tv Nightly Business Report PBS April 28, 2014 7:00pm-7:31pm PDT
this is "nightly business report" with matyler mathison a sarah gharib. >> the multimillion dollar portfolio she manages with jim cramer. blockbuster deal, pfizer often to buys astrazeneca for about $100 billion a price tag that puts the deal near top all time. >> the deal raises tax questions. will america's largest drugmaker move the base of the operation to tuck to take advantage of lower taxes, and is our tax code driving american companies away? >> news drove the dow but blue
chips to technology stocks grabbed investors attention. all that and more tonight on "nightly business report" for monday, april 28th. good evening, everyone. $100 billion. that's what pfizer is offering to pay for astrazeneca. this is the second time around pfizer is pushing for a deal with its british rival. investors are cheering. sending the dow soaring. shares of pfizer shot up more than 4% by far the biggest gainer in the dow and astrazeneca jumped 12%. while the pharmaceutical deal may be huge it's not a done deal. astrazeneca has already rejected the offer and an earlier approach from pfizer saying the $100 billion cash and stock offer is too low and that it undervalues the company. we took a look at what combining these two companies mean to the pharmaceutical industry and what's at stake for pfizer and astrazeneca. it's the kind of deal that
doesn't come around too often. 14 years ago pfizer paid $85 billion to buy warner lambert. that was the biggest health care combination ever. and since the recession there's been only one other deal this big. verizon's $130 billion buy out of vodafone stake in verizon wireless. right now shaerlt where the action is. $150 billion in deals so far this year and almost 90 billion last week alone when activist investor bill acresman engineered a $45 billion offer to botox maker. >> more will happen. i don't see a lot stopping. we've seen a huge wave of consolidation. >> why is this all happening now? pfizer and astrazeneca are looking for growth. revenues at both companies dropped 6% last year. patent expirations are leaving them vulnerable to competition from generic drugs and a merger
could help them cut costs while pfizer would add astrazeneca's huge portfolio of cancer drugs to its roster. astrazeneca has also been developing a drug to fight cancer using the body's immune system. both astrazeneca and pfizer are familiar with the risks of new drugs. there's the hope they will deliver huge profits, but the reality in recent years has been weak sales. >> i think it's amazing what drives us and makes sense is the cost-cutting. there isn't a lot of overlap in the pipeline so there's some synergy in the pipeline and potential here to get better growth despite bringing together two entities with relatively slow growth outlooks. >> as with all mergers there's tax issues. this one let's pfizer put some of its billions of dollars in overseas cash to work, bringing that money to the u.s. would result in a giant tax bill. >> pfizer's proposed take over of astrazeneca and its plans to base itself in the united kingdom is once again raising
questions about whether the u.s. tax rates are too high. and maybe pushing american businesses to move overseas. eamon javers has more. >> reporter: it's an iconic american company and been headquartered in new york since its founding in a red brick building in brooklyn in 1849. under a potential $100 billion deal announced today pfizer could become a subsidiary of the uk based holding company. the deal would be capital tax experts call an inversion in which pfizer acquires astrazeneca and then incorporates the combined company in the uk even though it will keep pfizer's headquarters in new york. pfizer which reported an effective tax rate of 27.6% in 2013 will be able to take some advantage of the uk's 21% rate and as an added bonus pfizer will likely be able to shield its $69 billion offshore cash from u.s. repatriation taxes. the move could save the company
millions in taxes but critics say it's not right. >> i think like probably the average american who hears about this sort of deal looks at this as a company that at some level is renouncing its american citizenship in order to engaging tax avoidance. it smells bad because it is bad. >> reporter: others say companies have no choice but to play the global tax game because u.s. taxes are punitively high. >> this is an embarrassment to the u.s. congress and u.s. administration. we've had a corporate tax code that's been out of step with our competitors for decades now. we're lotion pfizer. we lost anheuser-busch. >> reporter: the company says it has to take advantage of the most efficient tax structure it can and a spokesman emphasizes it will still pay taxes on its corporate activities inside the united states. these inversions are becoming more and more common. in december michigan based
pharmaceutical company bought irish company elan and redomiciled in ireland. in may activists bout another inversion deal. the company saved hundreds of millions in taxes. tax inversions are under fire where the obama administration has proposed in its latest budget to do away with most of those transactions. it's not clear whether that could pass up on capitol hill but a sign that politicians here are paying attention. for "nightly business report," i'm eamon javers in washington. >> are for more analysis we turn to james hines, professor of law at the university of michigan. professor hines, where do you stand on this issue. are high u.s. taxes forcing companies turning american companies away? >> no doubt about it. our taxes are much higher than those in britain and most of our competitor countries, so this is the inevitable consequence. >> could this, professor, be the
kind of deal that the travellers merger with citi corps was back in the 1990s. the deal that causes laws to change. >> there's agreement for a while we need to change our laws. the issue is timing. at what point is the united states going to kind of wake up and adopt a tax system more like that of britain or germany or places like that. >> but, professor, there seems to also be a debate even if they change the tax, even if they make it desirable for the american companies to bring their overseas money back to the u.s. it doesn't necessarily mean that they are going to invest it here to boost our economy and hire more people. do you agree with that? >> it may not happen immediately. look, when profits come home from abroad, companies will use them for all sorts of purposes but in the long run, allowing a more efficient reallocation of resources within the companies
can only be good from the standpoint of productivity that leads to economic opportunity. >> what, professor, is at the heart of this technique? is it the repatriation in one of the pieces $69 billion of pfizer's cash that's domiciled overseas or is it just year to year being able to take advantage of a lower corporate tax rate or is it that we double tax corporate profits in the united states? what is it? >> there are three things that britain offers that the united states does not. the first is as your segment noted a lower tax rate. much lower. theirs is 21%. ours is 35%. the second thing is that british companies do not have to pay tax to the united kingdom on their foreign profits. but american companies have to pay tax to the u.s. on their foreign profits. the third thing is that british companies get a very special, in the future going to get a very special treatment of the income
that they earn from patents and other intellectual property and in the united states we don't do that either. in three ways it's a much less attractive tax environment in the u.s. than elsewhere. >> it makes so much sense the way you outline this. do you think it will make sense in wash. how do you think this will play out on capitol hill? >> people on capitol hill are aware that we need to make some changes. there's even some agreement among republicans and democrats on this. of course, they differ on the details. they have to iron out compromises on that. basically people agree we don't want this sort of thing to keep on happening as it has been. and in order to do that, we have legislation that's already been much discussed that probably would make some good steps in that direction. we just have to get out past hally sis in order to do it. >> very quickly, are these kind of deals unique to the pharmaceutical business and also out of the example seem to come out of the drug business, is
there something about pharmaceuticals that make them more likely? >> there is in that they make a lot of profits and they make them -- a lot of profits overseas in low tax jurisdictions and have a lot of intellectual property. you have other hi-tech firms like applied materials did the same sort of deal. >> interesting conversation. thank you so much. james hines professor of law at the university of michigan. >> tax rates are also playing a role in apple's big bond deal. the company with more than a $150 billion in cash is gearing up to sell $17 billion in corporate bonds to fund its increased share buy back plan. apple's chief financial officer explained why apple is issuing a debt sale despite having so much money stock piled overseas. it would cost too much in u.s. taxes to bring the $17 billion of cash back into this country from offshore accounts. an update for you on a $46 billion buy out offer in the pharmaceutical industry that we
told you about last week. botox maker has approached shyer about a potential take over. it could undermine last week's offer by bill ackman and his partner vleant pharmaceuticals of canada. >> a couple of other pharma deals confirmed. merck is in talks to sell its consumer health business which includes the coppertone and claredon brands. and forest labs is buying another pharmaceutical, getting access to promising treatment for irtabernacle bowel syndrome. look at shares of furiex up 28%. another proposed acquisition, general electric's $12 billion offer to buy alstra may have hit a snag.
they are working with siemen's group of germany. comcast massive proposed takeover of rival time warner cable may be a step closer to happening after the big philadelphia media company struck a deal that eases federal antitrust concerns. over the weekend comcast confirmed a $20 billion deal with another cable provider charter communications to swap or sell the companying thing right to serve nearly 4 million cable subscribers. comcast is the parent company of cnbc which produces this broadcast. stocks ended this monday mostly higher thanks to all that merger and acquisition activity we just told you about. investors were also encouraged by a healthy report on pending home sales in march the first increase in nine months. by the close bell the dow was up 87 points, the nasdaq slipped one point and s&p added six points. another development on wall
street keeping a close eye on today relations between the united states and russia after the white house ramped up economic sanctions against individuals and entities licensed to export to russia. john harwood joins us from washington with more on the sanctions and russia's response. john, are these new sanctions, the big sanctions on whole sectors of the russian economy that some have expected or more of a little slap here and a nugy from? >> reporter: it's an increasing number of nugies before they get to the large scale transactions. treasure secretary explained to mitch mitch today what the rationale is behind the administration's approach. >> these are very important sanctions. they are sanctions that will get their attention. i think our goal is to move in a systematic way, careful way, a way that gives them a chance to change their policy and take a different course. our goal here is obviously not to hurt the russian people, it's
to get them to change their policy. >> reporter: give them a chance to change the policy. that's the off-ramp that president obama and secretary of state john kerry have emphasized from the beginning. they haven't taken it yet. if they don't take it we may get to those broader sanctions. >> i wonder how much support does the u.s. have for these policies. does it took like europe is united with the united states on this? >> that's the delicate balance the administration is trying to strike. they were set to announce sanctions late last week but wanted to work european allies more fully than they had previously. clearly europe is more reluctant than the united states because their economies are more intertwined with russia than the united states economy is. but the administration is trying to bring them along and they say if we get to those big sanctions the consultation process will enable them to bring europe along. >> what happened the cool down.
it seemed like a distant memory. >> reporter: turned out to be worthless because the russians had not shown much interest in deescalating. >> john harwood, thanks very much. john will be following that story for us as it unfolds. >> has coach lost its cool. shares are falling as rivals soar and investors look to tomorrow. >> some big proximate for bank of america today. shares tumbled 6% after the federal reserve ordered it to suspend its previously announced
$4 billion stock buy back plan along with a planned dividend increase. b of a said it miscalculated the value of some securities in its take over of merrill lynch. the fed ordered bank of america to resubmit its capital plan for the fed's annual stress test after it corrects the mistake. some good news for the bankrupt city much detroit. city officials reached a tentative five year deal with 14 municipal worker unions covering 3,500 employees. the agreement comes as detroit is close to completing its bankruptcy reorganization plan. new mining ends its talks. last week we told you that the world's two largest gold producers were talking about combining. the deal fell through. newmont ended talks saying the two companies didn't have a respectful relationship. shares of both companies tumbled. newmont down 27%.
barrick down 3%. the swedish drug make meta rejected a take over from mylan. shares of mylan went down 3% to $50.67. corning's first quarter earnings slid. the maker of gorilla glass used in smartphone screens did post earnings but revenue came in shy. the company also said it expects lcd glass prices to decline more moderately. and that sent shares higher by 1% to $20.97. >> shares of gogo tumbled as at&t plans to announce high-speed connectivity.
gogo plunged more than 20% after the market closed. some positive news about herbalife. it posted earnings that came in better than expected and its full year guidance exceeded expectations as well. but herbalife said it is suspending its dividend and will use cash instead to buy back stock. shares rose initially after hours, shares were up about 2% to 58.85 in the regular session. and buffalo wild wings posted earnings. the restaurant chain also raised its earnings growth estimates for the year. shares initially popped after the market closed but during the regular session the stock was down more than 2% to $133.39. about half of the s&p 500 has now reported earnings while the first of the big retailers began reporting this week. among the first luxury accessories maker coach. expectations here are mixed as
many on wall street wonder if the brand has lost its cool factor to up and coming rivals. courtney reagan has more. >> reporter: higher end retail has held up better than the rest sector not every player is expected to knock results out of bark. but coach is undergoing a bit of a makeover it may get a pass from analysts when it reports tomorrow morning. sales of stores that opened at least a year are expected to drop 15% and profit is anticipated to come in 27% below last year. morgan stanley analyst forecast weather hurt coach in the third quarter saying it dearrives as much as 70% of north american sales from outlets many of which are outdoors. perhaps a bigger problem is the cool factor. while coach still holds the top spot, rivals are pecking at its
leadership. green said michael kors is the top brand. >> the branz that are hot right now are more of kate spade of the world. coach was dominant in their era and much of what they are doing changing design direction, changing some of the product focus will help to rejuvenate this once storied brand. >> the legacy handbag maker is reinvigorating the brand under a new ceo upgrading its stores, adjusting pricing and introducing new products. all which will take time but so far wall street is offering a degree of patience. many expect creative director's first collection this fall to unusualer in a new era for coach. >> i think stewart is trying to take that classic coach iconic item and reinterpret it and modernize it. so we're hopeful that his design direction will lead to better
results for the company. >> some however are worried the new product may be fashion right but too pricey for coach's core consumer. the question remains whether investors will wait until september to find out. for "nightly business report," i'm courtney reagan. coming up, x-box is going hollywood. microsoft is creating original programs that can be viewed through its gaming console but will they stand out in an already crowded field. >> several big name advertisers are pulling sponsorship deals with the los angeles clirpgs
following the release of racist comments allegedly made by team's owner donald schneider. aol is investigating a cyber attack on its servers. the internet giant is work with government authorities on a hack attack in which e-mail addresses, postal address, encrypted passwords were stolen. aol is urging every one mail account holders to change their passwords immediately. microsoft is warning users about cyber attacks after a security flaw was found in its internet browser. company acknowledged that a flaw was discovered in its internet explorer browser which could let hackers get inside and take over control of users computers. in a statement microsoft says at this time we're aware of limited targeted attacks.
we encourage customers to follow the suggested mitigations outlined in the security advisory while an update is finalized. while microsoft is fighting off hackers it's also talking about plans to get into original tv programming. it's offering content through its kbmpb box gaming console. >> reporter: steven spielbergberg's series "halo" will start production this fall. but the show finally does debut it won't be on tv. viewers will have to have an x-box. "halo" is one of 12 original programs that microsoft x-box entertainment studios is currently developing. premium content that puts it up against netflix, amazon and traditional content providers. microsoft is trying to build a social content. a strategy that makes it
different from competitors. >> we're adding an additional element of offering up premium content but also allowing a new tv experience with interactive features. >> reporter: x-box 48 million subscribers can engage with the content and each other. take the music festival live streamed in june. it creat as virtual accessible in your own living room where you can choose which stage you want to watch. you'll know the entire schedule and you can actually identify and click to a specific performances. >> reporter: other projects in clued a street soccer documentary launching in june with the fifa world cup, a comedy, and a documentary about atari video game being excavated in the new mexico desert right now. microsoft experimenting with revenue models for its new programming but the immediate goal is growing the x-box live subscriber base and with it sales of new gaming consoles.
>> they don't have to win over very many customers to be a success. they have about 30 million paying x-box live members. if they win over a million of them 3% it's a huge success. >> challenges remain. competitors sony playstation 4 has been outselling microsoft's newest console x-box 1 and at a cost of $100 more the question now will be whether original programming can justify x-box 1's higher price tag. also getting microsoft largely millennial male base to discover these shows on a platform that's been so widely associated with gaming. for "nightly business report," i'm morgan brennan in los angeles. finally tonight engineers at google say the technology in itself-driving cars is entering a new stage mastering the challenges of driving on city streets. have they been to new york yet? the suv outfitted with lasers, and camera have learned,000 read direction signs, traffic lights
and negotiate blind corners, cyclist, pedestrians, even potholes. google said itself-driving cars have already driven 700,000 accident free miles on highways so it's been focusing on city driving for the past year. looks like they may have started to figure it out but i welcome >> that's "nightly business report" for tonight. i'm susie gharib thanks for joining us. >> i'm tyler mathisen. have a great evening. see you back here tomorrow night.
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