Kroger Buying Harris Teeter: Money Moves (07/09)

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July 9 (Bloomberg) -- "Money Moves" brings insight to investors looking for alternatives Deirdre Bolton talks to the professionals in hedge funds, private equity, venture capital, angel investing and real estate. Find out where they see opportunities. (Source: Bloomberg)

People go to these things with their families.

They bring their kids and they have events planned for the children throughout the day.

So you see them with their kids, more chilled out.

And all expenses paid, by the way.

One of the things that is interesting is that the press is there is inside.

They are kept in separate places, almost holding pens -- quite literally, areas where they are not allowed to stand.

The funny thing is, the bar at night, where the press stands in the hotel lobby, they are not allowed to go to the bar.

If people go to the bathroom or something, they are besieged by the press for something off the record.

Jon erlichman is there this week, so we will see more from him.

And they will be keeping him out of the bar.

Thank you, cory johnson.

Jon erlichman is on the way live and will have big deals and big names from the conference tomorrow.

Time to hand it over to "money moves." deirdre bolton is in new york.

Thank you.

We kick off "money moves." we start with them day in the supermarket sector.

The largest grocery chain in the u.s., kroeber, buying harris teeter, for $2.5 billion.

One of the biggest deals in the past decade.

Julie hyman has more.

What is kroger's strategy, to increase their presence?

Guess, mid-atlantic and southeast region.

The other thing is fresh fruit.

That is something harris teeter excels at, and i want to adopt some of that.

We talked about the reason behind the acquisition.

Of the harris teeter brand is a chain of stores that we have been mired.

They bring greater focus on fresh product and prepared foods to the organization.

This is something that we can leverage across our entire chain.

It gives us entry into some dynamic, fast-growing markets, charlotte, north carolina, washington, d.c., boston, and just to name a few.

So there is the geographic exposure, and also annual savings of $60 million over the next before your years, that kroger " to achieve.

Is it possible that another bidder may step into the fray?

The price is set a 34% premium to where the shares were before harris teeter said that it was exploring various alternatives for the company.

So you have a relatively steep premium.

Also, multiple times heated up.

The highest multiple we have seen for deals in this industry.

-- multiple times ebitda.

We have had some analysts say you could get a public to come in here, you could get someone to get in here, but investors to bear will be a higher bid.

Earlier we saw a few trades above the offer price, but since then the stock has stabilized right at the offer price.

You also have to consider the $75 million breakup fee, as well as a prohibition on harris teeter for solicitation of other bids.

It is not allowed to shop itself.

If someone wants to make a bid, that has to happen on its own.

Thank you, julie hyman.

The very latest on the m&a in the supermarket sector.

Kroger stock is higher, so is harris teeter.

That is the same direction as the broader markets.

Dominic chu has more on the trades from the data center.

Agreed across the board right now and near session highs.

S&p 500 up 12 points.

The dow is up about 82 points.

The nasdaq, nearly 20. near session highs.

We will see if that continues as we approached the final hour of closing.

Three stocks you want to keep an eye on as we approached the closing bell.

No.

1, fax.

There is a bit of speculation in the marketplace about whether or not bill ackman may be looking to target fedex as a possible investment.

That is according to an analyst at edward jones.

The stock is up 7% today.

Watch those shares this afternoon.

Also, watch shares of intuitive surgical, the biggest decliner in the s&p 500, down the most in nearly five years.

His company makes specialty surgery equipment, think robots.

Slowing sales are also pushing shares down below as they report preliminary results that fell short of prior estimates.

And we will finish off with one on the upside.

Tesla is up about 3% today because oracle is out of the nasdaq 100, they are moving to the nyse.

Tesla will be replacing them in the nasdaq 100 index.

The reason that is important, a lot of etf's and mutual funds are tied to the nasdaq 100. if you are there, there is always a desire for those shares.

Thank you, dominic chu.

Those are the broader markets.

Investors of all kind will be paying attention to a big vote tomorrow.

After 80 years, and the sec may lift the ban on hedge fund advertising.

This is a key provision of the jobs at that passed last year.

Dave michaels is with me right now.

He tracks the sec for us in d.c. if this happens, this will be huge.

Will we see an sec tennis tournament?

You could, that would not be permitted under the rules, the biggest change that you will see is hedge funds, operating companies, any company that offers securities for sale outside of a public offering in one of these restricted offerings will be able to advertise through the mass media, internet, whereas in the past they have not been able to do that be done so if you're sitting at home watching a football game, an ad may pop up for a hedge fund seeking new capital and investors?

The ship you could, that would be possible.

It is not clear that the average hedge fund will want to do that because they will continue to be restricted in terms of their investor base to basically credited, wealthy investors who understand the risks of investing.

You could see other kinds of companies, though, advertising through that medium.

It remains to be seen how it will be used.

We put on the screen the definition of a accredited investor.

Just the people along.

Annual income of over $200,000, that were higher than a million dollars excluding a primary residence.

Not the most efficient use of funds.

I do not know what the percentage is, but maybe not everyone watching the tv show falls into that category.

We know that have funds have become some of the most active entities lobbying to shape this rule.

From what you knew -- know about the proposed changes, is it what the heck of a community wanted?

So far it does look like it is.

There are not many restrictions on how the advertising can be used.

Tomorrow's vote will finalize that.

It is possible there will be a separate vote.

We know there will be a separate vote on the other investor protections, but those are not in the final release.

What we have seen so far , based upon what the hedge funds have said through their trade groups, have said individually, the rule so far looks appealing as it could be.

So to be clear, investor protection, that is another vote at another time.

We will not have more information tomorrow.

We will have a look at those protections to more for the first time.

They have been hotly debated because there are investor protection groups, other advocates who think the rules that the sec proposed last year did not include any meaningful investor protections, and open the door to more fraud.

It will be interesting to see how the sec response to his concerns tomorrow and whether they propose some of the protections, restrictions, what have you, that the issuers may not like but that the investor advocate and other entities of lobbying on this rule want to see.

Thank you, dave michaels.

He covers the sec for us from washington.

When we come back, virginia state pension plan is one of the biggest in the country and has one of the best recent track records.

One of its investment in bars will be with me in a few moments.

And then later we will put the business of being funny in focus.

We would take you to one of the internet's most popular comedy websites.

My exclusive interview with its ceo.

Welcome back to "money moves ." you can also watch us streaming on your tablet, phone, and on bloomberg.com.

The virginia state pension plan is one of the biggest in the country with almost $60 billion in assets under management.

Our next guest is on the industry advisory committee of that plan and focuses specifically on emerging markets.

Deborah q it is with us, also an assistant dean at the william and mary college of business school.

Thank you for joining us.

We know that the virginia retirement system has achieved a 13% net return on its investment portfolio last year.

How does the team to it?

There is a lot of focus at the vrs on the asset allocation and strategic allocation among the various asset categories.

I have to give credit to the board to spend a great deal of time focusing on that, as they should.

The investment committee that i serve on provides input to them.

They take a long-term approach and set the asset allocation, and to their credit as well, gives the staff flexibility to maneuver strategically and tactically within those allocations.

I think is a combination of those factors that that has, over time, allow their performance to be so good.

We know that your specialty is emerging markets.

In the past, you have said there are three components to managing those regions.

What are they?

The first two will be no surprise to anyone.

The federal reserve policy, u.s. fiscal policy, and the third one is china.

While that is probably not a great surprise to most people either, i think what is different about the way i perceived that is, china is now the third leg of the school that you have to look at in every aspect, not just -- their growth forecasts have been cut but a couple percent, that would be missing the point entirely.

We have a new paradigm here.

Another country is equally important over this decade to the investment returns in most asset categories.

Equally important to what is going on in the united states.

Investors really need to look at how everyone of their asset categories is more to be influenced long-term buy what is going on in china, as much as we now do for what is going on at the u.s. federal lazar board and u.s. fiscal policy.

What does that mean as far as an investor is concerned.

-- concern?

Does that mean betting on certain parts of the chinese economy or certain companies here that do business in china?

I think it is a combination of all those and so much more, too.

There is a lot of work to be done to understand how this will play out.

It is a multiple year initiative that we all need to get started on.

I can give you a few of the ideas that we have so far.

For example, china now has $3.50 trillion in reserves.

They are held about 60% in the u.s. dollar.

They are not happy about holding such a large part of their reserves in u.s. treasury bonds.

They are looking to diversify, and they have done already.

The smithfield acquisition is just one of the more recent acquisition they have made internationally.

U.s. investors, you do not hear them talk about the fact that they own part of london heathrow airport, that they own and number of ports around the world.

What will happen it is china will diversify their holdings, and if we can identify the sectors that they are going to move into, and even to some extent, the country they are likely to move into, that will have to determine the investor returns in those categories.

You mentioned infrastructure.

That is basically a big theme no matter where in emerging market you are considering.

I want to ask you about brazil, with the olympics, world cup, an area of the country a lot of people are paying closer attention to.

We know that infrastructure is a challenge.

There are some people that say they cannot fly in or out.

Are there good opportunities right now in brazilian infrastructure?

I think there are, but i do not think brazil is the best place.

They are running flat out now trying to get ready for the world cup and olympics.

I was there a year ago and you are right.

The airport there in sao paulo is like a local airport here in the u.s. you cannot imagine how it will handle volume of traffic.

There is clearly a need there, but i do not think that is the best investment in infrastructure.

I am looking more at ports, and that is where the chinese are putting a great deal of money globally.

They are setting out for a port structure around the world that will be able to handle the new, larger carriers.

Those are in more strategic places around the world.

Out of curiosity, when you talk about foreign ownership of sports, are their security concerns, is this something that an investor needs to keep on his or her radar screen?

Here in the u.s., that is a concern.

We did see the port deal turned down a year ago by dubai, making an acquisition offer on u.s. ports.

I think that will be true for the chinese as well.

They have small stakes in the port of seattle and los angeles, but to see them have a very large stake here in the u.s. will be out of the question for now, but that is not true in other countries.

Look at africa.

They have big stakes in nigeria because of the oil.

They are looking at some other south african ports due to the commodities.

In other countries, there is such a need for that capital.

Here in the u.s., we can take a different stance because become probably finance those upgrades ourselves.

Not always the case abroad.

Deborah, thank you for your time.

Assistant dean at the william and mary school of business, a member of the investment advisory committee for the virginia retirement system.

When we come back, the bidding war for hulu is on.

Companies like directv and time warner cable are making offers.

We will also tell you how much the on-line video service may go for.

Who is in play.

We turn our attention to the media world.

-- hulu is in play.

There are four bids out there.

Cobid, at&t, kkr, for a stake in time warner.

For those actually own hulu, you have a combination of disney, 21st century fox, which used to be news corp., and then comcast/nbc.

These are a lot of names.

We have this whole circle heat that going on.

Why is everyone so interested in who -- hulu?

And provide them with an alternative, almost a hedge against their traditional business.

You look at those companies that have submitted a bid.

It is really a play on whether consumers continue to -- they call it cut the cord in the industry -- stop paying for subscription page -- cable service.

The idea is, hulu provides a cheaper way of watching tv than your cable.

So why when disney, 21st century fox, and comcast /nbc interested in giving this up?

Comcast has no say.

Disney has one vision of hulu, fox has another, and comcast is in a weird position because of rules when there were bought by nbc universal, they have no say.

They are a silent third partner.

So you have three media companies out there doing their own vision for hulu.

The general idea is that maybe one solo order would work out better for the future of hulu.

How quickly do think hulu's fate may be decided?

Maybe a week or two, but perhaps no deal would get done.

They're actually put on the block a couple of years ago but there were pulled off because there was no bit deemed worthy of selling the company.

We are hearing about in the million-dollar range or so.

The sense i get is that owners are more committed to selling this time around.

Odds are that it will be sold.

We should find out, whoever wins, we should find out in the next week or two.

Time warner cable has the safety bit in this because it is only looking for a stake in the company.

The other three owners would continue to hold some of hulu.

If the other bids are not deemed worthy, that could be the fallback tier.

We could be talking very soon.

Alex sherman, with a potential date for hulu.

Back in two.

? more ahead on the second half of "money moves." we will take you behind the scenes of triple play.

We will tell you about its unique approach to marketing.

-- chipotle.

And my interview with the ceo of collegehumor.

Back in two minutes.

Welcome back to "money moves ." you want to bring your are bloomberg top headlines this hour.

Adam johnson has been from the newsroom.

Stocks rising for a fourth day.

Investors' optimistic that earnings will come in better than expected.

It began with alcoa last night.

All 10 rout in the s&p 500 are higher.

Fedex is higher on speculation that activist investor bill ackman is buying shares.

He put out a letter saying that he would take a large position in a large stock.

People seem to think it is fedex.

Tesla rising 2% following the news that it will join the nasdaq 100, replacing oracle.

Rupert murdoch is being summoned to testify before the u.k. parliament for the second time after an on-line news service published a transcript of a tape in which he allegedly said bribery was routine at his company's newspapers.

London police say they are seeking a copy of that tape.

A new study says young children who have a consistent bedtime do better on reading and math tests as they grow up.

The university college of london found regular bedtime are most common at age 3 and there is a bigger impact on girls than on boys.

The national transportation safety board will update their investigation of the crash of asiana flight 214. they have scheduled a 5:00 p.m. news conference.

Peter cook has more on what we're likely to hear.

What everyone really wants to know is what the pilots have to say about the last few minutes.

Might we get the details?

We could this afternoon.

The ntsb should have completed its interviews with all four pilots aboard aircraft.

They may provide some answers as to why the plane was flying so slowly on approach and why nobody in the cockpit seemed concerned until eight seconds before impact.

There were supposed to be flying at 158 miles perthey may provide some answers as to why hour.

Flight data stocks rising for a fourth day.

Investors' shows that they disengaged autopilot and at 1,000 feet, minutes from the impact, the speed was 149 knots.

At 125 feet, 112th knots.

A former ntsb chairman says federal investigators want to know more about the interaction between the crew threw out the approach and during the flight.

We do not know shows that who have the authority in the cockpit.

The training officer for the flying officer.

Those are things that will come out as the investigation develops.

They are all significant questions.

One area of great interest, the experience of the pilot at the control.

One of them only have 43 hours in the cockpit of a 777. it was his first landing in a 777 at san francisco.

Among the other details, the ceo of asiana is on the way to standard cisco, he could be there now, meeting with some of the victims of the crash, offering his apologies as well.

We will know more at a news conference at 5:00 eastern time.

Peter cook, thank you.

That is all from the newsroom.

Back to you, deirdre.

When we come back on "money moves," the recipe for success in the fast-food business.

Top executives at chipotle tell us another non-traditional ways of doing business and why they think they have been such a big hit with consumers.

? welcome back to "money moves ." you can also watch us streaming on your tablet, phone, and on bloomberg.com.

Shares of choke plot -- chipotle mexican grill has tripled in the past three years.

Carol massar spent some time with some of the key executives.

I know they have a winning formula, but what is the crowd pleasing one?

They do things differently.

Two decades ago, the founder set out to create a new fast-food model.

It is called fast casual.

It is all about using fresh ingredients.

The company, what sets them apart also from other fast-food restaurants, they spend so much more on their ingredients than some of their competitors.

What also sets them apart is the unusual way that it markets to customers.

Chipotle is known for serving past quality mexican food.

But making a tv show?

We are shooting a web series called "farmed and dangerous " about a likable but misguided group of people who spend the most egregious aspects of industrialized agriculture in a positive way.

Is part of the company's nontraditional marketing play.

But if we were in a typical company, all of our advertising would be about our new menu items ltd.

For a ligament -- available for a limited time only.

We do not do that.

In stark contrast to its competitors, chipotle's main menu has hardly changed since the first chain opened 20 years ago.

There are so many combinations of flavors that is not about a new menu item.

Have even attempted to do a breakfast?

We signed a lease to open up in an airport.

Part of the stipulation is that we be open for breakfast.

We have a new fritatta where we use our chicken and steak, and we can use that for a breakfast burrito or bowl, and it is delicious.

Will you expand that?

We will see.

For now we would just serve it there, but it is a possibility.

One new item on the menu, the frita.

They began serving a begin filling -- a vegan filling in california.

Certainly, a lot of vegetarians and vegans asking for this.

Will be enough to bring in new customers?

Chipotle is sticking to its old strategy.

The marketing that we do, in the past, today, and in the future, is when you experience in the restaurant.

Do you love what you eat?

They are sticking to their strategy, but not as mexican food.

The company is expanding its fast-casual model with an asian themed restaurant.

You were out there and said they were cool and intense, but the code ceo's seem to be involved at every stage.

That is right.

We spent the day with them and we surprised various restaurants.

The interview everyone -- there is steve hugging the manager.

The want to know how the team works together, how it runs.

They do this about 220 days a year, on the road, surprising various locations.

They believe if the team works well and the interaction with the customer is good, that is good for the company and overall sales.

It is a smart strategy.

Thank you for that, carol master.

We have -- carol nasser.

When we come back, it is known for viral hits.

Here is one of them.

? its channel has more than 4 million subscribers, backed by barry diller, and just released a new feature film today called "coffee town." i sat down with paul greenberg, ceo of collegehumor media, talk about his leadership and the growing media empire.

Having been in the digital media it ecosystem and in the landscape for the past 25 years, i have come to understand not only how media companies were also what consumers need.

I got fired from my job at the food network.

Mitt romney ytyle.

-- style.

? your mission is to create funny but years ago barbel.

I imagine the secret sauce has lots of ingredients and adjustments along the way.

How do you do it?

We have a secret formula of what needs to be added to videos to make them go viral.

It is you trying and failing to jack and i fought on the subway.

I imagine you get immediate feedback.

You know what is working and what is not.

Absolutely.

With the social club for men with our own website, we can see how many facebook likes a video is getting.

That helps us to have something that is going viral get more viral.

If we see something getting attraction, we will promote it.

There are tons of platforms for us to reach users.

We actively try to work on helping something already go viral, go even more viral.

Are you at the money ball stage?

We have a sophisticated platform that helps us in real time.

We understand how things are doing, not just videos, but a lot of non-video content.

Weaker it comics, articles, and infographics.

We can see how those are doing.

We also work with partners a lot.

We have a great marketing and pr team, and they help us to reach out to those that would find it interesting.

As far as talent in new york city, i assume you do not have a hard time finding good writers, designers, cartoonists.

Generally not, but we have a very high standard.

We want to make sure we find the best.

Our teams create very high quality work.

It is silly jokes sometimes, funny videos, but we still believe high quality, great ideas win.

That is one of the reason we have been able to be successful.

We really work on finding the best people we possibly can.

It is a rigorous hiring process.

Doesn't help to be part of barry diller's iac, in the sense that you are more legitimate, compared to other companies that will try to erode your market share?

Certainly from a business perspective it is, but first of all, consumers do not know that we are part of iac, and they do not care, it is all about creating good content.

From a business perspective, collegehumor has a strong brand, so people want to work with you.

It helps to have the support of i a seat and having the opportunity to work with somebody like barry diller, who is a captain of industry, someone who is truly a pioneer, who has done all these incredible things.

Having access to his knowledge and experience, having him so -- show some interest, giving us the support he has given us, has been truly amazing.

We are lucky to be a part of iac for that reason.

What is his favorite video or game, long or short?

That is a great question.

I do not want to guess for him.

He appreciates a lot of different ones.

One of the ones that he really enjoyed was our fake "dora the explorer" trailers.

She prefers the term explorer.

You need the world's greatest explorer.

? dora.

He gave us a lot of kudos for that one.

You mentioned cartoon, also branching into movies.

"coffeetown" comes out, your first feature film.

Financially, we want to make our money back and more.

But we also want to elevate the brand and have people understand that collegehumor is not a website, it is a multimedia, multi platforms to yet aimed at people between 29 and 34, and even beyond that, reaching them were there are.

We are using our unique talents to extend into those areas.

Paul greenberg, ceo of collegehumor media.

The company's first feature film "coffeetown" debuts in certain theaters and on itunes and other platforms today.

When we come back, expanding your investment vocabulary with bob reiss.

After 80 years, the sec may lift the ban on hedge fund advertising.

This is a key provision of jobs act passed last year.

So with that in mind, the term today is "qualified clients and purchasers." ? welcome back to "money moves." time for our daily buzzword, one word to improve your alternative investment vocabulary.

Bob rice is here.

A wonderful book, although i botched the title.

Tamara is a big day.

After 80 years, the sec may less -- lift the ban on hedge fund advertisements.

We're talking about qualify clients and purchasers.

What is that all about.

Now you will be able to advertise to anyone, whether a hedge fund, private equity fund -- we should make sure everyone understands -- any kind of private placement, so the only accredited investors buy in.

That means you have $200,000 in salary, a million dollars in net worth outside of her primary residence be done right, either one.

So people assume, great, now i will take in all sorts accredited investors.

But not so fast.

What do we need to know about this term?

A qualified client is key.

This is the threshold that an investor has to have in terms of net worth before an investment manager can charge him a performance fee.

So the old 2 and 20 does not work unless you are charging a qualified client.

Qualified clients have a $2 million net worth, not $1 million, as we were talking with accredited investors.

The reality is, for most hedge funds that do not want to change their fee structure, it is not that they are selling to accredited investors, but they will be selling to qualify clients, $2 million and up.

What does this mean for the number of investors that a hedge fund or any private placement can have?

A very important caveat for people to understand.

If you are taking it accredited investors into your fund, generally a 3 fund, and you only have 100 slots.

If you only have 100 slots, you need to keep them in some pretty high to get the scale you one in your hedge fund.

So you will not be dropping that number way down, even if the investor is an accredited investor.

This text has been automatically generated. It may not be 100% accurate.

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