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First Move with Julia Chatterley
AbbVie Buys Botox-Maker Allergan; Fedex Says It Is Suing The U.S. Government Over Its Export Restrictions; SpaceX Pulls Off Its Most Difficult Mission Yet. Aired: 9-10a ET
Aired June 25, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ELENI GIOKOS, CNN BUSINESS AFRICA CORRESPONDENT: Live from the New York Stock Exchange, I'm Eleni Giokos in for Julia Chatterley this week, and
here's what you need to know.
Mega merger. AbbVie's buyout of Botox maker Allergan goes through without a wrinkle. FedEx versus the U.S. government, the firm says it is going to
be suing the U.S. government over its export restrictions. And we have liftoff: SpaceX pulls off its most difficult mission yet.
It's Tuesday. And this is FIRST MOVE.
All right, so welcome to FIRST MOVE. Great to be with you today, and we've got a jam packed show. We've got so much news coming through. People are
focusing on the war of words between the U.S. and Iran. We're also focusing very much on the possible outcome of the G20 meeting; of course,
President Trump and President Xi -- this is going to be a really important market moving development.
But let's take a look to see how futures are trading. We're 30 minutes away from the start of trade here in New York and it's not looking good,
we're pretty much in the red. And of course, this news of a mega merger, not enough to get investors excited. It's mostly still risk off today.
We're seeing buying into gold, the Japanese yen again and U.S. Treasuries.
Right now, U.S. futures are pointing to a flat lower start. It does come after a record-setting week last week. Don't forget that we are still very
close to that all-time high on the S&P and of course, a bit of consolidation as we close off the first half of the year.
On the horizon, though a few things that could push markets lower. We're looking at the simmering tensions between the U.S. and Iran. And of
course, that is going to be an important one to look at throughout this week. And of course, that negative news out of the U.S. and Iran spilling
over to the sentiment that we've seen in Asian markets as well. We saw them closing lower across the board. Chinese stocks breaking a six-day
winning streak.
All right, so gold getting its luster back. It is sitting at six-year highs. We've got the perfect recipe for buying into the safe haven assets
uncertainty coupled with lower rates. And then of course, oil prices, we want to watch as well.
Brent crude has really been delivering over the last couple of weeks as a reaction to concerns around the Straits of Hormuz disruptions. Oil though,
cooling off a little bit today.
And of course one of the big market moving events of the day as well taking place right here in New York. Fed Chairman Jerome Powell will be talking
about the economy, later on today, around midday. This is going to be important because remember, last week, we heard news that we could expect
rate cuts later on this year, the market is pricing that in. So of course this could be a market moving events. This is perhaps why we're seeing a
bit of reticence in terms of the market in early trade.
So, let's get straight into your drivers, and it's all about a mega merger within the pharmaceutical space and of course it's between Allergan and
AbbVie.
Let's take a look at the dynamics here because you've got a 45 percent premium offered, $63 billion for Allergan. We've got Matt Egan standing by
for us. And it's interesting, Matt, I mean, we've got a pharma play and a cosmeceutical play. It's healthcare and vanity, teaming up together. What
do the numbers tell us?
MATT EGAN, CNN BUSINESS LEAD WRITER: It tells us that both companies felt like they really needed to do something dramatic because Allergan is not
coming cheap for AbbVie. It's $188.00 share deal mixed between cash and stock.
Now, as you mentioned, that's a 45 percent premium to where Allergan was trading, where it closed just yesterday and the premium is even larger when
you consider the fact that Allergan shares have been moving up in recent days due to speculation about a potential break up.
Now, it is obviously a sweet payout for Allergan shareholders, but it is important to keep in mind that Allergan topped out at nearly $340.00 a
share in the summer of 2015. Now, this deal is for roughly half that now.
Now, AbbVie needed to do something dramatic as well because patent protection ends in 2023 for Humira. Not only is this arthritis treatment
the world's top selling drug, but it also accounted for two thirds of AbbVie's sales last year and again that patent protection is going to be
expiring soon.
So by acquiring Allergan, now AbbVie gets into the fast growing market for Botox and other beauty drugs. Everything from eyelash lengthening to
double chin removal. And so they clearly felt like they needed to do something. The combined company will be a giant. It is going to have $48
billion in revenue and a presence in more than 175 countries.
[09:05:14] GIOKOS: Yes, I mean premarket trade in terms of what we've seen on AbbVie's share price, it seems that market participants right now are
signaling that it's just too much of a premium at $63 billion.
But you made a really good point that Pfizer walked away from $160 billion deal for Allergan a few years ago, so that, of course, is also going to be
quite important. Valuations are looking very different right now, but what kind of synergies can these two companies create?
I mean, as you mentioned, it's from, you know, getting rid of your double chin, and then of course, teaming up with hardcore healthcare products. I
mean, we are going to need both at the end of the day, at some point in our lives, I would assume.
EGAN: That's right. So the point about the stock move, it's important to remember that AbbVie is paying for some of this in stock, and so sometimes
when you see a partially stock based transaction, you will see an immediate drop in the acquirer's share price, and so we're seeing that this morning.
Now, as far as the synergies go, you know, the companies say that the deal will immediately add to the bottom line. It'll boost adjusted EPS by 10
percent over the first full year. They're going to get there through at least $2 billion of synergies and cost reductions by year three. That's
going to come from -- they say, they're going to continue to invest in their really important franchises, but they will cut costs in certain
overlapping areas.
They talked about a 50 percent reduction in certain overlapping R&D resources, sales and marketing, also in manufacturing and supply chain, so
they say that they'll be able to really bring some value out of this by joining forces.
GIOKOS: Well, thank you so much for that update, Matt. Appreciate it. All right, let's shift gears now. And we are moving over to FedEx. The
company says that it's going to be suing the U.S. government. It also says that it's not its job to enforce new rules and regulations regarding
Huawei.
We've got Paul La Monica standing by for us, and the company also says that it's not its job to police millions of parcels that pass through into the
United States, and this is the second time we've been hearing about FedEx, you know, in just a matter of days, because you know, we also heard that
they weren't able to deliver Huawei products in the U.S. They said it was just a mistake on their part.
But again, two pieces of news that is going to be affecting its share price.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, this is very fascinating, Eleni. Obviously, FedEx is making the case that they can't be deputized to
essentially be a law enforcement agency inspecting all of these packages. They are a transportation company, a logistics firm, and that's why this
lawsuit has taken place because FedEx has global customers that are going to be very annoyed at it if it is policing what these shipments are. And
that's what's come to the forefront with Huawei.
I mean, most recently you had a controversy as well, where a rider at the U.K. offices of "PC Mag" was shipping a Huawei phone to the New York
offices and that got intercepted.
So there are a lot of concerns right now that FedEx can't do its business, it can't do its job if they have to be worried about what the U.S.
government wants regarding this crackdown on Huawei equipment.
GIOKOS: And this is interesting, because the Chinese government also wants to investigate why they weren't able to deliver a phone into the United
States, then you've got a FedEx taking on the U.S. government.
I mean, you're looking at issues on both ends of the spectrum for FedEx, and its earnings day today for the company as well. How are investors
going to be looking at this piece of news?
LA MONICA: Yes, it's obviously another headache, Eleni for FedEx, and I think what's going to happen is that investors when FedEx reports after the
close tonight, they're going to be very focused on what the company says about all of this global trade tension, and what it's going to mean for its
earnings and revenue going forward.
The company has already warned several times about this year's profits that they're going to be hit by geopolitical concerns, and since things really
haven't changed for the better, I think it is possible that FedEx even if they don't cut their numbers, again, they're probably not going to be
bullish about the outlook for the global economy at a time where the U.S. and China and the U.S. and many other trade partners are if not feuding, at
least they're not on friendly terms.
GIOKOS: Paul, thank you so much for that update. Appreciate it. All right, let's move over to Iran- U.S. tensions. Listen to this, "Idiotic,
they are desperate as well as mentally disabled." That is the reaction from Iran on the new U.S. sanctions towards officials in that country.
Hassan Rouhani responded to us sanctions in that televised address using this language. We've got Freg Pleitgen joining us now from Tehran. Fred,
I mean, one other thing that we've heard is that diplomatic solutions are off the table for now because of these new sanctions, which of course is
not what the U.S. government wanted to achieve by imposing these new rules.
Where to from here if there's no diplomatic solution? What solutions are there?
[09:10:15] FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: It's really difficult to see how that's going to work out, and I think it goes,
Eleni to one of the fundamental disconnects that you have between Tehran and Washington D.C., where on the one hand, you have the Trump
administration that says that they're going to keep sanctioning Iran until they go back to the negotiating table. And I think that John Bolton has
already said that he believes that that's what's going to happen.
But the Iranians are saying, look, it's precisely the sanctions that means we're not going to go back to the negotiating table. So it's really
difficult to see how the two sides are going to get out of that.
As far as the sanctions are concerned, it really is an interesting case, because the Iranians are saying that these sanctions are going to have
absolutely no effect on their economy and are absolutely going to have no effect on the people who were actually sanctioned.
You have the Supreme Leader. There's some folks around the Supreme Leader, the Iranians are saying they have no assets abroad any way and then you
have some senior commanders of Iran's military as well.
But the Iranians are saying just because these sanctions were issued, it means that negotiations are -- or the door for negotiations are essentially
closed, and that's one of the reasons why Iran's President came out earlier today, and just absolutely lashed out at the Trump White House questioning
the White House's mental stability. Here's what he had to say.
(BEGIN VIDEO CLIP)
HASSAN ROUHANI, IRANIAN PRESIDENT (Through translator): They had become frustrated and confused. They did not know what to do. They do strange
things that no sane person in the history of world politics has done, or at least I don't remember.
This is because of their total confusion. They have become mentally disabled. The White House is suffering from mental disability.
(END VIDEO CLIP)
PLEITGEN: So you have some pretty strong words there coming from Iran's President and one of the things that the Iranians kept hitting on again and
again, they said, look, the U.S. is sanctioning a lot of high level individuals and has said it also wants to sanction Iran's Foreign Minister
Javad Zarif and the Iranians are saying that America is telling them they want to go back to diplomacy, back to negotiations, but it doesn't really
mesh with the fact that the Americans are sanctioning Iran's top diplomat, Eleni.
GIOKOS: All right, Fred, thank you so very much for that update. Appreciate it. All right, let's check in to see what news is making
headlines today.
President Trump's senior adviser and son-in-law, Jared Kushner, will present a U.S. plan for Palestinian prosperity in the next few hours. He
is in Bahrain to lay out a $50 billion proposal to investors, business leaders, as well as government officials.
We've got Jeremy Diamond joining us now from the capital of Bahrain, Manama. And of course, Kushner is also facing quite a bit of resistance
because they are saying, we cannot achieve prosperity without a political deal first. So what is the reaction at the moment? There is resistance,
but there's also $50 billion on the table.
JEREMY DIAMOND, CNN WHITE HOUSE REPORTER: That's right, and that is really the central component of this and the center of a lot of the criticism that
we've heard so far is the lack of a political plan accompanying this economic plan at the moment, but that is by design, this administration has
been trying to present a different kind of approach here, offering up this economic package first, and let's just get into the details of that package
real quick.
$50 billion over 10 years. But again, all of this is contingent upon a political agreement between the Israelis and the Palestinians, and that is
why a lot of the Palestinian authority representatives and some other Arab leaders who are not attending this Summit have been saying, look, we cannot
agree to some kind of economic package without that political framework, without that discussion happening here in Manama.
And indeed, it will not when Jared Kushner comes to the stage in just a few hours here to make his pitch to the Arab leaders who are assembled here and
representatives from Europe as well, Kushner will not be addressing those political components. He will be focusing on the economics and what senior
administration officials have told me is that really, this is about making a pitch to the region, to the Palestinian people directly to try and tell
them, look, if there is a peace agreement with Israel, this is the kind of economic prosperity that you could see in the region.
But again, a lot of question marks still around how in fact, this can actually become achievable because of the lack of those political details.
As far as when those political details will come, the administration has struggled to get this plan out because of turmoil mainly in Israeli
domestic politics. Now, they're anticipating the release of that political component of this peace plan in November following the next round of
Israeli elections.
GIOKOS: The reality is that many parties around the world have actually tried to assist both Palestinians and the Israelis to get to the
negotiating table and nothing's come out of it.
And this is interesting that you've got, you know, $50 billion committed over a 10-year period. But surely, Jared Kushner should also be talking
about a political deal. Do you think he is going to stay away from that and just focus on the economics of what's happening in that region?
[09:15:08] DIAMOND: Yes, that's exactly right, and the administration is also not expecting any of the countries attending, any of the investors who
are attending this conference to actually provide firm financial pledges towards that $50 billion.
So again, it is very much theoretical, it is a detailed plan. There are 167 various infrastructure and development plans being presented here at
this conference in Manama, Bahrain, but again, no money actually backing that up as of yet. And it is all contingent on that Israeli-Palestinian
peace agreement, which as you mentioned, has been sought for decades and decades.
But this administration is trying a different approach now by presenting the economics first and then they say they'll unveil the political plan at
a later date.
GIOKOS: Jeremy Diamond, thank you so much for that update. All right, so Britain is set to announce its new Prime Minister on the 23rd of July. The
list of candidates to lead the Conservative Party and therefore become PM has been whittled down to the final two: Boris Johnson and Jeremy Hunt.
Members of the party all get a vote on the winner. Johnson, the current front runner said today, he is still determined to take Britain out of the
European Union on October the 31st.
People in Europe are being told to get ready for potentially dangerous heatwave this week. A storm over the Atlantic and the high pressure system
are pulling hot air from Africa into Europe. Temperatures in some parts are expected to rise 38 degrees Celsius.
So FIRST MOVE is going to continue right after the short break, and still to come, the minerals in the middle of the U.S.-China trade war, CNN takes
only rare earths mine in the United States.
And high stakes liftoff: SpaceX launches its most difficult mission just yet, and of course this is going to be an important one to take a look at.
We'll be back right after this short break. Stay with us.
(COMMERCIAL BREAK)
[09:20:10] GIOKOS: Welcome back to FIRST MOVE live from the New York Stock Exchange. I'm Eleni Giokos. Let's quickly check in to see how the futures
are looking right now -- mostly flat, with a lower and mixed bias. Actually, the Dow futures are pointed to a slightly positive start, that's
a big move from what we saw earlier today.
Healthcare stocks, we want to watch and of course, AbbVie is buying out Allergan in a deal with some $63 billion. Allergan shares are currently up
quite a bit, up more than 30 percent in premarket trading. AbbVie shares, however, are down 10 percent and that's because I guess, markets are just
reacting to the premium that AbbVie would be paying for Allergan.
We are also watching the continued rise of Bitcoin. The cryptocurrency has been up over four percent today. It's pulled back a bit, but still trading
above $11,000.00 and that's its highest level since beginning -- well, actually over a year now. Well, below high of its all-time high of
$19,000.00 setback in 2017, but still up almost three percent today.
Well, joining me now, we've got Lori Heinel, she is the Deputy Global Chief Investment Officer at State Street Global Advisors. Really good to have
you with us.
LORI HEINEL, DEPUTY GLOBAL CHIEF INVESTMENT OFFICER, STATE STREET GLOBAL ADVISORS: Thanks for having me.
GIOKOS: And just on the Bitcoin price, because it's an interesting one. You've got U.S. Treasuries, we've seen a lot of buying into that space, the
yen is doing well, gold is doing well, and you've got Bitcoin doing well.
It seems that the safe haven assets seem to be attractive at the moment. Is Bitcoin being viewed in that space right now? Or are fundamentals
driving the price?
HEINEL: I think it's less about Bitcoin as a safe haven asset and more about that it's actually got an economic value that if you actually start
to see it as a means of exchange, then that becomes supportive for it as an asset, if you will.
So everything that's happening now with some of the other new developments with labor and whatnot are showing that there may be a path forward to some
sort of an economic underpinning.
GIOKOS: Do you have exposure to it?
HEINEL: We've been very cautious about how we think about cryptos because we think they're still an emerging asset class.
GIOKOS: Okay, it's interesting, you've just come up with your half year reports as well, and you are talking about focusing on fundamentals. And
that's, of course, something that, you know, it's about the long term and getting rid of the volatility and the noise in the news.
But you've also got the markets looking very overbought right now. How do you push through the noise? And, of course, how much good news has been
pricing and just focus on the fundamentals?
HEINEL: Well, certainly the markets have run a lot harder than we thought at the beginning of the year. So we're up now in double digit territory,
which we never expected for 2019.
But the other side of it is with interest rates being so low, equities look relatively attractive based on a dividend yield basis, based on an earnings
growth basis.
So what we're doing is trying to be selective in this market, look for places that haven't appreciated quite so much. Maybe some of the defensive
players which have done well, but again, relative to interest rates still look like they have some more room to run.
GIOKOS: Are you liking healthcare right now and pharmaceuticals? I mean, we've got a mega merger that's been announced today, between Allergan and
AbbVie. Health and vanity coming together.
HEINEL: Sure. Yes, you know, healthcare has been one of our preferred segments for a while now. And again, we think there's organic growth
there. So it's one of the few places where there's actually demographics that are driving the growth; where in a lot of other places, that's not
happening.
But we're also not surprised to see some M&A activity here again, because a lot of these companies are flush with cash. And so how do they use that
cash? Well, they could do R&D, they could do mergers, so they could repatriate to stockholders.
GIOKOS: So big news today, Jerome Powell is going to be speaking about the economy, and there's just been, you know, this euphoria about the potential
of rate cuts that are going to be coming through. The question is, are they going to materialize?
You've also got the U.S. President really concerned about the fact that rates have not been cut just yet. So how are you reading into this? And
how are you preparing for good or bad case?
HEINEL: Look, the Fed has said repeatedly that they're going to be data dependent. And, you know, we believe that the last rate hike in December
was unnecessary. But we felt like they had sort of backed themselves into a corner because they had signaled that they were going to hike rates, and
so they didn't want to be seen as backing off of that.
But now, I think they set the tone that, you know, they are acting ready to cut. It looks like July might be the next time. But we think they are
still going to be data dependent, and a lot of the consumer data is still coming in very strong.
GIOKOS: We've got trade war concerns. We've got Iran-US concerns, and markets are doing really well. The question is, does this market still
have legs? Or do you think that any kind of bad news could actually see some steam taken off?
HEINEL: One of the most important things is going to be earnings follow through in the second quarter. So we've already seen a bit of a rewriting,
so we're expecting that companies will come in okay, probably a little ahead of some of the estimates in the second quarter. But that's what's
really going to drive the market from here.
The other like you said, it's a bit of noise, we will see some gyrations of the market, but we're going to expect another big leg up until we start to
see some earnings follow through.
GIOKOS: And are you confident about the earnings? Do you think --
HEINEL: We think that they've been reset, so -- with a little bit of an uptick more recently. So we think that companies are in a good position to
at least achieve if not beat earnings in the second quarter.
GIOKOS: And that really just does depend on you know, the multinational companies that have a global footprint. They might be more hurt with the
trade war issue, and then local companies here -- it's all about local growth and the economy is looking pretty good, but we have seen a few data
points that have created a bit of concern like manufacturing and so forth. Are you pricing in anything with regards to data that could impact your
favorite companies?
[09:25:22] HEINEL: Well, here again, we are focused primarily on companies that are geared to consumerism and to more defensive plays, so as we talked
about earlier, we've liked healthcare. We've liked consumer staples. We've liked some of the things that are more interest rate sensitive like
utilities and REITs have been one of our more favorite sectors recently. So we think the real estate market will do quite well here.
So there are a number of places for optimism. Again, not breakout, we are late cycle and we think you need to be a little cautious where you put
money to work.
GIOKOS: Okay, emerging markets? Getting exposure to the space. We know that they have been stuck in the middle of all the noise that we keep
talking about. There's something that we say in South Africa where I am from, if the U.S. sneezes, South Africa catches a cold.
That's kind of the reality here. Do you want exposure to any EMs?
HEINEL: So EM has been a real conundrum for us. We actually liked EM at the end of last year. It started to overweight there. We got a little bit
of benefit from that, but again, they are really in the heat of a lot of the storm, and not just some of the geopolitical tensions, but also China
slowing.
So it's a little hard to be too optimistic about EM in the short term and in fact, we've cut our overweight back to more neutral posture there.
We think however on the long term, there probably are some of the opportunities especially with these prices.
GIOKOS: Fantastic, Lori. Great to have you.
HEINEL: Great, thanks for having me.
GIOKOS: Much appreciated for your time. All right, so, thank you to Lori Heinel from State Street Global Advisors. Stay with us on FIRST MOVE. The
market open is up next. Don't go anywhere.
(COMMERCIAL BREAK)
[09:30:01] GIOKOS: Welcome back to FIRST MOVE. I'm Eleni Giokos live from the New York Stock Exchange. That was the opening bell.
Let's check in to see how the markets are faring at the moment. It's mostly flat as we get into the trading day. We had a negative bias leading
up to the open, but as you can see, we are slightly to the positive.
We are looking very closely at drug and healthcare stocks after that merger announcement between AbbVie and Allergan, $63 billion worth, and of course
on the agenda as well today, Fed Chair, Jerome Powell's speech in New York will be a key focus for investors and that takes place around three and a
half hours from now.
Word that U.S. and Chinese officials have begun talks in advance of this week's meeting between President Trump and Xi is keeping trade firmly on
minds of traders and of course, don't forget the Iran-U.S. developments as well, also we're going to watch that. Of course, it's just also simmering
in the background.
Let's take a look to see the big movers today here in New York. And of course, Allergan is way up after it was announced that U.S. biotech firm
AbbVie buy the Botox mega for $63 billion. Take a look at that. And then AbbVie is down almost 11 percent right now. Investors perhaps weighing
that the company is paying a 45 percent premium on Monday's closing price for Allergan.
FedEx is down one and a half percent. The company is suing the U.S. government saying it cannot be held responsible for enforcing U.S. bans on
China, and that stems from Huawei ban and FedEx messing up Huawei deliveries in light of the ban. So lots of things happening there and says
it is not its job to enforce export rules affecting Huawei, and of course FedEx is going to be out with results after the close of trade today.
Now the U.S. President meets his Chinese counterparts at the G20 this week for their first talk since trade negotiations ground to a halt in May.
Well, investors hope it leads to a thaw, China is hinting it may try to exploit a potentially powerful negotiating chip. It has a key role in the
supply of the minerals known as rare earth.
There is just one place in the U.S. that produces rare earths and we've got Clare Sebastian right there for us for an update. Clare, you look fabulous
at the mine. Tell me about what you're seeing there. I mean, it's the only place that you can mine rare earths in the United States and look,
it's an important commodity for all technology that we use from our cell phones to our TV screens.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Absolutely, Eleni. This is Mountain Pass, California, as you say, the only rare earths mine in the
United States. It's fully operational, even though it's only 6:30 in the morning, and hence, the safety gear which is mandatory according to Federal
regulations.
But look, the U.S. is actively now because of the trade war and because of developments before that looking to become more self-sufficient when it
comes to the supply of these critical minerals, and if it's going to do that, it has to start here at Mountain Pass.
This is not only a very valuable reserve, it is seen as one of the best reserves of these metals in the world. It has about eight percent
concentration down in the rock, in the pit below me. That's a very high number when it comes to these metals.
But it is also fully operational. It has been ramping up since it was bought out of bankruptcy over the past year and a half. It now accounts
for -- the owners say -- about 10 percent of the global supply of rare earth minerals.
But this is going to be a long road for the U.S., Eleni. China has a stranglehold over the rare earths supply chain, from production to
processing to even manufacturing the products that contain these rare earths like iPhones.
This plant is really in the spotlight as it starts to ramp up its efforts to become more self-sufficient. It wants to start processing. It is
planning to reopen a processing facility next year. That will be a big step.
But it wants more support from the government because of course the industry in China is subsidized. There are much lower environmental
restrictions there and they say they'd like some support to try and level the playing field here.
GIOKOS: Yes, and it's going to be important to look at the life of the mine, to look at the quality of the rare earths, to see how difficult it is
to actually mine in that region versus what the cost would be if you just import processed rare earths from China.
What are the dynamics that the business people are telling you at the moment regarding that mine and the viability of this mine being able to
supply local companies with rare earths?
SEBASTIAN: Well, in order to do that, they need to stop processing it themselves. Right now, the final product that they produce here is a
concentrate. Basically, 50 percent rare earth concentrate which they ship a hundred percent off to China where it gets processed.
They do want to change that. As I said, they are planning to open a processing facility and when that happens, they will start to be able to
supply companies with a product that's further along the supply chain.
[09:35:11] SEBASTIAN: But of course, this is, you know, this is a really crucial part of the economy going forward. Every new technology, pretty
much that we use, from cell phones to wind turbines to electric cars, all of these rely on these rare earths and demand for that is only going to go
up.
The owners here says, they are economical at the moment, they are turning a profit, but they do have to really look to keep costs down, and the other
wrinkle in this, Eleni is that China has slapped a tariff on rare earths being exported into China, from the U.S. that pretty much only affects this
business and that has put extra pressure on their costs.
GIOKOS: Yes. Fantastic, Clare. Thank you so very much for that update. Clare Sebastian at a rare earths mine, the only rare earths mine in the
United States.
All right, so the trade war is just one of several big issues concerning investors as we head into the G20 Summit this week.
Joining me now, we've got, Jens Nordvig and he is the founder and CEO of Exante Data. Good to have you, Jens, with us.
JENS NORDVIG, CEO AND FOUNDER, EXANTE DATA: Thank you.
GIOKOS: Much appreciated. I mean, there we've just heard rare earths being a really big issue for the United States, because China is clamping
down as retaliation. The U.S. doesn't have a processing plans, it just produces concentrates.
And that's the thing. Everyone is scrambling to either build infrastructure to start processing in the U.S., which does take a very long
time or they're looking for new markets. Who is going to be the winners and losers in this entire game?
NORDVIG: Yes, I think that the issue now is we have such a broad section of goods that are either already on tariffs or are being threatened very
soon, potentially after this G20 meeting. So it really has wide reaching implications.
So if you look at who could potentially step in, if China is kind of squeezed out on certain markets, I think there's two or three countries
that are at the top of that list.
So in Asia, Vietnam is one country that potentially could grab some market share in terms of these assembly businesses, and then in the sort of NAFTA
region, Mexico really is competing with China in a lot of different sectors.
So I mentioned those two as the most important countries to watch that could potentially benefit. There's going to be a lot of losers --
GIOKOS: Yes, but Mexico has its own trade dynamics playing out with the U.S. as well.
NORDVIG: That's right.
GIOKOS: Which of course is up in the air.
NORDVIG: Yes, well, so I think the big difference with Mexico is that even though Trump is very, very aggressive, and we obviously had an additional
tariff threat very recently, there's not a lot of political support broadly in the U.S. to impose tariffs on Mexico, whereas in relation to China, it's
actually backed by Republicans and Democrats alike.
So therefore, it is very difficult to see a deal with China that's going to just eliminate all existing tariffs, and that I think is the political
difference that's very important.
GIOKOS: And of course, we're going to see diversion of trade, rewiring of supply chains. That's what we're talking about. China is doing the same
thing. It's firmly focused on, you know, its favorite territories, Africa being one of them. Other emerging markets as well.
And the reality is that a lot of these territories have relationships with both the U.S. and China, and I just wonder how that is going to evolve down
the line. What's your best case scenario?
NORDVIG: Well, so there's a lot of countries around the world where they've really seen their trade pattern shift dramatically over the last
two decades, right? U.S. used to be the dominant trade partner. But now, China is actually more important.
For example, Brazil trades more China than the U.S., so it's really important how they sort of evaluate.
I think, if you look at the data, that's what we do in my company for you, we crunch the numbers. What we see is that exports from China to the U.S.
have taken a shift down. There are a couple of winners and Vietnam and so forth. But really, the big shift is that corporates are watching. They're
watching this G20 meeting, and they're not doing any big investment projects until they know, okay, what is really the path forward?
So it's really slowing investment, and that means that the big shift is probably going to happen only in the second half of this year.
GIOKOS: Well, that's if we have a resolution or clarity within the second half of the year. How are you seeing this G20 meeting? And I say this,
because when I look at, you know, FedEx issues, when I see that there were various companies out of China that weren't allowed to buy components out
of the U.S., I mean, in the background a few days before this meeting already, you're seeing just so much tension that is happening in reality.
NORDVIG: Well, I think the good news is after the total collapse in talks, we have some kind of talking going on. There was an important meeting with
Liu He and Lighthizer and Mnuchin on the phone.
GIOKOS: Yes.
NORDVIG: It's going to be a very difficult process to actually strike a deal. So I think the most likely is that this G20 meeting is going to be a
restart of talks of some sort, and then probably the whole month of July, is going to be sort of a make or break attempt to get this process going.
And if not, we're going to see a dramatic escalation probably at the end of July. So I think that's the path we're on right now.
GIOKOS: And it's interesting because people are taking a lot more protectionist views towards China, and at one point, it was China's
intervening in its currency so we can't compete and so forth. And here you have like, for instance, a rare earths mine thinking about embarking on a
processing plant so people trying to build infrastructure in various territories so that they can be self-sufficient.
[09:40:11] GIOKOS: I mean, the question is whether they can do it more economically than China. I mean, that brings into question, but how do you
see that appearing and playing out because sometimes being self-sufficient is not so bad, right?
NORDVIG: I think in the goods that were tariffed so far, China didn't have like a dominant role. That's why they picked those categories first, but
if we go to the $300 billion that Trump has threatened to put on, China has a massive market share.
So it's very, very difficult without huge investments to shift that production to other countries. That's why this is going to be a very drawn
out process.
GIOKOS: Jens, thank you very much for joining us. Good to have you in the studio with me. Much appreciate it. Jens Nordvig, thank you.
And of course still to come, the Falcon takes flight. The world's most powerful launch vehicle on SpaceX's most difficult mission. More on that
just ahead.
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GIOKOS: And we have liftoff. The world's most powerful rocket has taken to the skies. CEO Elon Musk says this will be SpaceX's most difficult
mission ever. The Falcon Heavy is carrying two dozen experimental satellites, and we've got Rachel Crane following the story.
What an incredible sight. The most difficult mission yet, Elon Musk says and this is quite significant because this is the second launch this year.
RACHEL CRANE, CNN BUSINESS INNOVATION AND SPACE CORRESPONDENT: That's right, Eleni, and the reason that this particular mission was, you know,
dubbed the most difficult launch they've had to date is because there were 24 experimental satellites on board and they were headed for three distinct
orbits.
Now that required a lot of tricky maneuvering for this rocket. The second stage booster had to fire four times, so a lot of room for error here and
the customer was the Air Force and the DoD coordinated with NASA and several other laboratories and universities for the payloads on board, and
a lot of excitement about those payloads.
[09:45:18] CRANE: Now, NASA had a very futuristic atomic clock, also a green propellant, but the thing that had the space community super jazzed
was LightSale2. Now, this was a solar sail project, you know, centuries in the making here. It was sponsored by the nonprofit Planetary Society,
which is headed by Bill Nye known as "Bill Nye, the Science Guy."
It essentially is a spacecraft that is going to use light photons as the propellant, but unlike, you know, traditional solar panels that convert
solar energy into electricity, this uses the momentum of the photons itself.
And, you know, the DoD, of course, was the one that coordinated this launch, and so a lot of eyeballs on this launch, because it was ultimately
meant to certify the Falcon Heavy for future National Security missions.
So as we all know, today's launch was a smashing success for SpaceX, so that could mean billions for the company if it does, in fact get that
certification, Eleni.
GIOKOS: Absolutely, I mean, and that's the thing, right, because -- and that's what made it quite difficult because the technology that you say it
was testing and of course, really expensive, I guess, you know, projects as well.
Twenty four space crafts is what is expected to be put into three separate orbits. You mentioned this earlier, but the question is, yes, successful
takeoff. But again, they still have a lot of work to do to make this entire project a success. What are we hearing on that front?
CRANE: Well, this was also the first time that the Falcon Heavy was using reusable boosters that had already flown to space. So that that was also a
very exciting part of this mission. And they were able to land those boosters once again successfully back on Earth, unfortunately, the core
booster that crashed into the ocean when it was attempting to land on the drone ship there, but while that, you know, wasn't a perfect landing, there
was another huge success for SpaceX here.
They were hoping to land the rocket's fairing into like, basically a giant net on a ship in the ocean called Ms. Tree, and they've been trying to do
this for a year and a half, and they finally did it today.
So Musk says that that's about a savings of $6 million, being able to recover that fairing. Now the fairing is basically like that nose on the
end of the rocket that protects the satellites inside the rocket and it comes off once in space.
So a lot of success for SpaceX today. I'm sure Musk and his whole team is celebrating today.
GIOKOS: Fantastic, Rachel. Thank you so much for that update. Appreciate it. So up next with investors' appetite for meat alternatives, showing no
sign of cooling off. We speak to the CEO who is taking on Beyond Meat. Don't go anywhere.
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[09:50:04] GIOKOS: Welcome back to FIRST MOVE. Beyond Meat has slumped almost 20 percent over the past two weeks now after JPMorgan downgraded the
stock, it hasn't been performing that well, saying that the enormous appetite for its products was not priced in, but the stock is still up
fivefold from its IPO price. Yes, fivefold suggesting that alternative meat market continues to boom.
And joining me now is the CEO one of the most recent entrants to the field, Larry Praeger heads up Dr. Praeger's Purely Sensible Foods, which recently
launched a vegan alternative meat, burger -- a meat-type burger. Larry, great to have you on the show. Thank you so very much for joining us.
And the reality is you've actually been in the veggie burger space since 1994, but it was a pure vegetable burger as opposed to a meat alternative
burger. And now you're getting into the space. You've done a lot of research. You've been working on this for a year and a half, but you're
going up against some tough competition -- Beyond Meets, Impossible and other players. How do you plan to do this?
LARRY PRAEGER, CEO, DR. PRAEGER'S PURELY SENSIBLE FOODS: Yes, so we've been around for 25 years. Over the past few years, there's been a
tremendous amount of attention brought to the category. We recently created the Perfect Burger, worked on it for, as you said, a year and a
half.
We recently launched at the National Restaurant Association Show and got tremendously positive feedback. We wanted to take a burger, make it taste
like meat, give you the experience of meat, but also we wanted to elevate the product.
So we are using clean recognizable ingredients. You can turn over the back of the box and recognize everything that's on there, superior nutrition, so
we're using less sodium, less fat, way less saturated fat. And we're also going further in infusing the products with vegetables, which really ties
back to the DNA of Dr. Praeger's products.
GIOKOS: Because originally you had sort of just a pure veggie burger, and now it's a meat alternative kind of play, which other players are doing as
well, but you're talking about clean ingredients and I guess that over the last few weeks, people are saying are these alternative meat burgers
healthy? Too much sodium, can't recognize what they are. Way highly processed. Is that going to be your differentiating factor?
PRAEGER: Yes, that's kind of always been our differentiating factor. It has always been about clean, recognizable ingredients. All of our products
are non-GMO verified. A lot of them are gluten free, vegan, and we use third party certifications to kind of give that extra assurance and
transparency to the consumer.
GIOKOS: Full disclosure, I am vegetarian, so I'm into this space, but I live here, so I haven't tried your stuff as yet. But the reality is, it's
a movement that is growing, and it could be with billions of dollars down the line.
When you look at how Beyond Meat has been performing after its IPO. I mean, that's pretty extraordinary. And at the same breath, you've also
been seeing growth year on year over the past five years north of 30 percent. How much room is there for growth right now?
PRAEGER: I think there's a lot. I mean, if you look at the market itself, it's very small in comparison to regular meat. It's about a billion
dollars in the U.S. compared to $100 billion in the U.S. for meat. And there's a big opportunity to try to get that up to four to 10 percent and
that's just domestically.
And then of course, on an international level, it's going to be much larger.
GIOKOS: So I know, frozen food space, you know, at a store that's kind of been your player over the past few years. But you want to get into
restaurants aggressively and how quickly can you do that?
PRAEGER: We can do it pretty quickly. We were about -- our business about 12 percent in the food service restaurant space. We have a good team
behind us building out the product's portfolio, we have great distribution nationally. And we're hoping to get to about a thousand restaurants by the
end of the year.
GIOKOS: So you've done a lot of R&D to produce this burger. So it must have cost a lot of money. How much does it actually cost to produce
alternative meat? I mean, and that's the thing. Is it economically viable? You know, are you going to get your money back for each burger
that you sell?
PRAEGER: Yes, I think we will. I mean, for Dr. Praeger's, we're a pretty lean company. We're a family business. We're based out of northern New
Jersey. So our R&D team probably consists of six people. So it's not a huge organization like that.
And we also self-manufacture. So everything we're actually producing, about 98 percent of it, is made out of New Jersey.
GIOKOS: But are you going to have good margins on this alternative meat burger? I mean, initially or are you going to be loss making on that
specific product and then your other products that are very well established and is your business going to be pushing up and propping up
that business?
PRAEGER: Yes, because of our ability to be lean and our manufacturer margins are pretty healthy on that line?
GIOKOS: But is that burger going to be economically viable in itself? That product?
PRAEGER: Yes.
GIOKOS: Yes?
PRAEGER: Yes.
GIOKOS: With the R&D and the cost of manufacturing, because you've had to build new infrastructure to accommodate this new product.
PRAEGER: Yes, recently, for about the past year and a half, we have been building out a new production line. So we currently have two production
lines, we have a third, that's a high speed line, that will actually double our capacity.
So we've obviously made a large investment in machinery, but we also have really aggressive growth plans for the next few years. And we've been
meeting them. So we suspect that will be able to fill up that pipeline within three to four years.
GIOKOS: And there's so many entrants within this space and the question is, is there going to be enough demand and I know we are talking about it
growing, but it could be overheated as well. It's going to be a battle of the burgers, do you think in the States?
[09:55:16] PRAEGER: Oh, I think it's going to be about differentiation. Part of the reason we went into burgers that do taste more like meat versus
veggies is really, just to appeal more to our consumer base.
You know, everyone is looking for something different, but we believe people will be happy to try either type, whether it's veggie, or meat, and
some of the things we're working on now are even a hybrid between the two where they have a lot of veggies in them and they also have protein.
GIOKOS: Are you going to be embarking on IPO? Do you think you want to go public?
PRAEGER: No, we're not -- we haven't really been considering that.
GIOKOS: All right, thank you so very much, Larry. Good to have you with me in the New York Stock Exchange.
PRAEGER: Thanks so much for the time.
GIOKOS: Much appreciate it. So that's it for FIRST MOVE. Thanks so very much for watching. I'm Eleni Giokos. We've got IDesk next with Robyn
Curnow and it starts right after the short break.
As you can see markets in the red. The Dow Jones is down around two tenths of a percent. I'll see you tomorrow. Cheers.
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