Two advertising giants combine to defend themselves against a google juggernaut k. a new york-paris advertising behemoth work?
Hand shakes all around.
Herbalife reports earnings later today.
William actman considers the revenue report of herbalife to be suspect.
Carl eye kahn says mr.
Ackman is wrong.
Dividends and share buybacks are all the rage, but where's the future?
We go on a hunt for research and development.
We go back to 10 a.d. good morning, everyone.
This is "bloomberg surveillance." i'm tom keene live from our world headquarters in new york.
It is monday, july 29. where did the month go?
Joining me, as always, she survived the summer party, sara eisen.
She's about to survive the summer party, scarlet fu as well.
We had a great summer party.
I actually wasn't there.
I had a friend in town visiting from chicago.
It was great to hear many of our viewers.
It's great to hear we're kicking off with a few mega mergers.
But first, an overnight briefing.
Little in the way of overnight data.
We'll look ahead to the 10:00 a.m. eastern time report on pending home sales.
Pending sales of previously owned homes set to decline in the month of june for the united states.
And 10:30 a.m., dallas fed gives a read on manufacturing activity.
We're still knee deep in earnings mode.
Before the bell, we'll get earnings from simon property group, wynn resorts, and hearst hearst.
After the bell, herbalife.
And then 8:00 a.m., the omnicom merger call.
They're going to have a telephone call, an update on the merger.
That's going to be huge for us throughout the hour on "bloomberg surveillance." unreal, this merger.
There are so many different ways to do.
Sir martin sorrell will join us, really looking forward to that.
Currencies, commodities, it's our data economic.
Sara said it's quiet.
10-year deal, 2.56%. the euro advances at a 1.33 handle on the euro.
Oil is unchanged over the weekend.
But the euro advances.
The yen advances.
The yen answers, and that's particularly noteworthy.
That's sort of the risk-off kind of mode.
The yen just broke 98. the v.i.x. well under 13 now at 12.72. there's the yen at 97.77. euro-yen is under 130, which is stronger yen, weaker euro.
Why is the yen stronger?
Because it's going to be a few bumps along the way.
Broadly speaking, there's been a weaker yen on abe.
The problem is it's starting to work, and that lower the expectation they're going to add mormon tarry stimulus to weaken the japanese yen.
So you've got a few dynamics there.
Dollar mexico, thanks for putting that in.
Mexican peso, best performing.
We scoured the papers at this time, and this morning it is time for front page, the stories that are at the top of the list.
It has to be the mergers.
We got to start with the advertising world, where the numbers are gigantic.
Omnicom and pulisis are merging , and that beats out w.p.p. the numbers are large, $35 million in market cap, $23 billion in combined sales, and 130,000 employees.
I mean,the -- help me here, scarlet f. i'm a big company and i have six ad agencies bid, four of them are going to be with one company.
They get scale and leverage when negotiating ad rates for their clients.
It's all over the front pages.
Here are the two c.e.o.'s making hands, looking very happy about it.
It's supposedly a merger of equals, co-c.e.o.'s. sure.
Yeah, we'll see how that goes.
Regulators need to approve the deal f. it goes through, it will be completed by the first quarter of next year.
A lot more to come on this.
I thought it was significant the announcement was made with the arc de triomphe in the background, where all the worry new york will take over.
We've got perrigon buying elan.
The corporate income tax rate in ireland is 12.5%, lot lower than in michigan.
So the previous merger, they're going to domicile in the netherlands, because they didn't want the criticism.
You're talking about the omnicom.
Publicis, they're going to be based in the netherlands, even though they're in new york and paris.
You could make it one big junction.
Junkets to come, here's another story we're covering.
On the cover of the "wall street journal," michael dell says he will stay at the p.c. maker even if his buyout attempt fails.
The next deadline for everyone to keep track of in this soap opera is this friday.
Shareholders will vote on his revised, his best and final offer of $13.75 a share.
Michael dell says he will not raise his buyout offer and said that his agreement agreement to couching votes is not working.
Is it saying it's not in the papers this morning?
I think people are almost exhausted.
How many times can you put michael dell on the front?
There's question about whether the vote will get pushed off again because they don't have the support.
In a merger hour, we have sanford bernstein's chief market strategist.
He's legendary for 30 and 40-page notes, really thinking about how companies work.
We are thrilled to have him here today.
Vadim, you look at the mergers that are going on, it's a sign of a bull market, of good feeling.
Do you feel it will be a busy m&a season in into 2014? wall street has been predicting busy m&a at least the three three years, so i certainly hope we finally get it right.
I think companies are finally starting to get enough confidence to pursue growth opportunities.
But it's really important to look at this in the context of long-term history.
1960's and 1970's, mergers were over.
1980's was all about making it happen.
1990's was all about financial engineering.
Then the tech bubble was all about growth, basically pay out today.
Today the key is price.
It does seem industry-specific.
Some are much more exciting, like media, like advertising, where the technology is just changing.
Yeah, joining us as well, fabio, bloomberg contributor, columbia university professor on the hedge fund space.
You were mentioning before the show that this strange merger of two giants of advertising really isn't a financial transaction.
It's an all-stock deal to begin with.
Can the hedge funds play here?
The hedge funds will probably play this from the side, and w.p.p. is the most likely angle in which to do t. when you look at this deal, the driving factors underneath it seem to be big data is what they keep pointing to.
Omnicom team, big data, 200 people, maybe will make it 400 people.
So now you have 400 people doing it out of 130,000 mad men, that's going to be a lot of work to simply make that come together, and the reality is it's a cultural fit, and this is going to be a challenge.
And when the hedge fund managers are looking at it, one of the single biggest determinant social security what is the underlying activity?
Mergers for products work.
Mergers for services fail.
I love it.
Emergencies for services are -- which is advertising.
How about the hedge funds?
Is there room to play in this dell soap opera as it drags on and on?
It's trading at $13 or so, very close.
The offer of $13.75, if the deal closes relatively briskly, and eye kahn is keeping -- no matter how it works out, if he loses, he's suing.
It is very much something which, frankly, will be taught.
It's inside baseball.
August 2 is the closing date.
They're going to try to set a different date.
That's yes chose the third, because it gives us an extra week.
It's stuff that will make your viewers cry with bore dosm really?
We love that.
We we are the show.
Let's save ourselves with company news this monday.
Here's scarlet fu.
And let's start with boeing.
It's asking airlines to inspect the emergency beacons on a variety of its jets.
This request comes after japan's airline found.
There was a fire in a parked 787 earlier this month at heathrow airport in london.
A slide in profit over at ryanair.
Europe's biggest discount airline said they dropped 20% last quarter.
Ryanair said its average fare fell.
And carlos slim set to boost his stake in royal k.p.n. slim's american ended an agreement with the company that capped its investment at 30%. this move clears the way for american mobile to increase its investment.
K.p.n. gained 5% in trading in europe on this news, and that is company news headlines.
I've got another story here for you guys that comes out of france, not just the ad merger announced, it turns out life imitated art in a $50 million jewel theft.
A bandit with a gun entered a hotel in cannes, france, sunday and swiped diamonds and other jewels t. all took place, listen to this, in the carlton, which, if you'll remember, is where alfred hitchcock filmed the jewel theft thriller "to catch a thief." life mirrors art.
$50 million in jewels just in your kitchen.
How much is $50 million of jewels?
Is it like a box?
It could just be one gem.
I was going to say, get a couple of debloons and walk out.
That's your reaction, it's not that much?
I don't know.
I'm trying to fathom.
Harry winston, $50 million is like one necklace?
Why don't we go there and investigate?
Yes, we should.
Also coming up, media monday in full swing.
Omnicom and publicis agree to an all-stock merger.
We'll talk about what this new company, a giant, will look like.
It also brings us to our twitter question of the day.
Is google too dominant?
Certainly the winds are changing with digital technology.
This deal in part a response to the googles of the world that are dominating advertising, so is google too dominant?
? good morning, everyone.
This morning, nick akins, he is the a.e.p. president and chief executive officer.
Nick akins of american electric power, that's "in the loop" with betty liu at 8:00 a.m. this morning.
In the meantime, i'm sara eisen with tom keene and scarlet fu.
Our top story -- move over, w.p.p. there's an even larger advertiser potentially coming to town, if regulators sign off.
It would be the newly merged publicist and omnicom paris meets new york.
Scarlet, you're diving into this, because there are a lot of brands at stake.
These companies are already representatives of so many different advertising companies.
Absolutely, and now they're all combining together.
$23 billion in combined revenue, and some of the brands we're talking about here that are getting all mixed up together, leo burnett, d.b.b., there's a bunch of different agencies coming together under one umbrella.
In terms of market cap, $35 billion, so this is a huge, huge deal.
The overlap in terms of mcdonald's, coca-cola, wal-mart, pepsico all under the same roof.
You wonder if they're going to go to other competitors.
You wonder if there's any conflicts, say pepsico and coca-cola.
That's one thing to watch.
Also, we should note that the global ad industry has been on the mend.
It's been on the mend, absolutely.
3.5% growth this year in the global ad industry.
That's going to pick up more than 5% next year, and perhaps even reach 6% in 2015. so a lot of the people are saying that that's one big driver as well.
But google has to be kind of lurking in the background.
I agree that a lot of articles really focused on that.
I find fascinating the nuts and bolts, the tactical ramifications of this merger.
Martin sorrell will join us later on "bloomberg surveillance." here's one of his comments from over the weekend.
Let's do it right now.
I think it makes a lot of sense.
Within the comments, he talks about this idea of off strategy.
He was brutal.
It's off strategy.
Time will tell if the culture will click and whether it will be a good thing for clients.
I love this.
Co-c.e.o.'s is not an easy structure, as history proves.
They said they're going to get half a billion dollars worth of synergies.
You wonder how you're going accomplish that with a lot of job cuts.
We also heard from some of the other rivals.
This is a deal that makes too two people happy, the two new co-c.e.o.'s and a whole bunch of clients, 130,000 employees worried.
Our two guests with terrific industrial strategy, and fabio of columbia university, fabio, i love what you said earlier, emergenciers don't work in the service sector services a goods sector.
Is that everybody walks out of the elevator every night?
The talent walks out.
One of the harders forms of mergers to pull off is the so-called mergers of equal sides.
Big companies following small works.
Equal following equal, challenging.
They are not of equal size.
The u.s. company is $14.2 billion revenue.
Publicist is a lot smaller at $9 billion.
Yet interestingly, in the final share count, it's going to be 50-50. they're also specifically doing a $2 payout to euro payout to equalize the two of them across.
So, in fact, there's a slight win we are the publicist angle on it, but there's going to be -- but they're so big together, it has to raise competitiveness concerns at the regulatory level.
Vadim, let's go to you here on this distinction of industrial strategies in a digital age.
This is your wheelhouse of research.
Are these dinosaurs mating ? i never thought of it that way, but yeah -- you have to wear a bow tie to think of it that way.
Are these dinosaurs mating?
In some ways, yes.
They're trying to reinvent themselves in the new industry, absolutely right.
To fabio's point, when you are putting together companies of this size and you are justifying the merger based on future synergies, the outcomes are rarely popular.
How threatened are they by a company like google?
I don't think they're directly threatened because they're primarily a buyer, and they're devising strategies, so they're threatened by google only that google has the power of controlling the pricing.
Can we propose a capital investment on the surveillance team?
Whenever a guest says the word synergy, just ring the bell.
Half a billion dollars for this one.
Well, we continue this conversation, because m&a monday is kicking off with a bang t. also brings to us our twitter question of the day.
Is google too dominant?
Whether you're looking at the search ad market, it does dominate, or you're looking at a deal here with oldschool advertisers to try to compete, tweet us, @b and had surveillance.
? i'm here with tom keene and scarlet fu.
Top headlines this morning -- egypt's government is warning its opponents.
An official said the country's security forces are determined to achieve stability, this after more than 70 people were killed over the weekend.
Battles with islamists who want to depose president muhammad morsi reinstated.
At least 38 people died when a bus plunged 100 feet down a ravine in italy.
It was traveling to nape whells it crashed into a line of traffic and through a guardrail.
And here in the u.s., at the box office, a weaker than expected opening for "the wolverine." the film was number one with $55 million in sales for 21st century fox, but it was estimated to take in as much as $80 million.
"the conjuring" came in second with $22 million in box office receipts and those are your top headlines.
Did you see what hugh jackman had to do to himself to become the wolverine?
He literally looked like one.
He also had to bulk up.
Did you see what cate blanchett had to do to become -- the woody allen movie.
Just rave reviews.
Ruth madoff character.
The "new york times," it was truly a rave review.
It was so nice to see somebody smart like david denby, who's ironic say, just go see it.
Plain and simple, go see t. he doesn't do any big box office hits.
I would like to think -- it's like, you know -- they're going to roll it out slowly and go national soon.
We'll have a review.
Morning must read, it's a merger monday, but other things are going on as well.
Here's scarlet fu.
It's about state-sponsored creative destruction.
A columnist at the "f.t." writes about the lessons that europe can learn from the bankruptcies of general motors, chrysler, and detroit.
He says that the ability to let ventures die is a sign of strength, not weakness.
It should adopt american-style tough love.
In the current crisis, it has prefered to debt of the bankruptcy, and it suffers as a result.
I thought it was an interesting take on detroit.
When the story moves forward.
It's just creeping forward here.
Even with europe on the mend, more than one year after i'll do whatever it takes by mario draghi -- thank you.
An important moment.
All right, my morning must read has to be the story that's moving forward.
Which will be the next federal reserve chairman when ben bernanke's term ends january 2013? here's alan blinder, very influential economist, whose name himself has been mentioned, saying janet yellen is the best fed choice.
He says managing such a nearly unmanageable group, the federal open market committee of fed presidents, requires a delicate blend of intellect, diplomacy, and persuasiveness, all quintessential yellen traits.
He said there's little known about jan he will yellen, while much is known about larry summers.
But yellen, her temperament and her ability to forecast economic trends, like the housing collapse, would make her great.
Vadim, let's go to you first.
Do we care?
Is this just a parlor game or do markets really care about who the next fed chairman is?
They care about uncertainty.
They would like a choice.
And at that point, they want consistent sifment the latest flip-flop by the fed was not taken well.
The fact that many of the fed members are speaking with different voices is not taken well.
So they would like the leadership, somebody lose not a lame duck.
Who's better for the markets, larry summers or janet yellen?
I think janet is better known, but it's really hard to temple where are the other names?
They've really narrow it had down.
And we don't know if chairman bernanke is not going to go up for a third term.
We don't really.
And how can the cincinnati reds strike out 20 people and lose the game?
Is that what happened?
That's what happened.
I didn't know that.
Coming up, share holders are clamoring for dividends, but maybe companies should spend on r&d. ? this is "bloomberg surveillance." i'm sara eisen here with tom and scarlet.
Infused with merger and acquisition activity.
Futures negative five.
Confusing 2.5% -- two point 57%. i am watching a one point33 euro.
-- 1.33 euro.
Looks like we will see that in a bit.
Nymex crude, american crude, 104.84, and dollar-yen goes against our economics.
-- goes against our economics a benomics.
Our next guest says when it comes to stock picking and company strategy, it is all about finding out who is investing in research and development.
We will get him to name some names.
With sanford c bernstein, chief investment strategist.
Countless cycles where investors say give me the cash and there is disbelief there could any be any new new.
It would be good to speak with him as an esteemed tech analysts from another time and place.
Understands the depth of the new new, usually overrated.
And our bloomberg contributor joins us well.
Vadim, i love this quote you have.
I was there, you were not.
You were a young whippersnapper.
From 10 ad, going back even before i was on there.
Inventions have long since reached their limit and i see no hope for future developments -- he was a hedge fund manager a few months back.
The head of ibm even quoted -- he said we need only 10 or 15 mainframes in the world.
The idea that it is done and we do not need to invest.
You know why this is interesting?
This week, as of july 31, the u.s. bureau of economic analysis will change the way they compute gdp.
They will count rmb at -- research and development as an investment instead of an expense.
Do you think this is a positive development?
I think the general it is a positive thing because it is more accurate.
Rmb -- r& d is an investment and it should be treated as such.
Representing the best interest of shareholders by the microanalysis that your colleague brad hintz sees?
Give back cash?
An extremely difficult question.
U's is the lifeblood of corporations.
Appropriate u's -- capital use.
You don't have instant feedback.
As a result, corporations are very tentative and a lot of confidence is necessary before -- how do you measure return on investment or r & d? in many ways.
Because of lags it takes off in threeto five years before you can do it.
It shows up as brand equity, pricing power, market share gains.
I want to take this moment to ask you, to hedge fund managers like to see companies reinvest in themselves or do they want to the cash returns for dividends and buybacks?
The reality is, obviously the economic theory is you do not care between one or the other.
But the truth is -- the -- the measure is that r&d is percentage of sales.
If you look at top spenders -- general motors, toyota, some are not the most exciting companies on earth.
When you have a company like microsoft putting r&d into windows 8, 9, 10, 11, 17, then you have to ask when is r&d being spent to try to drag out a big dinosaur -- dead dinosaur?
Am i completely agree.
You do not always get paid for r&d. it is highly episodic all and only few get paid for r&d. i agree with fabiola, and the cases where the industry no longer has tremendous growth opportunities, r&d and a being race -- being wasted money.
You really want to see large r&d spending in areas where you see improvement in long-term growth and roe.
Who is leading the charge?
A number of companies.
Gen e specific therapies in health care.
Yet things as the now as customized playlists in internet.
-- things as banal as customized playlists.
In those areas.
Take three and -- 3m, iconic company with process of development.
Does that change?
Does 3m and companies like that , r&d and investment back into the company now as they did 20 years ago?
They are still pursuing the same trends.
The trick is -- the areas where you get paid.
Example -- hardware, communication equipment and semiconductor used to be the hot area for the last 20 years.
What is amazing when you look at venture capital firms, they used to invest 50% of the dollars in those areas.
Today it is less than 20. no longer viewed as a great area to invest in.
What about patent data?
Can you find signals?
That is a rate question.
Just the sheer number to the be largely ill -- the relevant.
But if you could find relevant patents -- for instance, those with a large number of citations, you can get paid.
Looking at the efficiency, ability to produce patent for r&d dollar.
What countries do a better job encouraging companies to reinvest in themselves?
A tremendous amount of academic work.
A big topic.
But things like economic freedoms tend to be fairly powerful in predicting.
Lets rip up the script.
We have a small margin between the u.s. and paris company.
Sabe oh -- fa bio, advertising agencies do r&d? they absolutely do.
What they are used to -- looking for, he used to be the white male and now you are targeting the left-handed male who is interested in flyfishing.
That requires greater and greater data analytics.
R&d -- was a manhattan, or clock p.m. on friday.
9:00 a.m.. that was r&d a few years ago.
The service sector businesses and the digital age care about r&d? does yahoo care about r&d? this is i think one of the most important trends.
We see dramatic increase in personalization of both software and product aired if you look at the bulk of r&d, really important stuff -- that is exactly right.
The fineness and the ability to target individual appetite is really where r&d within all the service isn't doing it.
The internet has allowed people to surf and have a range of selection they have not had before.
As a result, targeting eyeballs is essential to the entire r&d process.
From hailing a cab to buying a car.
Will more companies be like amazon, reporting these of surprising losses because they are piling back into their business?
I don't think so.
But i think they're a different models.
Amazon perceives is -- it's advantage as scale.
Scale, that is part of the debate that we've got.
Very interesting on r&d. coming up, we will get fabio all worked up.
Herbalife is set to report earnings.
Will these numbers finally prove once and for all the company's earnings are for real?
The age-old hedge fund battlefield -- battleground stock.
No admin, carl icahn.
An update after the bell.
We will discuss.
? this is "bloomberg surveillance here: i'm sara eisen.
The driver of the train that he married and killed 79 people in spain has been released on bail.
He potentially faces 79 counts of homicide through professional negligence.
Reports say the train was traveling much faster than the speed limit.
The bank of japan governor says a planned tax hike would not hurt the economic rebound.
He said the bank continues -- considers the downturn in overseas economies the biggest risk factor there.
China is planning an nationwide audit of government debt.
Workers will be sent to provinces and cities this week to try to carry it out.
The move coming as the new communist party leadership investigate threats to economic growth.
And those are your top news headlines.
Date and city debt , that has been cited as a headwind.
The idea -- bloomberg news has a story out today on three percent gdp for china.
See that at bloomberg.com.
Single best chart, shocking.
It is on a stark contrast between detroit and new york city.
The virgins and crime specifically.
It shows violent crime per 100,000 residents.
New york city is the blue line and it has shown great improvement especially since the late 1980s. detroit, back to where it has been in the late 1990s when it became notorious for violent crime.
The have anything in light of bankruptcy?
First half of 2013, detroit has the same number of homicides as new york.
In the city of detroit has no caps, cannot afford them.
I go back to the ancient idea.
Just get the people of this three.
Kevin or, the emergency manager, said violent crime rate in detroit is five times the national average.
On this -- and i do not need to talk city theory with you but it does have to do with creative destruction.
A huge part of the american difference in this financial crisis, is we solve things and move on.
The greatest crises have been created by extrapolation of current trends and then the trends break down and there is a disruption and we tend to reinvent ourselves.
Right now we are in the early stages of doing the same.
What is the europe report right now?
In terms of the economy?
Destruction and moving on?
Still a lot of pain.
Sky high unemployment and places like spain and greece.
The mario draghi, the head of ecb predicts a turnaround in the economy by the end of this year.
Far, we have seen a little bit better data.
Manufacturing out of germany.
The unemployment rate came down a bit in spain.
Crossing our fingers.
People still saying -- they are not really fixing the underlying problems.
It might have come down, but 25% in general and 50% for young people -- awfully painful.
They are still in recession.
And unemployment remains a huge issue.
Let's take a break and look at photos.
In washington, d.c., national park service workers use a pressure watcher to clean off the green paint splattered lincoln memorial.
Did they catch the guy?
The guilty party looks like -- unknown.
They will find him.
In indonesia, thousands of bottles of alcoholic drinks collected after being -- before being steamrolled during ramadan.
The booze was destroyed after being seized from vendors who fail to show documentation.
That was outside the bloomberg summer party.
Here is one in brazil.
A shot of copacabana beach.
People who gathered some of they were there for pope francis where he held his final mass in rio yesterday.
Looked like one big party.
3 million people flooded the area for his latest service.
That is brazil.
Like a rockstar.
Coming up -- under scrutiny by investors, urban life -- herbalife may finally get a chance to prove itself.
How the earnings report can set the story straight.
Or can it?
Bloomberg television, streaming on your tablet, phone, and bloomberg.com.
? this is "bloomberg surveillance." i'm scarlet fu, joined by tom keene and sara eisen.
In company news -- from files of "bloomberg west," a hiring spree at amazon.
It plans to add 5000 full-time jobs in its 17 u.s. warehouses.
It plans to build more of these warehouses to meet the man, get merchandise to customers factors -- to meet demand and get merchandise to customers faster.
Michael dell says he will stay at the company even if his buyout attempt fails.
The next deadline in the fight for the company is this friday.
Shareholders will vote on the revised $13.75 offer.
He caught the bid his best and final offer.
One of apple's highest-paid executives is being re-inside -- reassigned.
Mansfield will step down as head of technology to work in special projects.
He had a compensation package last year worth more than 85 million dollars.
A lot of questions about what his next special project kobe.
At his company news from the files of "bloomberg west." herbalife, a tale of two activists.
Bill ackman accusing the company of being a pyramid scheme.
It is reporting after the bell today.
Carl icahn to the other side of the debt very vocally and the stock since december has shot up.
For more, let's bring in our resident investment expert on hedge funds, bloomberg contributor and columbia business professor fabio salva deli -- this has been painful for him shorting the company when the stock has shot up here do you think he is still in the trade?
Him everything i hear, he is absolutely in the trade.
He will not fight it in the market.
There is a reason why washington real estate seems to be more expensive than new york.
He has taken it to washington.
He has gone to representative sanchez, one of the senior people in the hispanic caucus.
65% of the distributors are hispanic.
One of the character mystics of pyramid games -- which it may or may not be -- they have to find new places to graze.
Like clearcutting of forests brady got one section and you have to cut it down somewhere else.
The hispanic community, the one he says, which is being clear- cut now and they have succeeded in getting together a group of them to go to the ftc and ask for review.
As far as i can tell, fabio, it does not seem like there is any major recklessly effort to examine whether the company is a fraud or not and that has been part of the problem for bill ackman.
They've got a redefinition of what is a multilevel marketing firm.
They have succeeded in getting a meeting with the chairman of the ftc.
The ftc's entire budget is less than one percent of of bill ackman's battle.
, to amway, -- and to amway, and to a let's permit schemes -- bill ackman has taken a position that time had to play out.
I'm has to play out to find revenue recognition problems.
-- time has to play out.
Weeks, quarters, or even years?
The government can stay irrational as long as you can stay solvent.
The reality is, even if he wins and you do succeed in getting the u.s. ftc -- that is only 20% of herbalife's business.
At this point, he is fighting for a position that will be a real challenge.
This company will not go away.
Unlike amway, which was heavily -- is heavily u.s., if it lost, and lost every way.
Amway rule of 12% distribution, tracking how much product cap versus how much is sold -- a lot of those roles at herbalife, they are not even presenting the data to the public anymore.
Why is that?
They have been able to get away with it.
They say they don't know.
One thing we do know is inventories was up to 380 million, over triple than they were a few years ago.
One of the signs you are making more money in hiring new distributors is when you have to hide product.
These earnings are going to come out.
Gnc -- every single level, retail and wholesale.
The numbers there are looking for on the order of about seven percent or eight percent.
Odds are they will do better than that.
There is no reason they should not.
But it is not the game that ackman is playing.
Dan loeb was in it, he came out.
Is the battle shrinking the investor base?
It is actually quite interesting.
If you look at bill ackman's a short and carl icahn's a long, are almost identical to each other.
They are playing outside baseball with the two hedge funds playing in the corner.
This is bill ackman playing carl icahn's game.
Since december when ackman called out the peer amid scheme, the stock has shot up.
What was the point?
Did they gain anything going so vocal on the airways and twitter and make use of its noise against each other on it?
I think bill ackman legitimately believes this is a fraud on little guys.
He said he was going to donate the money.
He it as it way, you legitimately believes it is a wrought on the little guy and carl icahn sees a company with 80% profit margin -- our guest here from sanford bernstein.
I would suggest sanford bernstein does not follow herbalife?
What a shock.
Revenue recognition is the heart of this.
Fabio knows -- used to drive trucks and bricks around california to make revenue.
Is revenue recognition that big a deal or is it unique to a beast like urban life -- herbalife?
Revenue recognition is where you could get really hurt.
To the extent any irregularity associated with a, that is one of the worst things that could happen.
Who covers that?
Who is policing herbalife?
Do not want to pin you down specifically.
Is it their auditors job?
To a very logic that.
Also the analyst's job to question the details of the revenue recognition.
Fabio, what is your question to herbalife right now?
How do you account for the extremely large increase in inventory, and when are they going to come clean with the percentage of the turnover in their distribution force and also the percentage distribution of revenue from top to bottom?
My question, vadinm.
In your analysis, how long if the company is a peer amid scheme tenet report solid earnings?
When you actually start to cd celebration of growth, it is usually a sign of unraveling.
And you actually start to see significant deterioration.
Even the inventory problems that were pointed out, posted to come out when you cd celebration.
I have to get some herbalife -- before the earnings.
What do they even do?
I don't know?
Brian terry -- proprietary -- that is the issue.
Their product, formula one -- something we have not seen.
Sells more than clorox.
They sell more than clark's, they sell more than oreo cookies.
Figures than planters peanuts.
Thanks so much.
Let's take a break for the forex report.
We are seeing a stronger japanese yen really across the board against the u.s. dollar and the euro.
Retail sales in japan came in a bit soft.
Also chinese industrial companies reported slower profit.
That is waiting on the mood and boosting the japanese yen right now.
You see it a little bit throughout the markets.
The euro-dollar is pretty much select.
And the eurasian -- at a three- year low.
We will speak to the ceo of wpp of the world's largest advertising firm.
Maybe not anymore.
? this is "bloomberg surveillance." two advertising giants emerge to defend against the middle and google.
Then the advertising behemoth were?
We will speak to martin sorrell in moments.
The movement to pay executives of or performance -- top executives paid by cash ends up.
But is it too much?
The bad guys, they have the upper hand.
They can hack into your information at any time and any woman.
What business and government need to do now to protect your visa and mastercard in imation.
The money, everyone.
This is "bloomberg surveillance ." i'm tom keene, live from world headquarters in new york.
When -- monday, july 29. joining me, as always, sara eisen and scarlet fu.
My guest post this entire hour on media and advertising, lumber industries director of research paul sweeney.
A very busy morning -- bloomberg industries director of research paul sweeney.
We will first kick off morning briefing.
Overnight news -- chinese industrial companies reported slower profit growth.
That is weighing on sentiment, boosting the japanese yen.
In the u.s., 10:00 a.m. eastern, pending home sales report.
They are set to decline for the month of june.
In the dallas fed will give its regan manufacturing.
We will get some earnings before the bell from simon property group wynn resorts and hurts.
After the bell, herbalife will report.
The stock bill ackman called a peer amid scheme.
It :00 a.m. eastern, keep an eye of the con-publicis earnings call.
And we will speak to martin sorrell, head of advertising firm wpp.
We start with a big healthcare acquisition.
Buying the irish firm.
The michigan drugmaker will set up a holding company in ireland.
It predicts the move will cut its tax rate from 30% down to the high teens.
Perrigo also gets access to the multiple sclerosis drug.
Michael dell says he will stay at the company even if it's buyout attempt fails, according to "the wall street journal." the next deadline for the fight is this friday.
Shareholders will vote on michael dell's revised $13.75 offer, and michael dell called it his best and final offer.
The poster deal in the advertising business.
Publicis is merging with monic omnicom, and it will give shareholders of both companies about a 50% stake in the new entity.
It is being billed as a merger of equals.
The bill is expected to be completed by the first quarter of 2014, provided regulators give it there ok.
Thanks so much.
The two principles -- we speak to the other principal and advertising, wpp ceo and founder sir martin sorrell joins us from europe.
Good morning, tom.
Little did we know when we last spoke that it was going to happen.
Really quite amazing.
I want to get to the politics, sir martin.
Almost a davos moment.
If publicis, the french company, swallowed up by omnicon , the american comedy, can the french government allow it?
A really interesting question, tom, but it is a merger of equals -- or actually merger of unequaled because if you look at relative revenues, omni con, $14 billion of revenue and publicic, 8 -- the french companies better run.
But they both get 50%. they will have co-ceo's. the last merger of equals we had i think was daimlerchrysler, which did not go well.
I think one has to take once had off for engineering an incredible deal to end up on a 50-50 basis.
He will become chairman and three or four years and having the co-ceo's which is an uncomfortable structure.
To go back to the question about who has control, i think the critical issue is who will be cfo of the combined operation.
If it is being french ceo, obviously the french will feel more comfortable.
And if it is randy wise river, the american, they may find it extremely uncomfortable.
We will see what happens.
Sir martin, is this a good thing for you, because a lot of talent will exit this merger of dinosaurs?
I do not know about dinosaurs.
A big unfair.
Why did they call it omnicom and publicis, it would make it oap , old age pensioners.
If you take the colors -- mix them, you get a muddy brown or gray.
Quite interesting to speculate on what these two companies will look like together.
I would not call the dinosaurs.
But you are right, tom, that the strategies have been completely different.
Publicis, like ourselves, have been focused on fast growth markets in digital.
As a result of that transaction, those proportions combine -- decline in the combined operations and we will have the largest, fastest-growing market in digital exposure.
Secondly, omnicom 's strategy was always to ignore fast growth markets and digital and effectively they are buying a big roll up of those areas.
It is very expedient.
But again, you have to applaud the french -- much as some of us find it difficult to do -- you have to applaud the french for a brilliantly engineered deal which probably in the uk market would not happen because nobody would accept a nil premium merger.
Sir martin, it is sara.
No matter how you look at the strategies, it would be a giant company and it would overtake your company, wpp, as the worlds largest advertising firm.
Is being the world largest largest advertising firm an important thing for you?
We were number two, the number one, the number two, the number one, number two again.
If the deal goes through.
If you look on scale -- if you look at europe, asia, latin america, africa, the middle east, -- in asia and europe we will still be larger in terms of gail, media planning and buying.
In america, they will be significantly larger.
I think that is where the regulators will look at the issue.
Certainly media earners and certainly clients i think are concerned about it.
Bloomberg had this story on july 18 and 19th, and they actually ran the story, single source on friday night.
I think it ran at of the schedule and timetable that omnicom and publicis are running and i think it left them a bit short on clients.
Coming back to tom's question -- i think what we are seeing in our industry now is the industry gaining a state of equilibrium, much more of an equilibrium now than it had.
There was going to be further consolidation.
We always said it on bloomberg and elsewhere.
But now i think there is a state of equilibrium that gives us a chance really to build organically.
Because, as tom indicated, it will mean that clients and people will reassess their plans and it is a big, organic opportunity for wpp.
You talk about a big, organic opportunity.
What is keeping you from going out and making a bid right now?
I said organic.
I think that is where the opportunity is.
More recently be himself said he consider two other opportunities apart from omnicom.
The other one was ipsos -- the other one was ipsos, i think.
He rejected them as being too expensive.
When you look at the deal, you can see why.
Really merged with omnicom on an extremely attractive aces.
But i do not think it is necessary for there to be either consolidation at least from our point of view.
We have the scale.
We have the quality.
We are very focused on fast- growing markets, consumer insight, and then building -- and a time we got left with you, there is a 35 year old today, and omnicom and publicis are going, what happened over the weekend?
What is your number one selling point to drag the star performer over to wpp?
There is going to be considerable uncertainty over the next 30 months as both organizations struggle for control.
There is no such thing as a merger of equals, as you well know.
There are only things such as acquisitions.
It is all a question of who is going to run the company.
In those two companies, you have two contrasting styles.
You have publicis, highly centralized.
And then you have omnicom, highly decentralized out of new york and florida.
It is a very different approach.
I think the two companies are going to come over the next 30 months -- and i think beyond that -- are going to have to wrestle with that.
It is a very, very big company, as you said, with multiple brands which at least is going to result in consolidation.
Yesterday they said there were $500 million of synergies and they said there would be no headcount reductions.
That doesn't add up.
Sir martin sorrell, thank you so much.
Hudson bay is buying saks -- a $16 a share, 30% premium to the close back in when i first started talking about a deal.
Sara went to the eighth floor of saks.
More merger monday coming up, including the impact of the -- silicon valley on august deal activity.
? tom keene, sara eisen, scarlet fu.
I thought it would be likely be july, but it is not.
A lot of mergers today.
A busy economic week.
Here is scarlet fu with the merger of the hour.
Hudson bay, a canadian retailer, acquiring saks of saks fifth avenue fame, $2.9 billion.
It includes that.
Per-share, 15@$16, about a five percent premium to the last close on friday.
When you go back to may 1 was first started talking about a buyout for saks, about 30% premium.
Saks shares moving higher and hudson bay not yet trading.
Uighur cristina alesci on the phone, our deals reporter.
-- we've got cristina alesci on the phone.
You were talking about saks was going to be a hot deal property.
What is the back story of the hudson bay deal offer?
Sara, yes, you and i have been talking about this.
Hudson bay emerged a couple of months ago as a likely bidder here.
-they started out -- hudson bay started out as a real estate developer who basically developed into a retailer when it bought some lord and taylor stores.
Now even going into the higher end, and they diversified across different price points.
What is interesting is as -- with real estate, hudson bay has been trying to become a better and more efficient retailer.
If you look at lord and taylor sales per square foot, they are about $218 per sales per square foot, whereas saks, even though it has challenges, has almost double.
But then they clearly converted something from saks here.
Let's bring in paul sweeney.
Is this the beginning of something bigger?
Is there something going on here?
I think we are in a great investment environment, a great capital raising environment.
The media sector has been a tremendous m&a environment.
We have seen john malone get back to the business after an absence of 15 years.
We have seen some of the newspaper companies buying multibillion-dollar tv acquisitions.
Then, of course, the omnicom- publicis deal.
Has done for the return or people playing catch-up?
I think it is a combination of both.
What we have seen in the media sector is time after time you have senior executives like john malone talking about scale and the omnicom-publicis deal was all about ill.
Paul sweeney is with us.
We will continue this discussion.
Cristina alesci, thank you so much, on short notice, on sex with avenue.
Coming up, vice president joe biden has some words about china -- saying it is overwhelmingly in the u.s. interest for china to succeed.
Exclusive comments from him coming up.
? this is "bloomberg surveillance." i'm sara eisen, as always with tom keene scarlet fu.
Our guest host is bloomberg contributing editor here from bloomberg industries, paul sweeney.
In italy, at least 38 people died when a bus plowed through a guardrail and plunged 100 feet down a ravine.
It was traveling downhill on its way to naples when it crashed into a line of traffic and through a guardrail.
In china, they are planning a nationwide audit of government debt.
Workers will actually be sent to provinces and cities this week to carry it out.
That move coming as the new communist party leadership is investigating threats to economic growth.
At the box office, a weaker than expected opening for the wolverine.
The film was number one with $55 million in sales, but it was actually expected to take in as much as $80 million deal the debut.
"the conjuring" came in second place.
9:00 a.m. i saw a line out of the theater for "lou jasmine -- "blue jasmine." it was very limited release, only a couple of cities.
Now that it got a great opening, they will move on.
That is the one we are all excited for.
Ceo pay, that is what we will talk about now.
American corporations continue to profit even as revenues lag.
Part of the profits go to executive compensation.
Some say too much compared to employees.
Part of the dodd frank act supported by the president -- say on pay.
It is contention and it -- contentious and hard to say it is working.
But argued continues of 2009 as share prices rise ever more in ceo pay in the form of stock that's not cash.
I thought compensation was opposed to billing to share price.
A comp station expert -- compensation expert who really keeps track on this entire say on the paid debate.
Wonderful to have you here.
Thank you for getting up at 3:00 a.m.. i thought this is what we want.
Share price linkage -- and shareholders do well, executives do well.
What i missing.
I do not think you are missing anything.
I think it is worth it.
98% of companies who are passing this vote so i think there is a general level of support.
What has been squeezed out over the three years are the practices were you would say, it is not really a good use of shareholder money.
Are we moving just to a stock price analysis or do you care about ratios and the income statement and accounting performance?
That is probably the cutting- edge of the discussion.
If you ask me how it is going, i would say, tell me how performance is.
Where things are moving now is it his performance over time, so we look back three years later, and we say, how are we doing?
Is performance based compensation for executives a good thing?
That is a great question.
It depends on what you want to get out of it.
I think it is a good thing.
It has to be based on performance.
Where it is moving now, different kinds of incentives.
My pages the behalf cash and stock, and if the rock goes up, we all make money.
Now there is a trend, i will give you some of the stock as three years later we will measure performance one way or another.
What is the ratio of cash -- cash to stop?
About 60% stock.
Marissa mayer, her base salary was $455,000, got $1.1 million bonus, $35 million in stock remortgage -- rewards.
That is overtime.
Now it is a cottage industry.
In the media sector, if you look year after year after year, the industry that has the highest executive compensation -- it is not financial services, not the lloyd blankfeins, but media ceo's year after year.
40, 50, 60 million dollars.
You remember when michael eisner made a huge payday -- that we watched.
What is wrong with making money?
We talk about media and the deals taking place.
Our ceo's he trying to the deal so they can get paid more?
I think generally not.
A lot of times as eeo, if you you make a deal you are putting the job at risk -- unless you are an acquirer.
It is not so much of the annual pay but the fact that over my career, 20 years, i had built a large multi-percentage position of the company so i am trying to maximize shareholder value.
If that is making a deal, selling the company, i can realize that, but i am also out of a job.
Omnicom and publicis, the merger, saying this makes two people happy, the co-ceo's. after six months they may not be so happy.
When you look at say on pay, is that a failure?
Because most companies and shareholders actually vote in favor of their executive rossi pay plan.
It is a blunt statement.
I would not a is -- it is a failure.
Not a massive agent of change.
Does anybody ever lose?
Look what happened that citigroup.
If citigroup goes from $50 to five dollars, they don't get the stock.
We have seen in the financial services industry they are clawing back the compensation -- the ceo level, i am not sure, but certainly the operating level.
Is it just because the stock market is rising right now and the next time we see a bear market all of a sudden shareholders will get upset about compensation?
About 50 companies a year do not get a majority.
About 100 companies a year do not get more than 70%. i think those are the ratios we will be dealing with.
From your expertise, is charles schumer and the rest of washington happy over how say on pay is going?
I think they should be happy with it.
There has been a market change on how people get paid.
It is people like me who spent all their time doing this that really the difference in the pay structures -- but a lot of this stuff, i will tell you in three years how much it is worth.
Thank you so much.
Moved to new york.
This is a little more pleasant.
Anytime you want me.
The dell deal at the crossroads.
The latest, not a penny more.
Will michael dell get what he wants?
? this is "bloomberg surveillance." i'm sara eisen, as always, with tom keene and scarlet fu.
We need a monday morning data check.
Features little changed despite the flurry of electricity.
Big news we will get to in a second.
Features, negative four.
Two .50 5, 10-year.
The euro is near 1.33. vice president joe biden is pending u.s. interests to china.
He says it is "overwhelmingly in america's interest that china's economy continues to grow." he stressed, however, when it comes to china, it is not a threat.
Listen to what he told lindaamin in singapore.
This storyline that either there is a new cold war with china or there is a new g-2. neither is true.
We see a china that is made up of competition and cooperation.
We are anxious to compete with china in the economic growth warm.
The context is joe biden is on a six-day trip to india and singapore.
He also mentioned the bilateral investment treaties with china and india that will give investors greater certainty.
The pacific projection of the administration to get out there with a plan, it is hard to do when the debate over hard landing is where it is.
Michael forsyth out of beijing with a story out of barclays, three percent gdp.
The road from yale university -- stephen roach from yell university, flat out disagrees.
Speaking of the white house in washington, the stop -- top story, the president narrowing his pick for the fed president.
Looks like it is coming down to larry summers and janet yellen.
Larry summers has close ties to the white house but many are rooting for janet yellen to be the first female fed chair.
Hans nichols has a lot more color on the candidates.
A great piece on bloomberg.com about the great relationship.
They play golf and tennis together.
Does that mean larry summers will be the next fed chief?
It means larry summers and presiden barack obama have a relationship.
And you look at the past personnel decisions president obama has made, he tends to pick the person he is closer with.
With the larry summers it is a bit of a mixed bag.
As everyone knows, inside the west wing, larry summers engenders a mix of sort of exasperation but also affection.
A great anecdote i came across, the president and larry summers playing time is at camp david -- a gamer friendly doubles.
And the president beats larry summers.
Larry summers remarks to another official -- adjusted for age and weight, i am probably the better tennis player.
One larry goes away, president obama gives him suspenders as a gag gift because larry's trousers are always falling down at meetings.
He is not -- the human niceties larry summers does not do too well.
We do not know much about the relationship between president obama and janet yellen in part because there is not a relationship.
They barely know each other.
They scarcely met and that is a problem.
There could be a third candidate, could be a fourth candidate.
The white house try to put a lid on friday and say no decisions until september, october, the fall, which is how they counted.
I suspect we have a lot more speculation to do.
Internally, a lot more positioning.
Remember, larry summers has a lot of allies inside the white house.
Allies, a relationship with the president.
Your stories euros in on that.
How tough with the senate confirmation process the?
This is a question the white house is not quite figured out.
They focused on the a little bit but did not figure out whether there is a confirm ability prompt -- problem with it larry summers.
It were put on notice, a letter from a bunch of senators, about a third in the credit senators, saying, isn't janet yellen a great candidate?
There was not any mention of larry summers.
It was just, isn't janet yellen a really strong opponent?
That is from the president's own party.
On the conservative side, republican side, they will use it as a chance to litigate inflation and the economic policies of the president.
It is going to be a difficult confirmation process him if it is larry, or anyone.
The publicans are ginning -- no surprise -- for a fight.
You are the reporter in washington breaking the appointment is washed and -- as usual.
Can we note that both of these candidates are frontline prodigious academics?
Brilliant economist with different personalities.
And different economics.
I am looking for another candidate to parachute in.
Let's parachute into company news.
Breaking news that came across at the top of the hour.
The parent of lord and taylor buying saks.
Hudson bay is buying saks -- $16 a share, about a five percent premium to its last close.
Meantime, boeing is asking airlines to inspect the emergency beacons on several jets.
It comes after japan passing ana and united found faults and de