro, another sign of the thawing relations between the countries.
There was also a visibly awkward moment when a very uncomfortable Raul Castro was forced to take a question from an American reporter about human rights in Cuba.
RAUL CASTRO, CUBAN PRESIDENT: Did you ask if we had political prisoners?
REPORTER: I wanted to know if you have Cuban political prisoners and why you don`t release them.
CASTRO: Well, give me a list of the political prisoners and I will release them immediately. Just mention the list. What political prisoners?
CARUSO-CABRERA: While the trip was marked by political events, there was commercial news as well. Starwood Hotels announcing they had reached a deal to manage three hotels here in Cuba, all of them owned by the Cuban government.
One American staying at one of those hotel welcomed the American management, sort of.
SAM YU, TOURIST: It will be interesting because it will bring an American level like service or professionalism to like the hotel industry here, but also, I`m ambivalent about that because sometimes what`s amazing on Cuba is that you`re missing all of that.
CARUSO-CABRERA: Arne Sorensen, CEO of Marriott Hotels, was part of the delegation traveling with the president and said the Cubans are struggling to decide just how much American investment they want.
ARNE SORENSON, MARRIOTT PREIDENT & CEO: I`m not sure any of us know how exactly fast they will move and where they ultimately come to rest. But there is an interest I think in both sides and greater engagement between the United States and Cuba, greater economic growth. We certainly know American travelers want to come to Cuba.
CARUSO-CABRERA: Even if the embargo goes away, there are many laws and regulation in Cuba that make investment unattractive.
URSULA BURNS, XEROX CHAIRMAN & CEO: An embargo has to be lifted in order for us to be -- have more access to the market. But there are infrastructure elements here that are -- that absolutely need to be improved. There are currency rules that have to be improved. There are worker rules that have to be improved. So, there`s so much that has to be done to have full bilateral trade happening. It will take a little while.
But I`m not -- I am convinced that the interest is there. I`m just not convinced on how exactly it will be done.
CARUSO-CABRERA: President Obama has one more day in Cuba. He`ll meet with political dissidents and also attend a baseball game between the Cuban national team and the Tampa Bay Rays of Florida.
In Havana, Michelle Caruso-Cabrera, NIGHTLY BUSINESS REPORT.
(END VIDEOTAPE)
HERERA: Michelle mentioned Starwood.
Well, while in Cuba, Starwood agreed to a sweetened merger bid from Marriott, just one week after Starwood first received a buy out bid from a major Chinese company. The Marriott/Starwood combination would create the world`s largest hotel chain. Word of the deal sent shares of Starwood higher and Marriott lower.
Simon Hobbs tells us why Starwood is suddenly such a hot property.
(BEGIN VIDEOTAPE)
SIMON HOBBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: As the first family landed in Cuba Sunday, the CEO of Marriott, also vice chair of the president`s Export Council, wasn`t far behind them. And by first light Monday, he was making headlines of his own with a higher offer for Starwood.
SORENSON: We made a significant move over the course of the weekend and decided we are very really interested in the strategic power of this combined platform. Starwood board accepted it and we`re ready to go.
HOBBS: Marriott CEO thought he tied up the Starwood deal four months ago, but now, the Chinese led by insurer Anbang are trying to break up the party at the last minute. Here`s a timeline: November 16th, Marriott makes what it later called an opportunistic offer of $63.74 a share after Starwood spent much of the year looking for buyers.
But weeks before shareholders would choose to finalize the deal, China`s Anbang emerges with the unsolicited offer of $76 a share, but it`s all in cash.
After discussions with Starwood, the offer is firmed up one week later and raised to $78 a share again all in cash.
Now this morning, Arne Sorenson of Marriott is counter with $79.53 a share. Marriott is willing to pay more partly because it says it now better understands how powerful the Marriott rewards and SPG loyalty schemes will be running in parallel. Arne Sorenson says they are the best bet to compete in the digital marketplace against the likes of Airbnb, Expedia (NASDAQ:EXPE) and Priceline.
SORENSON: The deal we`ve got in November in retrospect may be was just too good a deal and so, we have gone back and, obviously, there was competing bidder that surfaced last week. We said what is a fair offer for us to put forward.
HOBBS: But remember, when China`s Anbang pay Hilton what many believe was a staggering $2 billion to buy the Waldorf Astoria Hotel in New York, it proved how deep its pockets can be. Many question if it will now counter bid again. Marriott won`t rule out that this is its final offer.
SORENSON: No, we haven`t. But again, we`re not going to talk about what might happen.
HOBBS: In the meantime, in Havana, Starwood became the first U.S. hotel company to sign a deal with the Cuban government since the revolution, to manage and market two properties in the capital and assign letter of intent for a third.
For NIGHTLY BUSINESS REPORT, I`m Simon Hobbs in New York.
(END VIDEOTAPE)
MATHISEN: In other deal news, Sherwin-Williams (NYSE:SHW) will buy rival paint company Valspar (NYSE:VAL) for more than $9 billion. The merger is the biggest acquisition in Sherwin-Williams` 150-year history. And according to its CEO, the deal would expand the company`s range of products. Shares of Valspar (NYSE:VAL) got a fresh coat, up more than 23 percent while Sherwin-Williams (NYSE:SHW) got rolled, down $15.
HERERA: Data services firm IHS (NYSE:IHS) is moving its headquarters to the United Kingdom, but purchasing market data firm Markit. The deal is worth more than $13 billion. And by moving to the U.K., IHS (NYSE:IHS) will be able to take advantage of the lower corporate tax rate there through that is known as an inversion.
MATHISEN: On Wall Street, the Dow extends its win streak to seven, and follows a fifth consecutive wave of gains and a quiet session that was dominated by that deal news The Dow Jones Industrial Average rose 21 points to 17,623, NASDAQ gained 13, and S&P 500 added 2.
HERERA: Atlanta Fed President Dennis Lockhart says steady economic growth could justify an interest rate increase as soon as April. Mr. Lockhart, who is not a voting member, says there`s enough evidence to justify a hike in short term rates, although he agreed with the Central Bank`s decision last week to leave them unchanged. Separately, the president of the Atlanta Fed said inflation will accelerate in the coming years and will move towards the Fed`s target.
MATHISEN: Fannie Mae and Freddie Mac will reportedly cut mortgage balances for thousands of homeowners. But according to "The Wall Street Journal", fewer than 50,000 borrowers would be eligible for the reduction. And because of that, critics say the plan doesn`t go far enough.
HERERA: And something happened in housing in February -- sales of existing homes dropped much larger than expected 7 percent for the month.
Diana Olick takes a look at what`s behind the weakness.
(BEGIN VIDEOTAPE)
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It wasn`t the blizzard, that came at the end of January. The numbers on closed February home sales were based mostly on shoppers in warmer than average December. That`s why the huge drop even according to realtors was rare.
LAWRENCE YUN, NATIONAL ASSOCIATION OF REALTORS: We`ll have to consider the momentum factor. December was good. January was good and by that comparison, it really declined.
OLICK: Home sales fell 7 percent, to the lowest pace since last November, when new mortgage rules stalled closing for a month. It`s not the rules now, it`s the prices.
YUN: The buyers are getting to show resistance to increasing prices. They are concerned with affordability.
OLICK: The winter saw near record low supplies of homes for sale nationwide and now, the usually strong spring housing season is seeing the same. That pushed February prices to the highest since 2007, just after the peak and spring demand is out stripping even a small rise in supply.
LICIA GALINSKY, REAL ESTATE AGENT: We`re seeing the bidding wars.
D.C. real estate agent Licia Galinsky has two listings on the same block. She put them on last Wednesday, even before the official open houses yesterday.
GALINSKY: As soon as Wednesday hit, we had multiple, multiple people in both houses. So, we had, we`ve seen just a lot of buyers coming out at this point.
UNIDENTIFIED MALE: So, that`s not a problem.
OLICK: One potential buyer, Matthew Williams Hamilton, was out within an inspector by Friday, hoping to win his bid on one of the houses.
MATTHEW WILLIAMS HAMILTON, POTENTIAL HOMEBUYER: Now I see houses popping up every Thursday and Friday. It will be four or five more coming on the market. So, that`s nice, but there`s also a lot more buyers.
OLICK: Spring has up the competition and the bidding wars for what little there is. This house will have multiple offers.
HAMILTON: I expect so, yes.
OLICK: And will you bid?
HAMILTON: Yes.
OLICK: He`ll bid, but he says he will only go so high. The sky is no longer the limit for home prices and that making sales lower than expected this spring.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
(END VIDEOTAPE)
MATHISEN: And a new study out today blames homeowners, not home builders, for the inventory builder shortage. According to the online real estate site, Trulia, the price gap between premium and mid level homes is the main reason for the latest housing crunch, preventing some home buyers from trading up. They just can`t afford it.
Anika Kahn is a senior economist at Wells Fargo (NYSE:WFC) Securities and she joins us now.
Ms. Kahn, welcome. Good to have you with us.
To the extent that the housing market is ailing, what`s ailing it?
ANIKA KAHN, WELLS FARGO SECURITIES SR. ECONOMIST: You know, the biggest concern right now is the low level of inventories. And, of course, there are a whole host of reasons why there`s a low level of inventories. We`ve already mentioned negative equity.
There are nine million borrows that have less than 20 percent equity in their home. There was a lot less new construction at the lower end with a lot of builders concentrating at the higher end.
HERERA: And what about credit? You know, we hear that credit is still tight in some cases. That you have to have pristine credit as well if you`re going to get a loan, and you have to come in with that 20 percent. Is that still the case?
KAHN: You know, it was the case very early on in the recovery. Of course, those particular households that had pristine credit, they were able to get loans fairly quickly. We`re finally starting to see some gradual of easing of credit conditions for middle income and lower income borrowers.
But the first time home buyers, the millennials are still saddled with student loan debt which makes it a little more difficult for them.
MATHISEN: I was intrigued by this study, Anika, out today that indicated that the mid price house that would be the step up house for the first time buyer is a little bit out of reach for those first time buyers, and then beyond that, the mid price owners who wants to trade up to that premium priced house, those have gotten out of reach as well. So, you`ve kind of got a lockdown in place in many markets.
KAHN: You know, it is market story. Housing affordability and those particular markets where labor market conditions increase very solidly. We`re seeing home prices outpace income. But as we continue to get later in the cycle, we`re starting to see some wage and salary gains, which makes us a little cautiously optimistic.
HERERA: You mention negative equity. But if the market is this tight, home prices have been rising. How serious is the negative equity problem in the real estate market right now. I assume it was much better than it was at the beginning of the recovery.
KAHN: Yes, absolutely. It is much better. But those particular borrows that are under equity, meaning they have less than 20 percent, they represent 18 percent of the market. And that means that they will be less inclined to put their property on the market, which goes back into the lower level of inventories. That`s just simply one factor that is leading to the shortage of housing supplies.
MATHISEN: Thanks for your help tonight -- Anika Kahn with Wells Fargo (NYSE:WFC) Securities.
KAHN: Thank you.
HERERA: And still ahead, just when it looked like the Valeant story couldn`t get more dramatic, it did.
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MATHISEN: The Supreme Court will hear Samsung`s appeal in its long-running patent battle with Apple (NASDAQ:AAPL). The justices said they would review that affirmed that Samsung copied Apple`s patented iPhone features. Samsung has been ordered to pay more than $900 million in damages.
HERERA: And Apple (NASDAQ:AAPL) made it official. It unveiled a 4-inch phone iPhone today, which will be called the iPhone SE. The device looks similar to the iPhone 5S, but with newer, powerful technology. Apple (NASDAQ:AAPL) is also adding a new iPad to its line up in an effort to increase sagging tablet sales. The company is lowering the price of its Apple (NASDAQ:AAPL) Watch. The first price cut for the wearable device introduced last year.
Mr. Cook also addressed his encryption fight with the government.
(BEGIN VIDEO CLIP)
TIM COOK, APPLE CEO: We believe we have a responsibility to help you protect your data and protect your privacy. We owe it to our customers and we owe it to our country.
(END VIDEO CLIP)
HERERA: The stock barely budged following just one cent.
MATHISEN: Well, the drama isn`t over for the drug maker Valeant Pharmaceuticals. The CEO just recently back for medical leave is now out. The billionaire investor will join the board and its chief financial officer refuses to leave the board. But the changes are being cheered by shareholders and the stock went on a 7 percent tear today.
Meg Tirrell has more on the company that is not short on controversy.
(BEGIN VIDEOTAPE)
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Another week, another wild swing for Valeant pharmaceuticals. The latest news, the drugmaker announced a shake up at the top. CEO Mike Pearson credited with bucking drug industry trend to build the super-fast growing company through acquisitions and spending cuts is out.
He will stick around until the company finds a replacement. Activist investor Bill Ackman, whose Pershing Square Fund owes a 9 percent stake in Valeant, is joining the board immediately, helping with the search for a successor.
But the story focused on another board member. Former Valeant chief financial officer Howard Schiller. Schiller ran Valeant as interim CEO during Pearson`s two month medical leave of absence and it has retained his seat on the board. In a statement and SEC filing today, Valeant accused Schiller of improper conduct that contributed to the misstatement of its financial results, and said he declined the board`s request to resign from his seat. The board also cited that tone set at the top of the organization, such as its performance-based environment as a potential contributor to the company`s improper revenue recognition.
Schiller responded through his lawyers saying the statement was inaccurate, that he had no time engaged in improper conduct relating to any statement of revenue the company is considering, and as such, respectfully declined the board`s request to resign. Meanwhile, Valeant confirmed it would file its annual report with the SEC by April 29th. Important so it doesn`t trip in its $30 billion in debt.
And a board investigation into the company`s relationship with the specialty pharmacy Philidor is ongoing. The key concern is whether it will turn up any other surprises.
Much more to come for Valeant over the next month. Watchers say the best successor to Pearson would be a seasoned drug industry leader with turnaround experience. Analysts are also on the look out for asset sales Valeant could use to pay down debt faster. Certainly, the news isn`t over for this company.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
(END VIDEOTAPE)
HERERA: Anthem is suing Express (NYSE:EXPR) Scripts. And that`s where we begin tonight`s "Market Focus".
The health insurer alleges that the pharmacy benefit manager overcharge for prescription drugs. Anthem is seeking about $15 billion in damages and is also requesting to terminate its contract with express scripts. Shares of Anthem fell almost 2 percent to 140. Express (NYSE:EXPR) Scripts also fell a fraction to $69.34.
Shares of Citi got a modest lift after Keefe, Bruyette & Woods called for the bank to be split into two businesses. In a note issued just last night, analysts from KBW (NYSE:KBW) said the move could increase Citi shareholder value by 57 percent. Citi ended the day up a tick to $43.60.
MATHISEN: The agriculture company Monsanto (NYSE:MON) reportedly in talks now with the chemical producer BASF and the pharmaceutical company Bayer about potential transactions. Monsanto (NYSE:MON), interested in acquiring BASF`s crop science segment, while its talks with Bayer are focused on joint ventures and unit purchases. Shares of Monsanto (NYSE:MON) down nearly 2 percent to $91.31.
It is my favorite company, the specialty retailer Mattress Firm, not to be confused with firm mattress, missed estimates on both its top and bottom line. The company also issued earnings guidance for the year, below consequence estimates, and will replace its CEO who will become chairman and get a firm mattress in part of the bargain. Shares fell in after hours trading, but they rose during the day. You can say they firmed up to $42.69.
HERERA: Oh, stop.
MATHISEN: Ouch.
And today marks the tenth anniversary for social media platform Twitter. Despite changes in management and a push on new features, the company still faces challenges. Ten years later, it`s still looking for profit and it lost 2 million users during the end of 2015. Shares today flat at $16.89. But they`ve lost nearly two-thirds of their value over the past year and are about a third below the initial offering price of $26 back in November of 2013.
HERERA: As the presidential campaign heats up, one promise that almost every candidate makes is creating more manufacturing jobs. And while everyone agrees more manufacturing positions would be great, the reality is creating those jobs isn`t quite that easy.
Phil LeBeau has our story.
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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The presidential candidates have been saying it for months. They are tired of seeing Americans lose manufacturing jobs.
DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: Companies are leaving our country rapidly, rapidly, whether it`s Carrier air-conditioning, whether it`s Ford, whether it`s Eaton (NYSE:ETN). I was in Cleveland, they are leaving. So many companies are leaving.
Frankly, I`m disgusted with it, and I`m tired of seeing it and there`s no reason for it. It`s just gross incompetence at the highest level. We should not allow it to happen.
HILLARY CLINTON (D), PRESIDENTIAL CANDIDATE: I want companies to know if they walk out on America, they`re going to pay a price. And if they ship jobs overseas, we`re going to make them give back the tax breaks they receive here at home.
LEBEAU: But they keep pushing that promise. Why? Well, America regained just half of the 1.7 million manufacturing jobs lost during and immediately after the last recession. While many manufacturers have rehired or added new workers in recent years, they`re plans are far leaner than they used to be. That`s because they used more automation, more robotics and not as many workers.
And for those manufacturers who have moved some production overseas to keep costs down, bringing those plants back to the U.S. sounds good on paper until they add up the numbers.
JIM JAMES, IDEAL INDUSTRIES CEO: I think it`s really hard to think you can force people back here and still be able to get somebody to buy your product at a higher cost. It comes down to, can your customers afford the price of your product? That`s really what it comes down to.
LEBEAU: Ideal Industries like other companies here in the U.S., said it`s able to keep some manufacturing here in the state by focusing on more advanced products if they able to sell at a higher price. It says that is the key to making a profit when it`s made in the USA.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
(END VIDEOTAPE)
MATHISEN: Coming up, water, we all need it, but the way we get it is in dire need of major and expensive overhaul.
(MUSIC)
HERERA: Here`s a look at what the look for tomorrow. Dow component Nike (NYSE:NKE) reports earnings after the bell and investors will be watching to see what the company says about future orders.
The Justice Department and Apple (NASDAQ:AAPL) head to court over the encrypted iPhone used by one of the San Bernardino Shooters. President Obama speaks to the Cuban people in Havana, and that`s what to watch for on Tuesday.
MATHISEN: The nation`s two largest daily fantasy sports sites have agreed to stop taking bets in New York through the end of baseball season, which of course overlaps with the beginning of football season. The deal was announced by that state`s attorney general with both Draft Kings and Fan Duel.
New York Attorney General Eric Schneiderman sued the companies last year. He alleges the sites operate games of chance, betting. The companies say they host contests based on skill.
HERERA: You might not have noticed it but you`re paying more for gas. According to the Lundberg Survey, the average price of a gasoline rose nearly 25 cents in the past four weeks. You`ll now pay on average $2.02 per a gallon. In Newark, New Jersey, they had low price at $1.66. The highest was in Los Angeles at $2.72.
The writer of the survey says prices may increase further because U.S. refiners have to prepare summer gray gasoline and that costs more to make.
MATHISEN: From water main breaks to lead contamination, America`s pipes are in bad shape, but fixing them will cost tens of billions of dollars.
Nina Gusovsky reports.
(BEGIN VIDEOTAPE)
DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The critical water situation in Flint, Michigan, continues to make headlines. But according to the data we obtained from the Environmental Protection Agency, water issues in the U.S. go well beyond just Flint. Out of more than 7,000 schools subject to testing of acceptable EPA lead levels, 431 reported heightened levels of lead between 2012 to 2015.
But experts say more focus should be placed on how the water is delivered.
CASEY DINGES, AMERICAN SOCIETY OF CIVIL ENGINEERS: In general, the water quality in the United States is very high. The infrastructure that is conveying that water is in need, serious need of investment right now. If we continue on the path that we`re on now and if we do not increase investment in these areas, we`re putting at risk by 2020, over $400 billion in U.S. GDP, 700,000 jobs would be in danger and over half a trillion dollars in personal income would be a risk.
GUSOVSKY: Here`s what the American Society of Civil Engineers says it will take to mitigate the issue, as long as utilities, local, state, and federal governments work together to increase investment in pipes, water treatment plants and other water infrastructure, they say allocate about $9 billion per year nationwide over nine years.
So, it would cost about $80 billion in all protecting businesses from potential losses due to water issues upwards of $150 billion.
Newark, New Jersey is now in the spotlight as well.
JOHN ABEIGON, NEWARK TEACHERS UNION PRESIDENT: Does it need help? Yes. Are we Flint, Michigan? No, we`re not. But the Newark public schools are almost a mini-Flint. It could be in upwards of $10 million, $20 million if they`re going to retrofit the plumbing at some of these buildings. Some of these buildings are over a century half old. To maintain all the water filters in the schools, we estimated it would be approximately a little over $100,000 a year.
DINGES: This problem can and should be addressed. The technologies there, that`s a good investment for us tonight.
GUSOVSKY: For NIGHTLY BUSINESS REPORT, I`m Dina Gusovsky.
(END VIDEOTAPE)
HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for watching.
MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We`ll see you back here tomorrow.
END
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