NBR Complete Transcripts: 11-15-2006
Wednesday, November 15, 2006Can A US Airways/ Delta Merger Really Take Flight?
SUSIE GHARIB: A big hostile takeover bid in the airline industry today. U.S. Airways offered $8 billion in cash and stock for rival Delta Airlines and shares of both companies surged on the news. Delta, now in bankruptcy, has told U.S. Air it isn't interested in a merger. But if the deal is completed, the airline would operate under the Delta name and would be the nation's largest carrier. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Combined, U.S. Airways and Delta would be the nation's largest airline, reaching more than 350 destinations around the globe. Analysts say the deal would position the combined carrier as a major player in the domestic and international market.
MARK KIEFER, AVIATION CONSULTANT, CRA INTERNATIONAL: Perhaps the U.S. Airways CEO Doug Parker sees this as an exercise perhaps of musical chairs, if you will and doesn't want to be caught without a chair when the music stops, as it were. And that might explain this first foray into what could be potentially a round of further consolidation in the industry.
DHUE: Delta says it is not for sale. In a brief statement, CEO Gerald Grinstein said quote, Delta's plan has always been to emerge from bankruptcy in the first half of 2007 as a strong stand-alone carrier, end quote. But Delta's unsecured creditors will likely have the final say. Making this merger work will be challenging. Airline mergers generally have a history of running into turbulence from unions and regulators.
CLIFF WINSTON, TRANSPORTATION ANALYST, BROOKINGS INSTITUTION: I don't think anyone can point to the airline industry and say the secret for success is merging. This is just a strategy at this point that I still would claim is quite risky.
DHUE: The machinists union is already raising concerns about any new deal. In a statement saying quote, if U.S. Airways hopes to complete a successful merger with Delta or any other airline, they must first conclude the ongoing negotiation regarding the integration of America West employees into U.S. Airways, end quote. The announcement set off speculation that this is the beginning of a new round of consolidation for airlines and that more bidders will emerge for Delta.
PHILIP BAGGALEY, AIRLINE ANALYST, STANDARD & POOR'S: UAL has indicated an interest in consolidation, although their main interest is in Continental. Northwest Airlines is also in bankruptcy. Its route system fits rather well with that of Delta and they've been a rumored marriage possibility. Even Continental, which at one time some years ago, was a target of Delta's acquisition bid, there might be a reverse bid there.
DHUE: A merger of U.S. Airways and Delta would have to get regulatory clearance from the Justice Department. U.S. Airways says it would jettison overlapping shuttle routes in the northeast to get the deal done. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
One on One with Doug Parker, Chairman & CEO, US Airways
SUSIE GHARIB: Earlier today, I talked with U.S. Air's Chairman and CEO Doug Parker and I asked him how's he's going to convince Delta that a merger is the right deal.
DOUG PARKER, CHAIRMAN & CEO, U.S. AIRWAYS: What we're saying is we think if we put our two companies together, we could take each of our stand-alone plans, add them up and then add $1.65 billion a year in synergy, a tremendous amount of value to be created that neither of us could create independently. By putting our companies together, we can create for each other and share that value, us with the shareholders and them with their creditors and that is value that neither of us can create.
GHARIB: Mr. Parker, are you expecting any competing offers for Delta?
PARKER: We certainly aren't trying to start some bidding war. If that happens and that where we end up, where we're in a position where the creditors are looking at our proposal versus a stand-alone versus others, that would be a huge success for us. It's all that we really want is for people to give us a chance to sit down, explain the offer we have and compare it to the stand-alone without just giving exclusivity to that plan.
GHARIB: How committed are you to a merger with Delta? How far are you willing to go in terms of more money or a long, nasty hostile fight?
PARKER: I don't want to speculate as to any of the things that might occur. I can't imagine what they might be. What I believe is, this proposal in and of itself is strong enough that it will prevail over any other proposals.
GHARIB: Why are you interested in Delta?
PARKER: It's a very good airline. We know that. The good news is we have a very good airline at U.S. Airways as well. And the combination of them though results in a much stronger airline than either of us can have. The combination of U.S. Airways with Delta results in a larger synergy or value creation number than we believe we would have with any other airlines.
GHARIB: U.S. Airways was in bankruptcy twice. Delta is in bankruptcy now. Can two broken airlines become one strong carrier?
PARKER: Two fixed airlines certainly can. While they were broken once, they have both gone through the process and are now fixed. So yes, you can take companies that have gone through a bankruptcy process, gotten themselves fixed, combine them with another airline and create tremendous value in a very, very strong airline.
GHARIB: What does all this mean for consumers? Analysts tell me that it's going to mean higher air fares.
PARKER: There's still going to be so much competition. This airline industry is so fragmented. There's no airline with even 20 percent share. There is low-cost competition throughout the United States now. What we all know because it's been proven is that if any airlines get to a level where they raise their fares to levels that aren't competitive with low- cost carriers, low-cost carriers will come in and take share away.
GHARIB: Mr. Parker, what indications have you gotten from the Department of Transportation or the Department of Justice that if you do want to merge U.S. Air and Delta that you'll get regulatory approval?
PARKER: We haven't had any detailed talks with either the Department of Transportation or the Department of Justice yet because they would be premature. What we have done has done a lot of work with antitrust counsel and we feel very strongly that this deal would be approved by the Department of Justice without any material issues.
GHARIB: How can you keep all these balls in the air? You are still integrating America West into U.S. Air. You're talking about a merger with Delta and of course there's just the day-to-day operations of U.S. Air itself.
PARKER: We're not done yet. If we could make the world stop and let ourselves get finished and not have to do this now, we would. But the fact is if we wait, Delta will emerge stand-alone and this opportunity will be gone.
GHARIB: What's your plan B? What if Delta's answer is still no? Would you pursue another merger?
PARKER: We're perfectly fine where we are. We've been extremely successful as I've noted and I feel extremely good about our future prospects. So this is just an opportunity to do even more than that and we're hopeful we will be ale to do even more than that. If we're not, we're extremely happy where we are.
GHARIB: Some airline experts have been telling me that your offer for Delta today is the beginning of a wave of consolidation throughout the industry. But given that airline mergers are notorious for not doing well, is consolidation really a good thing for the industry?
PARKER: First off, in our case I think we've proven that mergers can go very well. We've created a tremendous amount of value for our shareholders, for our employees. U.S. Airways is going to liquidate the merger with America West and now we have one of the strongest airlines in the United States. We're not trying to start some sort of wave of consolidation. All we're doing is doing what we think is best as it relates to this transaction and for own employees and customers and shareholders and this is the transactions we're focused on.
GHARIB: Mr. Parker, thank you very much.
PARKER: Thank you very much. Appreciate it.
"Ad 2.0,"-Capitalizing on Cyber Advertising
SUSIE GHARIB: Advertising on the Internet is a growing business and it's growing at the expense of traditional advertising. But traditional media companies are fighting back by changing their business models and expanding into the new technologies themselves. As we wrap up our series "Ad 2.0," New York bureau chief Scott Gurvey looks at just what those big media companies are doing to deliver their messages in the age of the Internet.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: ABC-TV puts its prime time network shows on the electronic shelves of Apple's iTunes store. It charges a fee for each download. CBS puts local news from its TV stations on the Yahoo! web site. Yahoo! will sell advertisements and share the revenue. And CNN, after trying a paid subscription-based system for downloading news video, removes the fee but begins each story with a commercial. After first ignoring and then fighting many of the new technologies, the big media companies have now come to accept that consumers want to be in control. The companies are scrambling to find new ways to deliver their messages and to sell a total marketing package involving multiple delivery platforms.
JONAH BLOOM, EDITOR, ADVERTISING AGE: Each of the media owners will have a digital unit. A lot of them are selling them in an integrated way where you would talk to the same sales person about, you know, their podcast offering, their audio offering, their TV offering and their print offering, whatever it might be.
GURVEY: Both the media giants and the advertising agencies now realize that consumers don't automatically skip marketing messages; they skip boring ones.
ANDREW ROBERTSON, CEO, BBDO WORLDWIDE: Our role is to create and deliver the world's most compelling commercial content. That's the business we're in, commercial content. And the good news is, whilst we can no longer depend on buying people's partial attention in the way that one - - we could when we sat and watched "I Love Lucy," the good news is we can earn time with consumers that we could never have earned before if that content is good enough.
GURVEY: American Express is a case in point. Always a multi-platform marketer, television now demands less than half its ad budget. Much is spent on direct mail and in providing unique services to American Express customers. Where TV is used, the messages are designed to stand out from the clutter with first class production effects and compelling story lines.
DIEGO SCOTTI, GLOBAL HEAD OF MARKETING, AMERICAN EXPRESS: The way we think is consumers are in the midst of a conversation with other consumers. So (INAUDIBLE) marketer, you are going to interrupt that conversation, then you'd better have something to say that adds value. And for us, content is the answer to become part of that conversation.
GURVEY: Some of the oldest forms of advertising have entered the digital age. These outdoor billboards can change their messages quickly and some can respond to requests for information from people on the street using their cell phones. Big media and advertisers are also placing their messages wherever an audience might be found. Sony Music, Nissan, Adidas, Toyota and Starwood Hotels are just some of the companies experimenting by running marketing campaigns in an online game called "Second Life," where players create a virtual world. $70 billion a year is still spent on television advertising and to help cope with video recording devices which let consumers skip commercials, the industry is looking to measure commercial viewership separately from program viewership.
PAUL DONATO, CHIEF RESEARCH OFFICER, NIELSEN MEDIA: It's a reaction to these new media. The concern was that with DVRs and time shifting, people would skip commercials and so many in the media said to the advertisers, if you're worried about skipping commercials, why don't we just get down to looking at the data for the commercials specifically?
GURVEY: Wherever you go and whoever you talk to in media and advertising, you hear the same word over and over. That word is content.
TONY GRANGER, CHIEF CREATIVE OFFICER, SAATCHI & SAATCHI NEW YORK: Content that you create, people want to -- need to want to watch, rather than -- you know, it's be tantalizing, be intriguing, you know, story tell, invite, rather than, you know, use the fist to break down the door. It's a completely different way.
MARY BAGLIVO, CEO, SAATCHI & SAATCHI NEW YORK: Selling by yelling is over. In this period of time, with the opportunities to see things any time you want, the content just has to be really, really riveting.
GURVEY: Most technologists agree that we are close to being connected by a low cost, wireless and ubiquitous network, letting us be connected to each other at all times. That means we are the potential targets of a virtually unlimited number of messages. And that is the challenge for advertisers in the 21st century. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Street Critique"-Un"Capping" Stock Secrets
PAUL KANGAS: When it comes to investing, tonight's street critique guest says it's a stock-pickers market. Joining me now Hilary Kramer, market strategist and personal finance editor at aol.com. Hilary, welcome back to NBR.
HILARY KRAMER, PERSONAL FINANCE EDITOR, AOL.COM: Thank you, Paul.
KANGAS: This week, you brought our viewers some small and mid cap stocks they've most likely never heard of. But you say they're poised to break out to the up side. How do you find these stocks and why do you like them?
KRAMER: I do fundamental research. I screen out, try to find the best growth stories. I also look for top management and great entrepreneurs leading these companies.
KANGAS: OK, let's get to the names. First up CKX Incorporated (CKXE). What does this company do?
KRAMER: This is a likeness of Elvis Presley. They own Graceland. CKXE also has Muhammad Ali, American Idol and it's poised to break out as they take the name of Elvis and make it more popular than ever before.
KANGAS: Stock's been strong recently. You're not afraid of that big rise, huh.
KRAMER: Oh, no. There's room for this one to double.
KANGAS: Then Covanta or Covanta Holdings (CVA), another management story, is that not true?
KRAMER: Right. I love this company. We have Sam Zelin (ph) there. This is waste management. This is waste to energy. This is where we're going. A lot of indices, a lot of companies are going to be picking up this company. And they like it. (INAUDIBLE) $3 billion and there's room for Covanta to grow.
KANGAS: OK. And then Chicago Bridge and Iron (CBI) is one of your favorites.
KRAMER: Right. This is an 1889-founded company. It's construction. It's engineering. They have contracts all over the country and they're still as strong as ever and they're doing a lot of upgrades, which makes sure that they have, you know, inventory and they are really poised to run over the next year.
KANGAS: OK. Your next choice was Digirad (DRAD).
KRAMER: This is a real small - this is a real small cap, Paul. But basically this is the nuclear imaging, the cardiovascular nuclear imaging. And according to a lot of the medical equipment analysts, they see this one as the one ready to break out.
KANGAS: A larger cap issue you like is Watson Pharmaceuticals (WPI) which has had a rough time of it recently.
KRAMER: Right. WPI, but Watson is in the right area. It could be an acquisition target. This is a company that's in anti-smoking cessation. They're an anti- -- you name it, they're a pain management, antibiotics. It's a strong one and also ready to move.
KANGAS: OK. Clean Harbors (CLHB) is another one that you like and it's had a pretty good run recently.
KRAMER: Right. It's really on the top of its chart. It's very strong but at the same time they're in the right area, hazardous waste management.
KANGAS: OK and Flowers Foods is one of your favorites (FLO).
KRAMER: Right. This is a distribution story. This is a bakery. They do rolls. They do desserts and they have lots of customers, especially the big companies, the Costco type companies. It's a wonderful distribution story, Georgia-based company.
KANGAS: All right and we have time briefly for Cantel Medical (CMN) which has had a rough time.
KRAMER: Cantel is terrific, again another acquisition target and they do everything from the bids for the dentists to syringes and they clean up medical equipment.
KANGAS: OK. Do you own any of these stocks or have any other disclosure to make?
KRAMER: Yes. CVA, Covanta, Chicago Bridge and Clean Harbors.
KANGAS: Very good. Hilary, thanks for being with us tonight. You've really done your homework as usual. We'll see you again on November 29.
KRAMER: Thank you, Paul.
KANGAS: My guest Hilary Kramer, personal finance editor at aol.com.
"Last Word"-'Jonesin' For Holiday Soda
SUSIE GHARIB: And finally , it's beginning to look a lot like Thanksgiving at Jones Soda. The Seattle-based specialty drink company has launched its 2006 holiday pack. Here are the soda flavors: green pea, sweet potato, dinner roll and turkey and gravy. You also get antacid" soda, which you could need after drinking the others. Jones claims -- and we are not making this up -- that it is the nation's number one seller of poultry-flavored soda. For dessert, Paul, how about key lime, banana cream, apple, cherry or blueberry pie-flavored sodas?
By the way, Jones will donate part of the profits to toys for tots and the St. Jude's Children's Hospital.
KANGAS: That's a great idea, Susie, but poultry-flavored beverages. I don't know if that's such a great -- of course then there is Wild Turkey bourbon.
Paul Kangas' Stocks In The News
PAUL KANGAS: That news about U.S. Air and Delta had the airline sector soaring, lifting stocks in general. The Dow posted a 25-point gain early on, while the NASDAQ was up 11. Things stayed strong until 2:00 p.m. when the minutes of the last Fed meeting were released, showing serious concern about inflation. That shaved the Dow's gains of as much as 60 points, but it still closed at a new record high, up 33.70 at 12,251.71. The NASDAQ Composite rose 12.09 at 2,442.75. Standard & Poor's 500 Index gained 3.35 ending at 1,396.57. In the bond market, the 10-year note fell 14/32 to par and 1/32, putting the yield up to 4.62 percent.
Most active New York exchange issue on 20.6 million shares, Motorola (MOT) moving up $0.58. The company said its phone orders are now at an historic high.
Pfizer (PFE) moved up $0.28.
AT&T (T) a $0.50 loss.
Home Depot (HD), which had slightly lower than expected earnings yesterday down $0.34.
Lucent (LU) was up $0.03. That was fifth in big board volume.
Nortel Networks (NT) fell $0.08.
And then Texas Instruments (TXN) up $0.51.
ExxonMobil (XOM) $0.35 gain.
Halliburton (HAL) rose $1.48. The company expects to set the initial public offering price for its Kellogg, Brown & Root unit sometime tonight, no word yet.
General Electric (GE) $0.20 gain, was tenth in big board volume.
Altria Group (MO), parent of Philip Morris, up $1.11. Goldman Sachs upgraded it from "neutral" to a "buy," traded as high as $82.76 today.
And then came the airlines led by U.S. Airways Group (LCC) up $8.53, a positive reaction to its proposal to acquire or merge with Delta. Delta on the pink sheet was up a nickel at $1.52 a share.
Let's have a look at some of the other major airlines. AirTran Holdings (AAI) also got an upgrade from Bear Stearns, rising $1.76.
AMR (AMR) up $1.65.
Continental (CAL) a nice gain.
As was the case with UAL (UAUA), a very strong group today.
RailAmerica (RRA) up $3.44. Fortress Investment Group is going to acquire the short line railroad holding company for $16.35 a share in cash.
Arvinmeritor (ARM) up $1.48. The company makes vehicle parts and fourth quarter operating earnings were lower, $0.40 versus last year's $0.44, but that was in line with Street estimates and the Keybanc brokerage upgraded the stock from "under weight" to a "hold."
Abercrombie & Fitch (ANF) tumbling $4.60, even though third quarter earnings rose to $1.11 from $0.79 last year, but the company predicting a flat fourth quarter, both in earnings and sales.
Esco Technologies (ESE), which makes things like filters and valves, fourth quarter earnings, $0.40. That's a penny better than last year, but $0.04 above the Street estimate. Revenues up a respectable 11 percent.
Google (GOOG) the most active NASDAQ, up $2.63.
Intel (INTC) $0.44 gain.
Apple Computer (AAPL) fell $0.95.
Microsoft (MSFT) $0.11 drop.
Cisco Systems (CSCO) $0.04 loss there, fifth in dollar volume.
Comverse Technology (CMVT) fell $2.95. The company found more accounting regularities in its internal review.
Broadcom (BRCM) $0.41 gain.
$0.16 rise in Dell (DELL).
Qualcomm (QCOM) up $0.14.
Research in Motion (RIMM), tenth in volume, lost $0.72. Amazon.com rising $1.09. Soleil Security began covering the stock with a "buy" in the belief it holds an edge over eBay on the Internet.
And then Vanda Pharmaceuticals (VNDA) up $5.14. Late stage trials of its insomnia treatment proved effective.
And then Embrex (EMBX) up $4.72. Pfizer will acquire this firm for $17 a share in cash.
And finally Daktronics (DAKT) surged nearly $7 on sharply higher second quarter profits, $0.22 a share, up from $0.11 a year ago. This company makes electronic scoreboards and billboards.
