NBR Complete Transcripts: 07-05-2007
Thursday, July 05, 2007Blackstone Group Checks Into Buying Hilton Hotels for $26B
SUSIE GHARIB: A big rally in hotel stocks today on news that Blackstone Group is paying $26 billion to buy Hilton Hotels. The deal generated takeover speculation in the hotel sector and Hilton shares surged $9.41, a gain of 26 percent. Scott Gurvey takes a look at which other hotel chains could be acquisition targets.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hilton Hotel stock soared from the opening on Wall Street, reacting to Tuesday's after- the-bell announcement of an all-cash buyout bid from the Blackstone Group. Blackstone's $26 billion offer represents a 40 percent premium to Tuesday's closing price. Analyst William Crow at Raymond James says that proves Wall Street is not in sync with private equity when it comes to valuing real estate.
WILLIAM CROW, LEISURE AND REIT ANALYST, RAYMOND JAMES: There's been a disparity in the valuations for not only hotel companies, but real estate companies, between the public market and the private market. And we have consistently over the last two or three years seen real estate companies again, whether its hotel companies such as Fairmont Four Seasons, or office companies like Equity Office.
GURVEY: Today, investors bid up the shares of other hotel operators in expectation the group would now attract interest from other buyout firms. Analyst Jeremy Glaser of Morningstar said several names are being discussed.
JEREMY GLASER, LEISURE AND REIT ANALYST, MORNINGSTAR: I think that Marriott is unlikely to go private, just because they are really already asset-light and they already have a pretty efficient capital structure. But I think Starwood certainly is a possibility. So would some of the other managers, like Wyndam Worldwide or Intercontinental Group. But really, at this point, it's anybody's guess when the next buyout might happen or who would be involved.
GURVEY: The speculation is also fueling new investor interest in REITs, the real estate investment trusts which pool funds into multiple projects. Most REITs rose in today's trading. REITs frequently cited by analysts include Felcor Lodging, Host Hotels, Lasalle Hotel properties and Sunstone Hotel investments. William Crow at Raymond James says there are several reasons REITs are attractive.
CROW: I think the REITs are going up for a couple of reasons. First of all, I think Blackstone again confirms the positive outlook for the lodging sector from a cyclical perspective. Second of all, you certainly have some recycling of capital away from Hilton into some of the other names. Third, I think the multiple is certainly a positive, as people view the existing multiples within the lodging space, C corp or REIT. So I think those are three factors that are getting peoples' attention as they look at the stocks today.
GURVEY: Analysts say they do not expect to see another bid for Hilton, because its price puts it beyond the reach of most equity funds. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
One on One with Brian Wesbury, Chief Economist at First Trust Advisors
SUSIE GHARIB: Our guest tonight is upbeat about the U.S. economy and says tomorrow's employment report will show that American businesses are growing and hiring. Joining us now, Brian Wesbury, chief economist at First Trust Advisors. Hi, Brian.
BRIAN WESBURY, CHIEF ECONOMIST, FIRST TRUST ADVISORS: Hi, Susie, good to be with you.
GHARIB: Brian, you told me that you revised the payroll numbers that are coming out tomorrow in the employment report to 150,000 new jobs. That's much higher than most estimates. Why so bullish?
WESBURY: We were at 120 but the initial unemployment claims data stayed very low, which suggested there aren't any mass or aren't a great deal of mass layoffs out there. Also, the ISM, the Institute for Supply Management, both manufacturing and services sector, especially the services sector numbers for employment were very strong. And then finally, a number that I put a little less credence in but the ADP, the payroll company's report, they estimate payrolls every month, that was a little bit better -- in fact, significantly better than the market expected it to be. So the bottom line is when you put all of that together, it looks like we're going to have a better report than we originally thought.
GHARIB: And what about wages? What's your forecast? Will those also show higher growth?
WESBURY: I do believe so. I think we're going to have 0.3, possibly 0.4 increase in average hourly earnings which puts us up about 3.8 percent from a year ago. Anywhere in that 3.8 to 4.1 percent range is roughly equivalent to the kind of wage gains we saw in the late 1990's. All of that is good news and so while some people are worried today about a pullback by the consumer because of high gas prices and faltering housing market, I'm not one of them. I think we're in a pause. We've been in a little bit of a slow growth period but I think the consumer is going to come back, because jobs are plentiful, unemployment is low, and wages are rising.
GHARIB: So with that kind of scenario it would seem like the Federal Reserve would have to get worried about inflation and raising interest rates. What do you think there?
WESBURY: Yeah, I don't think inflation comes from growth, but growth is a signal of whether the Federal Reserve is tight or not. And there were many people that believed that the housing slowdown last year and the slowdown in the overall economy as a result of that housing slowdown was a sign that the Fed had hiked interest rates too much and I've never believed that. Now the rebound that we've seen in the economy, it looks like real GDP growth is going to rebound right into that 3.5 percent to 4 percent area here in the second quarter and then on into the third and fourth and if the consumer comes back and the economy is strong, that means the Fed wasn't too tight, I'm looking at gold and commodity prices and the value of the dollar and they tell me also that the Feds not too tight. Therefore, I think inflation is on the rise. I think we've been in a little lull with that too. But it's going to rebound here later in this year so with strong growth and rising inflation, I don't think the Fed will have a choice but to hike interest rates, especially after the Bank of England is raising rates today.
GHARIB: When might that happen with the Federal Reserve? Would it happen in 2007?
WESBURY: Yeah, I still think it would, Susie and this is a great question. We used to have that rate hike happening right around now in the middle of the year, but we pushed it back and so our official forecast right now calls for a December rate hike. I will say that there's really no great way to actually pinpoint it. I do believe it'll happen in the fourth quarter. If it doesn't happen then, it'll happen very early in 2008.
GHARIB: Brian, I know you're not a market strategist, but what would be the impact of higher interest rates, let's say it does happen in the fourth quarter of 2007. What would that do for the stock and bond markets?
WESBURY: Right, well our models right now of the U.S. stock market show that on a broad basis, it's undervalued by 20 percent. And just for reference, I use a 6 percent 10-year Treasury yield in my model. So that's about 90 basis points above where it is today. We're only 5.15 today or 5.10. And so I've already incorporated higher interest rates in my model so rising interest rates won't hurt. I still think that the market will be undervalued. The second thing to remember is that the Fed raised rates 17 times between mid-2004, mid-2006 and yet the stock market was up during that time. Raising -- Fed rate hikes are not always killers for the stock market like many people believe.
GHARIB: All right, we'll have to check in with you if that scenario plays out the way you've said. Thank you so much for tonight though, appreciate it.
WESBURY: Thank you, Susie.
GHARIB: My guest tonight, Brian Westbury, chief economist at First Trust Advisors.
Passing a Passenger Bill of Rights Bill Meets With Delays
PAUL KANGAS: Flight delays are becoming more common this summer. Now, Congress is working on a passenger bill of rights that would help travelers who are stranded for hours in airports or on runways. It's part of the Federal Aviation Administration's reauthorization bill and as Stephanie Dhue reports, the proposals are drawing criticism from both sides.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The nightmare scenario of passengers trapped for hours inside airplanes on the runway drove Congress to rush for passage of a passenger bill of rights to protect air travelers. But passenger advocates say it doesn't go far enough. Paul Hudson of the Aviation Consumer Action Project says there needs to be a limit on how long people can be stuck on a tarmac.
PAUL HUDSON, EXEC. DIR., AVIATION CONSUMER ACTION PROJECT: You have to draw the line somewhere. We have curfews that are meant to protect residents from noise after 11:00 or midnight in many airports. Pilots have duty rules that allows them only to work so many hours. Passengers need some kind of assurance.
DHUE: Hudson says the bill currently moving through Congress offers only some of the assurances passengers deserve. Not included is a provision that would give passengers the right to de-plane after three hours, a condition Hudson and other passenger advocates are pushing for. But the proposal would require the airlines to provide food, water, restrooms, cabin ventilation and medical care whenever an aircraft is stuck on the ground for more than three hours. And there is also a requirement for airlines to notify passengers of chronically late flights. Bad weather is one of the primary factors leading to flight delays, and weather-related setbacks often ripple through the system, causing massive delays across the country. Passenger advocates say airlines should limit their flight capacity so delays don't snowball.
JOHN MEENAN, EXEC. VP, AIR TRANSPORT ASSOCIATION: You would not run banks with zero reserves or negative reserves. You would not allow most anything -- insurance company, a bank, any major institution that serves the public -- to operate with no reserves.
DHUE: But John Meenan of the Air Transport Association says the restrictions Congress is considering will limit flexibility and actually increase delays.
HUDSON: Right now, with loads being as high as they are this summer, there is a great incentive to try to get that flight to operate. If you have to pull into the terminal at some arbitrarily set time limit, that flight isn't going to operate. Those people are going to end up having to be rebooked on other flights, conceivably at much greater inconvenience.
DHUE: The airline industry says the key problem is the outdated air traffic control system. Suzanne Fletcher of the National Business Travel Association says Congress is missing the bigger issue.
SUZANNE FLETCHER, PRES., NATIONAL BUSINESS TRAVEL ASSN. A quick fix of just writing a passenger bill of rights is not the appropriate fix. We need a long-term program that will fix the overall air transportation system.
DHUE: Delays are expected to get worse, whether or not Congress passes an airline passenger bill of rights. Already this year, a quarter of flights were late and those delays were 40 percent longer than a year ago. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Reagan Washington National Airport.
"Commentary"-Rebuilding the Workforce
SUSIE GHARIB: Tonight's commentator wants to build a more engaged workforce. Here's Robert Morison, director of research at BSG Concours and the co-author of "Workforce Crisis."
ROBERT MORISON, EXEC VP & DIRECTOR OF RESEARCH, BSG CONCOURS: I'm not one to celebrate or agonize over fluctuations in the overall workforce productivity rate. I can only deal with productivity as a local matter. Businesses raise productivity in any of four ways: better automation, better work and management processes, more skilled people and higher employee engagement. Most employers are prone to act upon the first three, yet the fourth may hold the greatest potential. What is engagement?
An engaged employee is willing to go the extra mile to help the organization meet its goals. An engaged employee makes work time count. How high is engagement in the American workforce? Not high. One-fifth are really engaged; almost as many are disengaged. Their goal is just to cash a paycheck and the average employee is not far above neutral. What factors correlate with engagement? We all know the answers: interesting and meaningful work, variety of responsibilities, capable and similarly committed colleagues, respectful and respected management.
What causes low engagement? No matter how we segment the workforce, the number one answer is always the same: feeling at a dead end in one's job. One-third of American workers today feel dead-ended. Want to do something about productivity? Improve the conditions that engage employees. Notice when capable people are getting into a rut and give them a change of pace to get them unstuck; leave nobody in a dead-end job. The American economy may plod along at a 2 to 3 percent annual productivity increase, but a well-managed business can do much better than that. I'm Robert Morison.
"Last Word"-Lucky 7
SUSIE GHARIB: And finally tonight, no matter how you slice it, Saturday is gearing up to be a lucky day. July 7, 2007, or 7/7/7 will be the luckiest day of the century, according to some, and pizza maker Pa John's is getting in on the act. Pa John's is giving away 777 large pizzas on Saturday to a lucky group of randomly selected online customers. One winner will receive a once-in-a century prize of a Pa John's gift card worth $777. And Paul, when you do the math, it works out to about one free pizza month for five years or simply put, a lot of dough!
KANGAS: You'd have a hard time topping that.
GHARIB: You're right about that.
Paul Kangas' Stocks in the News
PAUL KANGAS: That Blackstone bid for Hilton prompted strong gains in the hotel stocks on Wall Street this morning as you heard. But the broader market headed lower as bond yields jumped after the Bank of England hiked interest rates a quarter point to 5.75 percent. At noon, the Dow posted a 51-point loss and the NASDAQ Composite was off five points. As oil prices eased from the day's high of $72.35 a barrel and optimism rose that tomorrow's employment report would please investors, stocks cut their losses to close narrowly mixed. The Dow Industrial Average ended down only 11.46 at 13,565.84. The NASDAQ Composite actually gained 11.70 ending at 2,656.65. And the Standard & Poor's 500 was up about 1/2 a point at 1,525.40. Over in the bond market, the 10-year note fell 24/32 to 95 2/32, lifting the yield to 5.14 percent.
The most active New York exchange issue on 31 million shares as you might expect, Hilton Hotels (HLT) up $9.34 on that Blackstone $47.50 per share buyout bid.
Let's have a look at some other hotels and how they reacted to the news, all big gainers, Choice Hotels Intl (CHH), Gaylord Entertainment (GET), Host Hotel & Resorts (HST) and Marriott Intl (MAR), Starwood Hotels (HOT), all doing very well indeed.
Then back to the active list, Ford Motor Co (F) down $0.27.
Followed by General Electric (GE) $0.16 loss there.
Pfizer (PFE) moved up $0.09.
And then Time Warner (TWX) with a $0.24 drop.
EMC Corp (EMC) edged a penny higher.
General Motors (GM) down $1.22. That hurt the Dow. Of course, Tuesday as we reported, GM had a 21 percent drop in June auto sales. Today Bear Stearns downgraded the stock from "out perform" to "peer perform" noting that GM stock has risen 31 percent just since May 10th.
AT&T (T) $0.54 drop.
ExxonMobil (XOM) fell $0.20.
No change in Taiwan Semi (TSM) topping out the actives.
Huntsman (HUN) the big chemical firm, up $3.06. The company's now received a $27.25 per share takeover bid from Apollo Management and that easily beats rival (INAUDIBLE) takeover offer of $25.25 a share.
Hanover Compressor (HC) up $1.90. The company and Universal Compressor have received antitrust clearance to complete their merger. Universal stock was up $6.60, closing at $81.76 a share.
Tele Norte Celular (TCN), this is the big Brazilian cellular phone company, up on takeover speculation pure and simple, big jump.
Under Armour (UA) up $5.21. The company's policy is not to comment on its stock activity, but it did say the results for the quarter are due out at the end of the month. Word has it on the Street there's a short squeeze going on her. Thirty percent of the company's stock has been in short position.
Tefron Ltd (TFR) down $1.36. The company sees a 19 percent drop in second quarter revenues because of lower than expected active wear and intimate apparel sales. The company also predicting lower third quarter revenues.
Guangshen Railway (GSH), American Depository shares down $2.57. Credit Suisse restarted coverage of this stock with an "under perform" rating because to Credit Suisse, it looks expensive.
NASDAQ topped by Apple (AAPL) stock again up $5.58. I believe that's a record high. Of course its iPhone sales are going well. Analysts say it may be 700,000 iPhones will be sold in this first week.
Research in Motion (RIMM) $8.25 gain. The company plans to start selling its Blackberry products in China.
Google (GOOG) hitting a record closing high, up $7.29.
Then we see Microsoft (MSFT) with a $0.03 drop. The company says it's going to take a billion dollar charge in the current quarter for extended warranties on its Xbox 360, but that that unit will still be profitable for the period.
Cisco Systems (CSCO) a $0.27 gain.
And then Intel (INTC) edged a penny higher.
Oracle (ORCL) up $0.42, had good earnings out last week.
Amgen (AMGN) $0.33 drop.
Baidu.com (BIDU), this is the Chinese Internet firm, up $3.99.
Qualcomm (QCOM) down $0.32.
Tecumsheh Products Co (TECUA) up $7.21. The company makes pumps and compressors and it's going to sell its residential and commercial Asia Pacific units for $220 million. The buyer Regal Beloit (ph) Corporation.
Then Penson Worldwide (PNSN) down $6.25. The company provides futures products and other financial services and it's saying that 2007 earnings will fall below the Wall Street consensus.
And then over on the American exchange, ACR Group (BRR), an air conditioning company, Watsco also in the air conditioning business, is seeking to acquire it for $6.75 a share and a cash tender offer. Watsco was up $2.32 to $57.84.
Those are the stocks in the news tonight.
