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Quest Means Business
Breaking News: Israel Agrees to Limited Cease-Fire; Time Warner Rejects $80 Billion Fox Takeover Bid; Time Warner Merger Mania; Wall Street's Bull Run; Apple-IBM Partnership; Bad Day for BlackBerry; New US Sanctions Against Russia
Aired July 16, 2014 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
PAULA NEWTON, HOST: Wall Street breaks another record today, the Dow ending the day in record territory. It's hot in there! This market is on
a tear. It's Wednesday, the 16th of July.
A bold bid firmly rejected. Rupert Murdoch offers $80 billion for Time Warner.
A bruising day for BlackBerry as the Big Blue gangs up with Apple.
And dust off those typewriters? Germany considers going back to the basics in the wake of the spy scandal.
I'm Paula Newton live from here, the Time Warner Center in New York City, and this is QUEST MEANS BUSINESS.
And we begin with breaking news tonight. Minutes ago, Israel agreeing to a UN proposal for a pause in military activities. Officials say the
limited cease-fire will allow the United Nations to meet humanitarian needs in Gaza. CNN has yet to hear if Hamas has heard this proposal.
For more, we're going to go straight to Wolf Blitzer in Jerusalem. Wolf, tell me what you have on the latest on this story.
WOLF BLITZER, CNN LEAD POLITICAL ANCHOR: Paula, the Israeli military just released a formal statement saying they will accept this temporary
cease-fire, this temporary pause for humanitarian reasons.
They say as a result of the dialogue that they've had now with the United Nations, the Israel Defense Forces in their words, will facilitate
what they call a "humanitarian window" tomorrow. That would be Thursday morning from 10:00 AM local time until 4:00 PM local time, that would be
six hours.
During that period, the IDF, the Israel Defense Forces, will cease operational activity within the Gaza strip and hold its fire. They say
that this is a humanitarian window that they've accepted at the request of the United Nations to allow Palestinians in Gaza to go ahead and engage in
what they call a resupply for their humanitarian needs.
On the other hand, they say if Hamas continues to launch rockets and missiles into Israel during that so-called humanitarian pause, there are
strong words from the IDF, from the Israel Defense Forces, if they go ahead and launch these kinds of attacks against Israel, the IDF, in this
statement, "will respond firmly and decisively."
So, maybe this is another opportunity. We don't have official reaction, as you point out, Paula, from Hamas yet. Let's see what Hamas
says. There was a cease-fire proposal the Egyptians put forward yesterday, the Israelis accepted it, Hamas rejected it, and as a result the fighting
has resumed.
Let's see if this is another opportunity now. Maybe a test. If both of these sides do engage in the six-hour pause and stop shelling each
other, airstrikes on the part of Israel, rocket strikes on the part of Hamas, maybe that will open up a little bit of wiggle room, if you will, an
opportunity to go further and create a more permanent cease-fire.
Then you can go ahead and deal with some of these major humanitarian and political issues, military-related issues that have forced that 2012
cease-fire to collapse. Paula?
NEWTON: Wolf Blitzer there, giving us the latest on what could be a pause in violence there in Gaza. Wolf, thanks so much.
Now, tonight, we are live outside the New York headquarters of Time Warner, which today finds itself at the focus of a deal that could
completely reshape the media landscape. CNN's parent company, Time Warner, has rejected an $80 billion takeover bid from Rupert Murdoch's media
empire, 21st Century Fox. But media experts say Murdoch is unlikely to take no for an answer.
In the meantime, a source close to Time Warner says the company will fight to stay independent. Chief executive Jeff Bewkes says Time Warner is
better off on its own.
(BEGIN VIDEO CLIP)
JEFF BEWKES, CEO, TIME WARNER: The board concluded that continuing to execute our strategic plan and our business plan will create significantly
more value for the company and our shareholders, and that that's superior to any proposal that Fox is in a position to offer.
(END VIDEO CLIP)
NEWTON: Now, here's a snapshot of the media landscape as it is now. These are the big four: Comcast, which owns VC's media empire; Disney,
21st Century Fox, and Time Warner. Now, combining Time Warner and Fox would create a company with a market value equal to Disney and Comcast.
And here's what Rupert Murdoch has his eye on. When we look inside Time Warner, we find the Warner Brothers film studios, the premium TV
channel HBO, quite a hot commodity, and Turner's news and entertainment channels CNN, HLN, the Cartoon Network, Turner Sports, and TNT just to name
a few.
And you look inside Fox, and you see much the same thing: the 20th (sic) Century Fox film studios, the Fox News Channel, Fox Sports, FX, and
even a stake in the British pay TV provider BSkyB.
Brian Stelter is CNN's senior media correspondent, he joins me now here, as we were saying, outside the Time Warner Center.
BRIAN STELTER, CNN SENIRO MEDIA CORRESPONDENT: It's a beautiful day.
NEWTON: It's a gorgeous day. This building has been buzzing, the entire city is buzzing about rumors with this deal. Why is this such a
seismic deal that Rupert Murdoch has put on the table.
STELTER: The market cap is one of the reasons why. To describe it as being if it were to happen to be as big as Disney or as Comcast says a lot
about this.
Let's get one important fact out of the way real quick: if Murdoch was to go forward, if he was able to, if Time Warner changed its collective
minds, CNN would be divested. That means all of CNN would be sold off to some other entity as a part of the deal. It would be in part because of
anti-trust concerns, and in part because of the perception of Fox News and CNN being in the same company and how absurd that would seem.
But I think for Murdoch, the most appealing assets that Time Warner has are HBO and the Warner Brothers studio. Maybe also Turner sports, all
those sports rights for NCAA basketball and for baseball. He is trying to build up his own cable sports channel, Fox Sports 1, and he could use some
of that muscle.
NEWTON: In terms of what's going on in the media industry, though, right now, consolidation is key. They're saying that these businesses
cannot survive the way they exist right now. What is changing so drastically?
STELTER: Right now, there's this sense of inevitability that we're going to see some form of content consolidation. Whether that's a good
thing or not, the historians are going to decide years from now. Sometimes, as we know from the past, media mergers end up being big flops.
And AOL Time Warner is always pointed to as the best example.
But right now, there's this feeling of inevitability, and it's because the distributors in the US are starting to consolidate as well. We see
Comcast Time Warner cable merging, we see Direct TV being bought by AT&T. The content guys, like Time Warner, like Murdoch, like Disney, they feel
they need more muscle as well.
So, if you see one side getting bigger, you see the other side getting bigger, and right now, Time Warner's rebuffing this deal, this proposal,
that is, from Murdoch, but it feels like we're just in the first inning.
NEWTON: Feels like it was quite an earthquake that shook that media industry today.
STELTER: Yes, these rumors were buzzing a couple of weeks ago --
NEWTON: Yes.
STELTER: -- then all these executives, all these CEOs were together at the Sun Valley Media Conference just last week. I think people thought
a month, two months, three months, we might start seeing deals, we might start seeing bids. But not right now, not a few days after Sun Valley.
NEWTON: Now, Brian, I have to mention, you opened your big mouth and said that you would eat "The New York Post" --
STELTER: I did.
NEWTON: -- owned by Rupert Murdoch if he ran CNN. That is unlikely now.
(CROSSTALK)
STELTER: That's right.
NEWTON: I hope. OK --
STELTER: That's why I feel safe saying it.
NEWTON: -- we want to get it on the record. Let's listen to exactly what you said, let's take a listen.
(BEGIN VIDEO CLIP)
STELTER: I will eat my remote control. No, better, I will eat my copy of the "New York Post" if Murdoch becomes the owner of CNN.
(END VIDEO CLIP)
NEWTON: I really hope you're right, because I don't want to give you the ketchup on top of this that'll make it go down better.
(LAUGHTER)
STELTER: No, I think I can actually blend it up and it will be quite tasty, but that's why I'm so confident that they would have to divest or
that he would choose to divest CNN if it actually happened.
NEWTON: And clearly you were right, that is one of the issues, just goes as well to show that the culture not just of the news organizations,
but these are two titans that would really clash, you believe, if they came together.
STELTER: I think CNN and Fox News wouldn't make sense together. But you could see synergies, for example, with those sports rights. You could
see synergies between the two studios, Warner Brothers and 20th (sic) Century Fox. If you were a guy like Murdoch, that's what you're thinking.
But right now, Time Warner's been very clear, as we heard in that sound bite, saying we think we can extract a lot more value for our
shareholders --
NEWTON: Sure.
STELTER: -- with what we're doing right now. Is that part of an effort to get Murdoch to come back with a sweeter deal? Who knows? That's
what history would tell us. You think about Murdoch, he worked for months to get "The Wall Street Journal" back in 2007, and eventually, he got the
"Journal." But this is exponentially bigger than that.
NEWTON: OK, Brian, thanks so much. It's not the last we'll hear from you on this.
STELTER: Thank you.
NEWTON: Now, speculation about the possible deal sent media stocks soaring, as you can imagine. Time Warner's stocks shot up nearly 17
percent on Wednesday. It's now at its highest point in more than 12 years, and that is what you call pressure on the board for those shareholders to
get value out of that deal.
Now, Discovery, CBS, and Comcast all moved higher as well. Disney, though, fell nearly 1 percent, and Fox, interestingly, lost more than 4
percent of its value.
Now, Time Warner's own history is one of corporate deals, consolidation, and very controversial mergers. It all began in 1989, a
merger between Time, Inc. and Warner Communications created the world's biggest media company, Time Warner.
Now, the company and the company's name got even bigger in 2001, and that's when AOL -- remember that? -- completed its purchase of Time Warner.
That deal was supposed to help the company reach customers in new ways. Time Warner's current chief executive later told a British newspaper the
deal was, quote, "the biggest mistake in corporate history."
Now, eight years later, the sell-offs began as Time Warner refocused on its core businesses. First to go was the cable provider, Time Warner
cable. Now, later that year, the marriage between Time Warner and AOL ended. And earlier this year, Time Warner came full circle again,
completing the spin-off of its magazine divisions, including a separate business that's now called Time, Inc.
Now, whether Fox's bid succeeds or not, Time Warner is undoubtedly now in play. Claire Enders is a media strategy analyst. She joins us now from
London. On that side of the pond, you're very used to seeing Mr. Rupert Murdoch making these bold moves. But when we talk about that very bold
statement that Bewkes just gave us saying, look, we can be a standalone company, how is that being received?
CLAIRE ENDERS, CEO, ENDERS ANALYSIS: Well, obviously, here we're just digesting the news of the deal, and the first thing that one will say is
that the original proposal seems to have been rejected. So, we will wait and see what proposal will be made and how Rupert Murdoch will take this
all forward.
But this has enormous implications here because also, it seems now a foregone conclusion that Sky Europe will be formed after BSkyB buys Sky
Italia and the 56 percent in Sky Deutschland that Fox also owns. So, this seems to move that transaction greatly forward as well.
And in Europe, we're now used to seeing very big deals. Liberty Global bought Virgin Media last year. We've seen a lot of activity around
cable assets, as you have in America.
And we have seen also other combinations. Universal Music Group bought EMI in order to get a 40 percent market share in the music market.
Bertelsmann engineered a merger of Random House and Penguin in order to create a titan.
And we have very big issues in Europe, as you do in America, around the power and strength of retailers, such as Amazon. And these
organizations --
(CROSSTALK)
NEWTON: But I just want to -- I just want to move in --
ENDERS: -- and Apple --
NEWTON: I just want to move in there, though. One thing that we're dealing with here is that, look, there is a huge push to have mergers and
acquisitions in a lot of industries. The media industry is one of the key ones on the front lines of this push.
Time Warner now being at play, who else do see might come to the forefront? People have discussed Google, tons of cash on hand. Amazon,
lots of cash on hand. Would they now really disrupt the media model and try and make a play for Time Warner? They can certainly afford it.
ENDERS: They can. But it's harder to predict that, because what we've really seen is, as your correspondent said, a lot of consolidation in
the same kind of silos. We haven't seen these very big moves into -- from essentially the digital layer into the content acquisition layer.
And I don't want to foresee what Google will do, but it has a very significant play already in YouTube. And although it has invested $500
million this year in programming content, this is an altogether stratospheric combination.
And it's very significant in all kinds of ways, and will attract regulatory scrutiny, which Google would probably wish to avoid in Europe,
since it is currently under regulatory scrutiny anyway. So, I think that the limitations on those moves are there for new players, such as Amazon,
which have very significant market share in the retail space all over Europe, as indeed they do in America.
NEWTON: Well, it'll be very interesting to follow, and perhaps all of that does bring us back to whether or not Rupert Murdoch will go back with
another proposal. Claire Enders in London, we'll continue to watch this from both sides of the pond. Appreciate your time.
It was a record-breaking day, as we were saying, for the markets. We'll be live from the floor of the New York Stock Exchange with a broker
to tell us what is going on there. That's just after the break.
(COMMERCIAL BREAK)
NEWTON: And here we are outside Time Warner headquarters in New York. This is Columbus Circle, and the city's still buzzing from a lot of market
action, Time Warner proposed takeover, but beyond that, US stocks closed higher again today. The Dow set a new all-day intra-day high, 17,139
points. You see it there, up more than 77 points.
Shares of IBM and Apple floated higher after a partnership announcement. Bank of America fell 2 percent on a big drop in Q2 earnings.
Now, Ben Willis, senior floor broker at Princeton Securities Group joins me from the New York Stock Exchange.
We're right in the thick of earning season here. We had Janet Yellen, two days on Capitol Hill with a quote, "stretched valuations." That seems
like centuries ago. This market, can these bulls continue to run this market?
BEN WILLIS, SENIOR FLOOR BROKER, PRINCETON SECURITIES GROUP: Absolutely, without a doubt. What Janet Yellen pointed out and one of the
situations that impacted sales of stocks yesterday was that the valuation message was a very clear shot across the bow of some of the high fliers,
the social media stocks and the biotechnology stocks.
They were sold off far more dramatically in yesterday's move in the volatility we saw yesterday. Today, the broader market, we seem to see a
rotation out of the safer havens, like the utilities, that have been a benefactor of the money working in the equity markets, starting to go into
some of what we call the higher beta stocks.
That would be the technology sector, in particular, the chip stocks, the PHLX Semiconductor Index is up over 20 percent this year --
NEWTON: Wow.
WILLIS: -- and that trend does not look like it's going to stop anytime soon.
NEWTON: And in terms of what's propelling this market right now, I know there has been a lot of sector rotation, as you just pointed out.
What people are wondering, though, Ben, is that thing, what is that thing that will shake this market?
We're into earnings season, everything looks pretty good. Is it still the Fed? Is it that prospect that they might raise interest rates sooner
than expected?
WILLIS: It's absolutely the central banks of the world, the Fed leading that charge, that I believe that will change that direction on a
dime in this marketplace. The earnings expectations are well built-in. There'll be very few surprises because of the way American companies now
have to give forward guidance, if you will, lower estimates.
So, the bank earnings we saw recently were from a much lower hurdle than had been anticipated, but they basically earned what the analysts said
they were going to earn earlier in the quarter before they lowered the hurdle.
That being said, Janet Yellen demonstrated the effect of the central banks on the market. Draghi demonstrates the effect on the market every
time he speaks, because of the effect of the currency in the eurozone.
The People's Bank of China, if there's one place that investors need to keep a very close eye on as far as the global economy is concerned, you
need to keep an eye on China. They are trying to, through the minutia, manipulate their economy back to strength. And without China, the rest of
the global market is only going to have the United States' leadership, not the rest of the world.
NEWTON: Yes, and we should say, China reporting 7.5 percent GDP growth, better than some had expected on the backs of those Chinese
consumers.
Ben, I want to get to that merger and acquisitions. We've been describing this proposal with Time Warner, but there's so much more than
that. They're sitting -- these corporations sitting on piles and piles of cash. It's already started. Do you expect a lot more action on M&A? But
the key question everyone's looking at is does that signal the top of a market, when we start to get that kind of M&A activity?
WILLIS: No, I don't believe that M&A activity signals the top of a market. Actually, to me, it signifies a market of green shoots that's
starting to awaken, if you will.
The people that have been running these companies have been sitting on their hands for four years, sitting on cash loads, not knowing what to do
with it, putting it in Treasury bonds whether they're the bank industry or in the commercial market, sitting on it, waiting.
We're starting to see these mergers, they may be very specific, whether it's in the pharma community, where certain labs may be buying a
small division from this division, or buying an entire biotech.
The biotech may have been overvalued, but there's value being created in that sell-off, so much so that the big pharmas in the world, whether it
be Avid or whether it be Allergen, are stepping in and buying each other. That's an indication of saying we can't grow it any better organically, we
need to bolt on in our acquisitions, and that's an indication of the market reviving.
When you start to talk about M&A activity, it's when they start to pay ridiculous multiples, that's going to be a whole other discussion. I don't
think we're there yet.
NEWTON: OK. A record-setting day on the Dow, Ben, and you are bold saying that these are green shoots. Investors will like what you're
saying, Ben. We'll continue to follow the roller coaster the market has been. Appreciate your time, Ben.
WILLIS: My pleasure.
NEWTON: Now, two bitter tech rivals are teaming up to change the way you do business. We'll explain that after the break.
(COMMERCIAL BREAK)
NEWTON: Here we are, live in New York City outside the Time Warner Center. And a day after Apple and IBM announced a partnership, BlackBerry
shares took a beating, BlackBerry down more than 10 percent. Shares of Apple closed flat. IBM, though, rose 2 percent.
Apple wants to make devices tailored to companies in banking, health care, insurance -- that's just to name a few. It's teaming up with IBM to
create apps for these businesses. And it may seem like an unlikely duo. The rivalry between the companies has been a bitter one. Apple made this
famous ad in 1984 when it was battling IBM.
(BEGIN VIDEO CLIP)
(STEPS MARCHING)
UNIDENTIFIED MALE: Today we celebrate the first glorious anniversary of the Information Purification Directives. We have created, for the first
time in all history, a garden of pure ideology, where each worker may bloom, secure from the pests of purveying contradictory thoughts. Our
Unification of Thought is more powerful a weapon --
(END VIDEO CLIP)
NEWTON: Apple could probably run that ad today to describe its culture. Now, there's no word yet on what apps will be produced. CEO and
president of the Boston Consulting Group, Rich Lesser, believes that this venture would appeal to a lot of companies even outside the tech sector.
(BEGIN VIDEO CLIP)
RICH LESSER, CEO AND PRESIDENT, THE BOSTON CONSULTING GROUP: The way consumers want to interact with the world affects everybody, and I think
this combination, where you're combining Apple's consumer-driven ecosystem and IBM's business ecosystem, and together, creating business-related
applications that can really be advantaged.
I think it's a really powerful combination, and that's exactly the kind of things business way beyond the tech world are thinking about, about
how they need to change their models and how they think about what ecosystems they want to be a part of.
(END VIDEO CLIP)
NEWTON: Our business correspondent Samuel Burke joins me now. That really shook a lot of people, Apple and IBM joining forces, and yet, they
are so desperate to get that piece of the business pie.
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: Well, Paula, think of all the places where you see IBM products -- cash registers, for example. They
almost always have the IBM logo.
So what BlackBerry investors fear is that now instead of having IBM cash registers, you'll have Apple iPads and Apple phones in all of these
people, and people taking your orders on those devices using apps fro IBM on devices from Apple. And that's what really has people nervous.
But some people might be surprised that BlackBerry even still existed. Whenever I talk about Apple and BlackBerry and all these companies, I
always want to remind people of the market share and just how much BlackBerry has lost.
(CROSSTALK)
NEWTON: How bad is it, Samuel?
BURKE: It's really bad. So, if you look at the operating systems and their market share, you have about 81 percent for Android, so they're the
clear winner. You have IOS, which of course, Apple's operating system, taking about 15 percent of market share, what you're seeing on your screen
right there.
Windows phones does even better than BlackBerry, your old Canadian friends. They have 3 percent Windows phone, and your Canadian friends, 0.5
percent, so there's barely anything left.
The one thing that people were clinging onto was the fact that so many corporations, like the people inside this building, were still typing away
on their little keyboards. But now, it looks like IBM might even send those people typing somewhere else.
NEWTON: Stop mocking me! This is my BlackBerry, and you're mocking me for typing, you're mocking me -- this is a great Canadian company that
thought that it had a lot of proprietary information, patents that people said was valued. It was the security of this system. What has happened to
the value of all of that?
BURKE: Well, a lot of people have talked about that over and over again, that this little device has a lot of security. But some really --
some security experts that I have talked to have said over and over again, BlackBerry really sold out their security. They made deals with a lot of
countries to share information with certain governments, and they said that's where they lost it.
So, what IBM can go in and do is create apps that provide security. We're already seeing that security has become a big premium not just for
Apple and IBM.
But for many other companies, including some smaller companies moving in to fill that void, so they can go in and create apps that will make the
iPhone secure, rendering this device less and less necessary, even for big corporations, which have clung on when everybody else, as you saw in those
numbers, has already gone away.
NEWTON: It'll be interesting to see what that company does, interesting to see how soon we will see new apps, business apps.
BURKE: A hundred apps, they say, are coming from IBM for Apple.
NEWTON: Tailor-made for certain industries.
BURKE: We'll see.
NEWTON: It'll be interesting to see. Thanks, Samuel, appreciate you coming out here, even if you had to mock the Canadians, that's all right.
The United States has now imposed new sanctions against Russia. Now, people have been talking about this for a while. They were at what they
call the Tier One, and no one had heard anything more, given all the tensions between Ukraine and Russia.
Now, those new sanctions include important Russian assets, like Gazprom Bank and the Rosneft Oil Company. It also includes the deputy
chairman of the Douma and an aid to President Vladimir Putin. We should say that many people were already on that list say they wear it as a badge
of honor.
Still to come on QUEST MEANS BUSINESS, when Murdoch buys, the market moves. We'll show you how, next.
(COMMERCIAL BREAK)
NEWTON: Welcome back, I'm Paula Newton and these are the top news headlines we're following this hour.
Some news just in to CNN: the United States has imposed new sanctions against Russia. They include important Russian assets, like Gazprom Bank
and the Rosneft Oil Company. They also include the deputy chairman of the Russian Douma and an aid to President Vladimir Putin.
Israel has accepted a proposal form the United Nations for a limited cease-fire in Gaza. The UN has called for a, quote, "humanitarian pause"
to allow for relief to enter the region. CNN has not yet confirmed if Hamas has received the proposal.
Today, four children became victims to Israel's campaign against Hamas. Palestinian medical sources say shelling from an Israeli naval ship
killed the children in the Al-Shati refugee camp in northern Gaza.
A court has ruled the Netherlands is liable for 300 deaths in the 1995 Srebrenica massacre. The court in the Hague found Dutch U.N. peacekeepers
should not have allowed Bosnian Serbs to take away 300 Muslim men seeking protection at their base. The Dutch state will now have to compensate
victims' relatives who brought the civil case against it.
Julian Assange has lost his legal fight against a detention order by Swedish authorities. The founder of WikiLeaks has been holed up in the
Ecuadorian embassy in London for more than two years now. Assange is wanted for questioning in Sweden over sexual assault allegations. He says
the charges are false and politically motivated. Rupert Murdoch's Twenty- First Century Fox has tried to buy Time-Warner in a deal worth about $80 billion. Time-Warner which is the parent company of CNN has rejected the
bid which would've created one of the world's largest media companies.
We are live outside the Time-Warner Center here in New York City on the day the company rejected a bid worth a reported $80 billion from
Twenty-First Century Fox. Now, Time-Warner is the parent company of CNN. Rupert Murdoch is renowned for the so-called `big ticket purchases.' What
is interesting here though is when he decides to pounce. Now in August of 2000, Murdoch paid $5.4 billion for TV station owner Chris-Craft
Industries. Shortly after the deal was signed, markets spent two years in a slump. Now Murdoch repeated the performance in 2007 when News Corp.
bought Dow Jones, the publisher of the "Wall Street Journal." You know where this is going - shortly after that Wall Street itself found itself in
the biggest slump since the Great Depression. Now I asked Rich Lesser, CEO of Boston Consulting Group about the climate for mergers and acquisitions.
(BEGIN VIDEOCLIP)
RICH LESSER, CEO AND PRESIDENT, THE BOSTON CONSULTING GROUP: The sense of the risk in the macro environment in the last couple years was a
real deterrent to making, you know, very big moves. And I think right now as people become a bit more confident with the global economy as growth is
clearly still harder to come by, companies are recognizing that the opportunities to merge or to create industry leaders is an important one.
The challenge of course is that history says many of those - in fact, the majority of them - fail to create shareholder value for the acquirer. And
so the strategic logic - the price and the ability to run the integration well - those are really key determinants of whether actual value
materializes or you just get scale without value creation.
NEWTON: Some people have been talking about we have this rumored deal between Fox and Time-Warner, Time-Warner saying they rejected the deal
outright. Fox perhaps - according to the New York Times - saying, look, we're not walking away from a deal with Time-Warner. Having said all that,
Rupert Murdoch seems to be a man who always gets what he wants and yet when you look at a graph, it's very interesting. The last two purchases came at
a market top. I mean, it's technical analysis - you know, hindsight doesn't bear anything, statistically it doesn't mean anything for the
future, but when we look at valuations, are we in dangerous territory when it comes to those mergers and acquisitions?
LESSER: Look, valuations are still at high point relative to recent history, but I would say right now, a lot comes down to the individual
deals themselves, and whether the companies really have a strategic logic, whether they can really capture synergies, whether they really are prepared
to make the moves to actually get it to happen. And oftentimes, you hear things on paper that sound good and then you look at what happens in
reality - either the synergies didn't materialize, it took too long, key talent wasn't retained. And so, we would say we may be getting to a place
where the deals are getting quite expensive. Certainly the PE world is viewing deals as increasingly expensive and that's often a leading
indicator. On the other hand, the right deals put together the right way can still be value-creating.
(END VIDEOCLIP)
NEWTON: In the U.K., shareholder anger over executive pay is now spreading. The owner of Sports Direct and of Newcastle United Football
Club, Mike Ashley, has chosen to forego his bonus voluntarily. Now, that's despite Sports Direct shareholders approving the company's controversial
bonus scheme earlier this month. Now, it would have divided more than $300 million in shares between staff, including Mr. Ashley. Meanwhile, 30
percent of shareholders at the credit-checking company Experian have voted against the chairman's plans for his successor. Sir John Pierce - Peace
that is -- is also chairman of two other companies where shareholders have rebelled against pay - that's Burberry and Standard Charter. Now earlier I
spoke with Deborah Hargreaves, the director of the High Pay Center in the United Kingdom. I asked her if shareholders have been active enough when
it comes to scrutinizing executive pay.
(BEGIN VIDEOCLIP)
DEBORAH HARGREAVES, DIRECTOR, HIGH PAY CENTER: Well the thing is, Burberry is a very high profile row, and that's the one instance that's
happened this year where a majority of shareholders have voted against that pay report. But that happens very, very seldom. This is only the sixth
company in the FTSE 100 that has had a shareholder vote again since the vote was introduced 12 years ago. So shareholders are not that active in
using the powers they have.
NEWTON: And the powers that they have is to try and vote this down so that companies learn their lesson, and pay for performance. I mean, this
latest pay package of Burberry was apparently not linked to performance. Have companies made any inroads in that?
HARGREAVES: Well, shareholders are very upset at packages, particularly when they're very large with no performance targets attached.
And this was the problem at Burberry, and that's where they voted against. But generally we're seeing companies prepared to pay quite high packages
with performance targets. That means that executives will still get part of their bonuses and part of their incentive plans even if they don't reach
the targets, the targets are sometimes weakened or can be manipulated, and we don't think that those targets are often tough enough. So even though
shareholders have only complained about a handful of companies, there are still grumblings about the way performance targets are set, how tough they
are to meet, and how executives are fairly clever in getting `round them.
NEWTON: You know, we had a devastating financial crisis - 2008, 2009 and yet executive pay continues to rise. How high is it? I mean, has it
abated at all?
HARGREAVES: No, it continues to go up. What executives received last year went up by 15 percent back to 4.7 million pounds. That might not
sound like a huge amount in the U.S. context because U.S. executive pay is much higher, but here that's a huge amount of money -- it's 180 times
average workers' pay. And what's happened in the general workforce is that no one's really had a real terms pay raise for ten years. So that gap
between those at the very top and everyone else has just gone on getting wider and wider. And I think that's the reason why there's been so much
public unrest about it, and shareholders are finally beginning to take a bit of action.
NEWTON: It's one of those things you hear everybody grumbling about, and then at the end of the day, nothing happens. I mean, you're suggesting
or you have suggested that in fact executive pay should be linked to a multiple of the low of the average of the lowest paid employee. But that
is so controversial. Do you really think that would work? How do you get that even instituted into a company policy?
HARGREAVES: It is really controversial and I know there's been a huge debate in the U.S. about just publishing these ratios, let alone sticking
to them. Same here - companies aren't required to publish their pay ratio, they're not required to even produce the figures that allow you to
calculate it. So, it is a very controversial issue. But we're saying is that the government has taken action, it's given shareholders greater
powers, they have a binding vote on future pay policy. None of that's really worked at restraining pay, and we're saying that we need to have a
debate now about more radical action. If we really want to get hold on this and if we really want to stop it before we - before it gets so far
away from everyone else that these people who are getting these sort of pay awards appear to be on a different planet.
(END VIDEOCLIP)
NEWTON: Emirates is known as the world's top air carrier. There's a new king of the skies. We'll tell you the winners and the losers are of
this year's Airline Awards with the ceremony's host. That's up next.
(COMMERCIAL BREAK)
NEWTON: Time for today's "Business Traveller" update. Now, millions of traveler update. Now, millions of travelers have voted, and now the
awards for the world's best airlines have been revealed at the Farnborough Air Show. Cathay Pacific took home this year's top overall honors - that
for the first time since 2009. Now, other airlines competed in categories like best crew, most improved and best low costs. And there was a very
special guest handing out the awards at Farnborough. Jim Boulden in London, to you have a clue as to who that might've been, Jim? Think you
could fill us in?
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: (LAUGHTER). Well, it was a lot of fun of course at this award ceremony, Paula, because there
were 68 awards to be handed out and each one of them of course the CEO would come up and there'd be photos taken, a bit of music and they'd be
handed their - you know - their certificate and then the next one. But the last 15 were for really the big ones - the world's best this and best that.
And as you said of course Cathay Pacific was the world's best airline, coming up against of course some of the other big airlines as well, the
ones you would expect - things like - companies like - Emirates, etc. We also have the best cabin crew which was Garuda. It's not an airline I've
actually been on, I have to say, so - but they were very, very proud to get that award I have to say, Paula. Also, best low-cost was AirAsia - Tony
Fernandes came up beaming to get his award, very happy indeed. And I will admit to you the best North American airline was Air Canada, Paula.
NEWTON: I'm sure it kills you, Jim, just kills you. I just had Samuel Burke here taking down Blackberry and now we have a-although I have
to tell you, and just as a traveler, it has nothing to do with Air Canada or anybody else - I want these airlines kept on their toes. And one thing
about this is I haven't seen any North American airlines from the list - I'm sorry - any American - sorry - airlines on the list you just gave us.
Why not?
BOULDEN: Yes, I mean there were 68 categories and they gave the short list for each one of those categories. The only airline that I heard from
America - the USA - was Virgin America. You did not hear once United or American or Delta. I don't fly around the U.S., I don't live there. So
you tell me that these airlines obviously do not rate when it comes to trying to get these awards.
So many times you would hear again and again and again airlines like Emirates, like Etihad. Air France did very well, Turkish Airlines,
Aeroflot won the best Eastern European airlines. And the best - sorry, I should say - the most improved airline was Hong Kong Airlines. Most
improved - I'm not sure where they're coming from, but you can see these Skytrax awards are very important for many of the world's airlines and they
try to improve to win these awards. But as you said, when it came time to have the best North American airlines, you simply had Air Canada win it,
and it was just remarkable.
NEWTON: As I said, congratulations to them but we need to keep them on their toes - all of them. I can say the flying experience has not
improved that much for travelers and I think I speak for a lot of people. Nonetheless, Jim, thanks so much for bringing us those awards and, you know
-
BOULDEN: Yes.
NEWTON: -- for getting Canada a little bit of credit there. I know it killed you, like I said. Now Tom Sater is at the CNN International
Weather Center for us where apparently Jim is sitting in the studio that may not be so hot, but Europe is enjoying quite a hot spot (ph), so are the
many friends there that say that it - it's - getting steamy.
TOM SATER, METEOROLOGIST FOR CNN INTERNATIONAL: Yes, it really is, and they're looking at temperatures get even hotter come - just before the
weekend's rain. But beautiful in New York, enjoy it. I mean right now probably the best weather of the summer season and areas from the Great
Lakes all the way down to the south, these are current numbers - 27 in Washington and New York. But what you cannot see is the low humidity.
They have their fair share of rain on the east coast, but that's right along a trough that has dropped all the way down to the south with
extremely low humidity. Records are going to be broken and have already been set for overnight low temperatures. That just gives you an idea how
cool it's been from the upper Midwest down to the South. And the trend will continue - it's going to start to level out somewhat, but the numbers
for the next three days say unseasonably cool and dry, humidity will start to pick back up - 30 in Atlanta but not until Friday. In Europe, we do
have a storm system that is going to approach and it will drop temperatures but you've got to wait a few more days. In fact, we've got a world of hurt
here when it comes to the heat.
We head into the east, the front moved in, here comes the next wave of warmth. It is quite hot in parts of Portugal and into Spain, and that is
all lifting up toward France as well. Look at these numbers. High temperatures - Cordoba 43, Madrid 38 where the average is 31, Paris 30 when
their average is 24, London, you hit 27.4 today and it looks like the numbers are going to get even hotter. Look at the last three days. The
trend has been upward. Paris 29, look at - you got Berlin up to 26. Of course some of that's still the celebration heat that you have been dealing
with. Paris, you're looking at 32 Friday, Madrid 38. London we have 28 for Friday but I wouldn't be surprised if you get to around 30.
Then we talk about the destruction and what was a typhoon that will go down as one of the strongest to keep its strength in Manila in recent
memory. I mean, this was a good 16-hour trek across the Philippines. We know of ten fatalities right now, but the incredible strengthening the
system had right before Legazpi continued to hold its strength through Manila. So they're still surveying the damage, there's a lot of flooding
and mudslides.
And now we're going to watch areas of China, the coast Hainan, Hanoi, Northern Vietnam - the system is going to gain strength again. It lost a
little bit - down to 150, equivalent to a category 1 hurricane. When it kept category 3-type strength all across the Philippines. I mean, we had a
good 22 provinces that are still dealing with power outages, many still in shelters as the waters continue to rise from all the rainfall which was
over 250 to like a 300 in a few spots. So, the system will strengthen, we're going to watch it then for Thursday. For Friday, strengthening 185.
Now this is Haikou - this is a pretty populated city in Hainan. They're going to feel probably some strong winds in parts of Hong Kong - not winds
so much as rainfall, let me correct that - rainfall well over maybe 120. They've got a signal 1 - that's typical for any system that's within 800
kilometers of Hong Kong. But the fear here is the flooding rains that we will find in parts of southern China in toward Northern Vietnam as well.
Our computer models keep the system, Paula, quite strong as it makes landfall. And again, this point right here will be about Saturday. So,
again, a tale of two stories weather-wise. Quite nice in New York City - enjoy it.
NEWTON: Well, and I'm sure many people in Asia though would like to see the backside of that typhoon, Tom.
SATER: Yes.
NEWTON: Thanks for bringing us the update on that. Now, if you've ever tried to cancel your cable subscription over the phone, you know it
can sometimes feel harder than buying your own cable company. We'll play one company's exhausting phone call. That's up next.
(COMMERCIAL BREAK)
NEWTON: And welcome back. Some news just in to us here at CNN. President Barack Obama will make a statement in about 25 minutes apparently
on Ukraine. Now we told you earlier in the show that new sanctions have been leveled against Russia. At issue here is the continuing tensions
between Ukraine and Russia. Tensions have escalated there slowly but surely over the last few days with many accusing Russia of still
facilitating those rebels in Eastern Ukraine. Again, we'll bring it to you live - a statement from Barack Obama. That's in about 25 minutes from now.
Now, next time you think about firing your cable guy, leave yourself just a little bit more time for the phone call. CNN's Nischelle Turner
shows us how a U.S. couple was badgered when they tried to cancel by the - when they tried to cancel the service provider on the other end. Take a
look at this.
(BEGIN VIDEOCLIP)
RYAN BLOCK, TECH JOURNALIST: We'd like to disconnect please.
COMCAST: So, OK, so why is that you don't want the faster speed? Help me understand why you don't want faster internet?
BLOCK: Help me understand why you can't just disconnect us.
NISCHELLE TURNER, JOURNALIST AND CORRESPONDENT FOR CNN ENTERTAINMENT AND NEW DAY: It's the customer service nightmare everyone is talking
about. Tech journalist Ryan Block called Comcast to cancel his service, but instead of politely obliging him, the customer service rep incessantly
hounds him in a circular argument.
BLOCK: The way you can help me is by disconnecting our service. That's how you can help me.
COMCAST: But how is that helping you though?
BLOCK: Because that's what I want.
COMCAST: OK, so why is that what you want?
BLOCK: Because that's what I want.
TURNER: Block says he and his wife had already been on the phone for ten minutes before this eight-minute recording even begins. The rep
aggressively ignores Block's requests, repeating questions, refusing to accept his answers.
COMCAST: Nine years you've been a Comcast customer. Clearly the service is working great for you. You weren't having many problems. What
is it that's making you want to change that?
BLOCK: Because that's what we want to do.
COMCAST: And why is that what you want to do?
BLOCK: That's none of your business. Your business is to disconnect us please.
TURNER: More than two minutes later, the rep still insisting on knowing why he was leaving the number one provider and berating him for
wanting to switch.
COMCAST: So why not keep what you know works? What you know was a good service?
BLOCK: Because we're not doing that, so please proceed to disconnecting our services.
COMCAST: OK, so you don't want a good service? You don't want something that works?
BLOCK: No, I don't - I guess I don't want something that works.
TURNER: Nearly 16 minutes into the call, explaining that he's not trying to argue, just trying to help, the rep finally concedes.
COMCAST: I'll go ahead and disconnect this service, OK.
BLOCK: Fantastic, thank you.
COMCAST: I mean, it's really a shame to see you go to something that can't give you what we can.
TURNER: Edging up to the 17-minute mark, and the sales pitch doesn't end there.
COMCAST: What about those savings, those services are you not wanting?
BLOCK: Are you - are you done, because -
COMCAST: What makes you not want that service?
BLOCK: -- you literally - just a moment ago - said you would go ahead and disconnect our service.
TURNER: Finally, 18 minutes in -
BLOCK: I'm - I'm -
COMCAST: What about these offers that we have available to you?
BLOCK: I'm good. I'm just going to wait until you can confirm that we've canceled service so I'm just going to hang out here.
COMCAST: OK, well you're all set, you know, it's disconnected. I'd like to thank you very much for being a great part of Comcast. Have a
wonderful day.
TURNER: Nischelle Turner, CNN New York.
(END VIDEOCLIP)
NEWTON: OK, now the truth is this has to be quite common because in order to cancel my service once, I put the guy on speaker phone, did an
entire load of laundry and prepped for dinner. It was even longer than that, so the point is many people are - put themselves in these shoes
before. Now, Comcast issued a statement saying it's embarrassed and has reached out to Block and his family to personally apologize. I bet. The
company added, "The way in which our representative communicated with him is unacceptable and not consistent with how we train our customer service
representatives. We are investigating the situation and will take quick action." I bet those customers hope they do.
Now, after recently discovering American spies working within its borders, Germany isn't taking any chances when it comes to keeping its
correspondence secure. Now, in fact, a senior government official says Germany is now considering buying - get this - typewriters in order to stop
documents being intercepted. Leigh Nakanishi is the senior security and privacy strategist at Edelman. He joins us now from Seattle. I mean, I
feel like what are we going to do next? Take out the horse and buggy to make sure that travel is safe? This just seems so extreme. Is there
anything to it? Is this serious?
LEIGH NAKANISHI, SENIOR SECURITY AND PRIVACY STRATEGIST, EDELMAN: I think that it certainly can be seen as an extreme measure that governments
might actually want to take for some of the most highly needing-to-be- secure and sensitive information because the threats that these companies and organizations face are significant. Now, whether or not it's actually
going to be viable to use on a wide-scale basis, that's a whole `nother question.
NEWTON: This just seems like a desperate move in the 21st century. I mean, at issue here is security. Are there any tools that we can see on
the horizon? We always have that impression that governments are somehow trying to keep one step ahead. Is it just here that, you know, the United
States was just too formidable, that literally they don't believe they have anything in their toolkit to keep it safe from a power like the United
States?
NAKANISHI: Well, I think there's actually a lot of steps that governments can take very -- much more short of actually going and using
typewriters that can really help to protect against these things. And I think, you know, some of them might be really thinking about how to better
encrypt data at refs (ph) as well as when it's on whether mobile devices or on computers as well as investing and also making sure that the people that
have access to this information are restricted because oftentimes it's a insider employee who might be the one to get access to it. So, there's a
lot of stuff short of going to an analog approach that can actually very much help solve and protect against these issues. But, you know, if you're
dealing with something that's really, really, really sensitive and only a handful of people should know about it, there are benefits from actually
going and doing something analog because it really does mitigate a lot of the threats that are out there.
From the outside, if you think about it, the only way you'd be able to get access to that information on the typewriter would be if you could
somehow get a copy of it which, you know, is going to be hard to get distributed for one, or to actually have physical access to the device -
NEWTON: Sure.
NAKANISHI: -- which is much better than having someone who is halfway around the world -
NEWTON: Right.
NAKANISHI: -- who can be sitting in a office building and actually -
NEWTON: Right.
NAKANISHI: -- you know, hack into it - a system that's connected to the internet.
NEWTON: OK, Leo, you'll have to leave it there. Thank you so much for continuing to follow that story. Now, we'll be back with a recap of a
very big day on the market. That, after this short break.
(COMMERCIAL BREAK)
NEWTON: Time now for one more look at the markets. The Dow closed as we were saying in an all-time high. Time-Warner shares meantime up around
17 percent after that blockbuster bid from Twenty-First Century Fox, and shares of IBM and Apple floated higher after Tuesday's partnership
announcement. That's it for "Quest Means Business" here live outside Time- Warner headquarters. I'm Paula Newton. I'll see you right back here tomorrow.
END
