Transcripts For BLOOMBERG The Pulse 20140509

Program,ng up on the cashing in on cosmetics. I meet the founder of space nk which sells some of the worlds finest makeup and the business of botox. I sit down with an apprentice winner who runs a chain of skincare clinics. That is still to come on the program. We begin with our top story, the abandoned megamerger. But lisas and omnicom have called off their 35 billion try to create the Worlds Largest Advertising Company. One executive not surprised. Bloomberg caught up with him earlier this morning. We were surprised by the speed with which it fell apart. Call three or four weeks ago, it was predictable that it was going to fall. They sort of semicriticized one another and both said it was better or it was good to be separate. For more on the deal, lets bring in Jonathan Ferro and matt campbell. Why has the deal been shelved . There are plenty of theories out there. Two main theories. One comes from the companies themselves. Tax, regulatory obstacles. Analysts will tell you it was down to management. Getting the structure of this company to merge together, terrifically difficult. Says thattin sorrell if these two giants came together they would have overtaken him. Something apparently only his parents he didnt care so much. The tax issues, the regulatory issues, they stop to this deal . I think it is both. Publicis executive of said there were some disagreements around the principle, the quality between the two companies. Who would be the chief Financial Officer . I dont think it is a secret that there were some disputes at the top level about how this socalled merger of equals would work. These tax and regulatory issues created a delay and probably opened up space. Sir Martin Sorrell was p wereg about how wb capitalizing on the delay. There are two sets of winners. For every employee the lost, they got four. They have been able to push forward aggressively. Goingg is the hangover forward from this failed deal . These companies have been working so hard to put a merger together, have they taken their eyes off the ball . The other side of this thing, the unhappy parties are going to be the employees. They have been competing for the same job. Now they know that is going to happen. They have been losing key personnel because of this. I dont think it is over. There is going to be a big hangover. You wonder how much damage is being done to these businesses. You wonder how safe the guys at the top of o at the top are. Interesting it was to see the language of the joint statement. They really emphasized the uncertainty around the completion of this deal was having an effect on the daytoday. It was very hard for them to do business. As for the future of the chief executives, maurice levy is 72 years old. There has been speculation about his retirement for years. It wouldnt be shocking to see him step back a little bit. Obviously he is a very hands on guy. It will be interesting to see what happens to john at omnicom who has also been around a long time. Martin sorrell was saying earlier he was speaking to us from china. The chinese still had not given their approval for this deal. If you are trying to look for implications of the m a frenzy, maybe regulatory hurdles start to become an issue elsewhere. I think there were two hurdles here. One was antitrust, an issue with any big merger. Often it is china that takes the longest. Claiborne took more than a year to finish up the chinese process. The other thing is that some of these very aggressive tax arbitrage structures may run into trouble. Publicis and omnicom were going to redomicile to the netherlands but pay tax in the u. K. While being burst in paris and new york. That already makes my head hurt. Some tax authorities said, we are not ok with this. Like thethings pfizerastrazeneca deal which is premised on this jurisdictional arbitrage, you have to wonder if people are going to start hesitating. What happens to the industry . This deal has failed. It is clear that these Companies Want to expand. Who are they going to go after next . Fax thank you, we will continue to ask that through the program. Apple makes a play for dr. Dre. The rappers Company Beats is in talk with the tech giant for 3. 2 billion sale. Hans nichols joins us. Tell us why apples ceo tim cook could be making the companys a guest ever acquisition. He wants to go downstream. This is a dup archer how steve jobs ran the country. He would go for smaller acquisitions. This is apples play to get into technology. That is where they are seeing a lot of movement and some erosion for itunes. You look at downloaded music. It saw a decrease in 2013. Just a little bit down but there has been a great deal of growth in streaming. Beats was just founded a couple months ago a yearandahalf ago. In their first day they had around 1000 people sign up. You have seen explosive growth. The market leaders are pandora and spotify. They have slightly different models. Pandora is all advertising. Spotify is advertising for one year and a subscription model if you want the premium brand. Beats is a subscription model as well. This is apples attempt to own all parts of your Digital Media experience. If it is going to be in your years, apple wants to have a foothold there. We talk about wearables on the wrist. You talk to some tech folks in berlin, they talk about the next wearables being inside your ear. Maybe you connect electronically, remotely. The founders of beats are going to have quite a nice payday. We see some of their names up there. Now it has to go through. It is a 3. 5 billion 3. 5 billion deal. It is still a lot of money. The biggest in the history of apple. Dreont know how much dr. Owns of this business. Who is going to be making the money here . The biggest one we should look at is the carlyle group. For took a Minority Stake 500 million. That at the time value the company around 1 billion. We think they have around 49 . That would give them a payday of around 1. 5 billion. Hans, thank you very much. President putin is flexing russias muscles as the standoff with the west over ukraine heats up. Tanks rolled across red square to commemorate the soviet victory in world war ii. Ryan chilcote is here. While putin showcases his military power, the eu is reportedly preparing to expand sanctions. Do we think that is likely . Sanctions are a possibility. The Foreign Ministers gather on monday. They agreed in principle to expanding their list of category two sanctions. So far the eu has only sanctioned individuals unlike the u. S. Which has sanctioned companies. The idea is that when they gather on monday, they may go ahead and sanction Russian Companies that were involved in privatizing or taking, seizing crimean assets. It is a distinct possibility. If you look at what may happen this weekend, we have just had this victory day parade. Is president putin on his way to crimea . He decides not to. Nonetheless, there is a big illstion mark whether he w go there for his first trip since the annexation. If the separatists go forward with these referendums that they said they intend to go forward with on sunday, if you have monday morning two regions in the easternmost part of ukraine saying they intend to secede, then obviously the European Union not to mention the United States is going to have to respond. What is the significance of the day of v day . Of thein the context current geopolitical crisis. One thing is patriotism. V day has always been a big deal in russia. Patriotism is at an alltime postsoviet high with the annexation of crimea and putins tough talk on ukraine and defending russians interests. That is something that is going on, a celebration of patriotism. It isesident said important to defend your national interest. The other aspect of this is, in some ways as far as the kremlin is concerned, what is going on today is a bit of an extension of what happened in world war ii. You have these groups on the far right, a militia in ukraine, which they tie to having fascist ideology. Take that fire that happened a week ago in odessa. They say that was a fascist killk by this group to prorussian activists. In some ways, they are using tos historical struggle advance their interest. Ryan, thank you very much. Ryan chilcote with more details later on ukraine. South africas ruling party has won its national election. That ensures a second and final rm for president jacob zuma. Enjoys strong backing among the black community for ending apartheid. Factory drivers are planning a protest against hoover. Ubersay over drivers have an unfair advantage. Iag hasairways owner narrowed its thirdquarter loss. Recovery in the u. K. On the money u. K. Economy is spurring demand. Will take a closer look at iag a little later on in the program. Also coming up, we have talked about russia. Will putins military showcase add to tensions as prorussian rebels prepare a referendum in ukraine . We will get insight from the head of markets at bcs financial group. To the pulse. President putin is expected to review warships off the coast of crimea. We are joined by the managing director at bcs financial group. Ryan chilcote is here with his perspective as well. Joseph, lets talk about the russian economy. All of thisact geopolitical tension is having on the ground. At the moment, we havent seen any structural hit to the russian economy. We have seen expectations for economic output come down. Have, russia will probably small growth this year. We have seen investment in consumption being delayed. Point, we havent seen anything structural. That is key for you as to whether this becomes a much bigger issue. Whether sanctions are expanded or not. Absolutely. Russia is still hugely dependent on commodity pricing which is very favorable. Say al probably currentaccount surplus. The Game Changers is level three sanctions. If the u. S. And eu followthrough with sectorwide sanctions, we are talking about something that will hit the russian economy hard. Do you see these level three sanctions coming . Angela merkel, president obama, they are clear that the election in kiev would be the trigger. You dont see it happening . It is hard to decipher what the bogey is to trigger the sanctions. So far it has been agreed that until you put russian boots on the ground, though sanctions will not be put into place. Is ks like the kremlin even the hard sanctions that americans put in place were virtually meaningless. You look at bp, no attack c, the television operator, they all have ties to individual sanctions. They were unaffected. Legal opinion shows that they are not subject to the sanctions. Up until this stage there is no structural damage. How significant were the recent statements by president putin calling for the independence votes to take place this weekend to not take place . How significant were those comments . Materialamesmanship or to whether we see though sanctions coming forward . To a certain extent it is material. You have to assume there is some kind of communication between both sides. We are assuming it is fairly difficult for investors or bankers to pick apart this whole situation. Trying totelligence decipher this. Gradual like this is a move in a deescalation of the situation. We are not out of the woods. Like it is moving in the right direction. When the u. S. And european say sanctionsders actuallyng, they are not really telling the truth. I think it is not the full picture. We have seen banks and corporations struggle to refinance. The Russian Development bank struggled to refinance which is a significant situation. But russias infrastructure has strange dramatically. We havent seen any hit on russian finance capabilities. We havent seen a hit on funding capacity. We havent seen a very big increase in dependency of corporate russia to the central bank. So far that is manageable. Thank you very much for joining us today. As we had to break, it is time for todays pulse number. Million, that is how much the legendary Beverly House is on the market for. That makes it americas most expensive real estate listing. Ryans is much larger. We are back in two minutes. Welcome back. It is time for todays hot shots. Surfers have come up with a new water sport. With nothing attaching the board to the feet, servers can create a whole new variety of wind powered tricks. With the world cup approaching, football will be taking center stage this summer. If you are not going to make a world cup routine, you can still put your ball skills to work. I know another man who is good at freestyle football. Our European Markets editor, manus cranny joins us now with asset check. Probably not for me for football. We have a little dip in these markets. You are coming off sixyear highs. Give the thing a bit of a break. China inflation is slowing. The ecb are talking about some action next year. Interest rates are already discounted on this map. A rate of around 0. 1 next month. Goldman sachs says it is a 40 possibility. Productionustrial was a disappointing. The market was looking for much better numbers there. U. S. Equity futures down. Jobless claims were the drivers yesterday. Nasdaq is indicated down. S p futures virtually unchanged. We will keep an eye on those u. S. Equity markets. See how they play out as the morning goes on. Draghisar, there is impact in the moment that he spoke. Will it work . There you go. You see the moment that draghi spoke. This is perhaps the floor in the currency market. Think probably Something Else just to keep an eye on is sterling. That will be the other things in terms of our equity market. Where are we going to go . What is going to happen with our Interest Rate cycle in the u. K. . Thank you very much. Up next, the business of botox. A doctor joins us this hour. I asked the apprentice winner what it is like partnering with the business mobile lord. How has it helped her establish her business . We will bring you that discussion about entrepreneurs. Just a reminder, you can follow me on twitter. We will be back in a couple of minutes. Welcome back to the pulse live from bloombergs European Headquarters in london. Credit suisse is holding its atm day in zurich. Bank tries to settle an investigation into u. S. Tax evasion. Settlements could include a penalty of more than 1 billion. Russia celebrated the soviet victory over germany in world war ii. Later today, president putin is expected to review warships off the crows of crimea. That comes as the eu gets ready to expand sanctions. The euro is set for its first weekly kind decline after mario draghi signaled that he may ease policy in june. Economists now expect the central bank to cut rates next month. Randy said yesterday that officials are comfortable with taking action if needed. Lets turn now to reaction in the markets. Think that are Economic Data causes yields to rise by boosting expectations of higher shortterm Interest Rates. Our next guest says that is wrong. Steven major joins us now. Where do you want to start . Good morning. The conventional thinking is you get some Economic Data, if it is stronger than Interest Rates are likely to rise. There is a lot wrong with that chain. Interest rates of bond yields are not connected. That can be proved empirically. Interest rates going up, yields can go down. That has happened this year, by the way. That link doesnt really work. The link between the economy and the rates, that is what the bond market does. The bond market is predicting the future all the time. Last years that upward movement was a tightening of monetary conditions. You think u. S. Rates are going to continue to fall. This idea has been validated by what ms. Yellen said yesterday. She was talking about the Housing Market. Something of a worry for her. Bond yields werent up so more and yields it became more expensive to buy a house. The Housing Market is being affected. Becomesrs tightening this years problem for the economy. I think we are on to something. I dont think it is new. Lets not sit there looking at the screens, waiting for the data to come in and predict the market. The market has something to say about the economy. Lets talk about ecb. We were just saying that a number of economists are expecting a rate cut from the ecb. That is just next month. There does seem to be that expectation out there. You think that is a bit of a dance . It is all about forward guidance. The market is convincing itself that the fed will be tightening next year. With the ecb, the market is convincing itself that the ecb will do something, some kind of easing. There is a whole makes of different interventions that could be delivered. The risk is that both could be wrong or one could be wrong or nothing could happen. Basis, the spread is just too wide. You think too many people in the market have been playing this as a divergent right path between the ecb and the fed. The markets have been assuming that gap is getting wider. It has been going on for a year. The markets have been pricing in the divergence in the rate cycle for about a year. It started with expectations that the fed would reduce asset aschases which became known tapering. In the meantime, the markets have become convinced that the ecb is going to cut again. Of course they have got to do something. They may not do it in june. They might wait until july. Most big ecb actions have been in the summer holidays. Our holidays have been ruined. They need more data. Yesterday was really interesting. Positivity in the fx world was huge. Eurodollar moved up and down with a range of two big figures during draghis speech. I dont know if he has got a screen like yours in front of him when he is speaking but what he says matters. At some point they will have to deliver something to meet these words and expectations. You say they will deliver something and they need more data before they do that. Do they need more inflation data . Do they need weaker inflation data . Our Economist Says to properly forecast the inflation data, we need to get the first two weeks in properly. We are only 10 days in. We are not quite ready yet to make a clear forecast and to say the may cpi will be the same or lower than april is a bit it is the same for everyone. Maybe in a week or so, the market will start to get some more conviction. We have the bank of england Inflation Report next week. Are we expecting something hawkish . Something on housing, something on gdp. The market is pricing in the best part of three rate hikes, probably the most hawkish outlook of any central bank. The risks are delivered. Thank you very much. Even major, global head of fixed Income Research at hsbc. Stop company our stories. Telefonica earnings fell in line with estimates. David tweed joins us now. Share still seem to be under pressure. Ellis about what is going on here. They are down about 3 . They opened up pretty much unchanged. Some people in the market are beginning to get worried about telefonicas currency exposure. It is true that they are under pressure in their home market, in their traditional business. Vodafone very active in spain. When you look at what happened to the argentinian peso, down about 18 , they are likely to see a replication of that declinesalso from the in latin american currencies. This has been issued for telefonica. Telefonica where it cant do much about currencies but it can do something about trying to shift its business in europe and its domestic market. Partly it has been trying to do that by some acquisitions. It agreed to a deal that makes it the most powerful tv operator in spain. Indeed it does. Digital plus, this came out around 9 00 last night. What it means is they will be able to take a 56 stake in digital plus and increase their take to 78 . It gives it the lions share of this operator which has got rights to some of the biggest orting events in spain. With barcelona or madrid, this is a very valuable piece of particularly in sportsmad spain. That is one of the things they can do. The second thing they can do is use it to bundle up their cable, their internet and Traditional Television offerings, bundle them all together and hopefully develop this new revenue stream. That is one thing they are doing. The acquisition which would potentially make them the biggest wireless operator in germany coming under review in june. Some signs look like they could get the goahead. That might be enough to convince the European Commission that there is enough competition in this market. Thank you very much, david tweed. We have also had results from iag, the owner of british airways. It narrowed its firstquarter loss. Manus cranny joins us now. Costs are under control. Profit guidance is rising. Business,k at the iberia lost by nearly 40 . Losses coming from over 70 Million Euros to just over five. Then you have very link. It is losing money at not any more money. A lot of Airlines Lose money. You should know. This is the scary moment of wondering what the next question may be. It is a good news story. They havent had a dividend at iag since 2008. The operating side of the business is doing better. He has got control of cost. Turning iberia around wasnt a small feet. Trying to tackle structural problems as he did at british airways, he has done it. He is certainly well on the way. 3000 jobs to go. Capacity coming out of the system. He is very close to closing those payments. Movingthe ground crew people over to lower salaries and taking on new airplanes. They are investing. Manus, thank you very much. Up next, cashing in on cosmetics. I meet the founder of space nk which sells some of the worlds finest makeup. Welcome back. It is time for entrepreneurs. Space nk started in 1993 with just one store in a former banana warehouse. It now has shops across britain. It has cemented its reputation as a purveyor of the finest cosmetics. I spoke with the founder. Nicky launched space nk in the early 90s. The apothecary now operates 62 Stores Across the u. K. Consumers still buy pricey makeup in tough economic times. Space nk has kept growing. We opened the doors in 1993 when british high street was suffering. I think we benefited from some of the money coming from fashion into makeup and beauty. The International Business includes 23 stores in the u. S. Alongside a growing online presence. Future aspirations may lie in the east. The internet has opened space nk to a global customer. Of opening inions southeast asia. If you look at countries like japan and korea, there is such a heritage and people welcome skincare regimens. Passion for the beauty world happened in childhood. She says it makes for successful business. If you want to be an entrepreneur, you have to be passionate about what you are involved in. Thatu feel passion for topic, you are going to do the job so much better. What about getting outside money involved . I think you have to give up a little bit of control. Absolutely. For me it was always about more than having just money. It was other peoples expertise. You can always find money somewhere but it is getting the right money with the right mindset. Projects toty botox, our next entrepreneur is targeting a more extreme corner of the cosmetics market. Leah a cashave dr. Injection after she won the 2013 series of the apprentice. Her nonsurgical clinics offer treatments including botox. She joins us now with more on this growing business. Thank you for coming in. What kind of appetite is there for these medical aesthetics . It is a very vibrant area. The procedures we offer has been exceptional. What difference has it made having the appearance on the tv show, the Financial Support in the mentoring of lord alan sugar . Anything, the investment and setting up the business. Also, the support of having someone as experienced and as a steamed in business. Lord sugar has been priceless. We continue to Work Together very closely. He put the money in. What does that mean . Does that mean every time you hire somebody, every time you want to consider expanding, you have to give him a call . You have to keep him in the loop, do you . He is very much in the loop. We speak almost daily. Controliven me all the but he is very much part of the decisionmaking. You are only 26. You dont mind that kind of intervention with someone like him. Absolutely not. It is brilliant to ask someone who has years of experience, what do you think about this strategy . Obviously the medical side of things, the treatments we bring in, the medical staff. In terms of general business strategy, he is absolutely phenomenal. We have been so lucky. Tell me about the types of procedures you will and wont do. Certain types of cosmetic surgery, you are not keen on and dont offer. You think the ethics behind what you are doing is very much at the center of the brand. We are a nonsurgical clinic. We offer botox. Also fat zapping, which i have never heard of. Hoping the dr. Leah clinic is going to be the go to place for any sort of cosmetic treatment. That is what we are strong on, making sure these treatments are done in a professional capacity. There is a man on the video being put through something. What about the booming business of male grooming and cosmetics . Is this a big trend . We picked a location in the city. Seen huge numbers of men engaging in these treatments. Brotox as it is dubbed is very popular in the city. , a fat reduction treatment lunchtime procedure. It helps give a flatter tummy. Very popular. , when i was talking to nikki she was talking about having a passion for the subject being the key driver. Clearly you have a medical background. How did you get into this . What intrigued me about the industry, my family had a visiting asult after backstreet clinic in northern ireland. For me it was about changing the industry and making sure people arent being exploited. Medical professional and have these treatments gone in a positive way. Make sure they are done properly. I am passionate about bringing the regulation that the industry needs. Inc. You for joining us. Thank you for joining us. Coming up, gasping for clean air. We look at why liquid Petroleum Gas could hold the solution to cutting harmful emissions. That is coming up next. Welcome back. In todays new energy, liquid Petroleum Gas is being hailed as the fuel of the future. And isheaper than petrol readily available in europe. Why isnt the u. K. Jumping on the clean fuel bandwagon . We are joined by the director of auto gas. Thank you for coming in. Tummy about lpg. How readily available is it . It is readily available. There is great infrastructure for it. Lpg is a fuel that plays a part in the basket of fuels over the next 10 years. We have petrol and diesel which are very expensive. Electric and those fields have got issues with infrastructure. And finding the right filling stations. How much cheaper is it than petrol . You can do this in an ordinary car once it has been converted. That is right. If you have an ordinary petrol car you can get it converted. Six orly it is around nine pence a liter. You go for this as opposed to an electric car, hybrid or hydrogen car . Some of the big auto manufacturers making bets on other technologies. Because it is here now. It is a real alternative that you can practically use. You are not having to look around for places to charge up your car. There are many service stations and filling points for lpg so it is a real solid alternative that can be used now and in the future. Is it green and off . Is it going to be taken by other greener fuels . Ener fuels out gre there but it is the greenest we have at the moment. We really need to get behind it. Are we kind of cost talking about of converting a car . I was reading an article that suggested it cost a few thousand pounds. Is it getting cheaper to do this . It costs around 1500 to convert a car. You drive 16,000 miles in your petrol car, you get it converted and you pay that conversion cost off. Year two and three, if you keep it, you save a further 3000 pounds. There are not many investments you can make where you put down 1500 and get back 4000 over three years. Thank you very much for joining us. Listening on bloomberg radio, the first word is coming up next. For our viewers, a second hour of the pulse is coming up. Russia flexes its muscles. Latest analyze the imagery coming out of russia, the latest comments coming out of russia with regard to the geopolitical tensions over ukraine. We will ask whether we will see further sanctions being imposed by europe next week. We also talk about Certain Companies in the news as well. Telefonica is pushing for pay tv. We will talk about the numbers from the telecoms giant raised in spain. We will talk about their numbers and also talk about their strategy. You can follow me on twitter. See you on the other side of a short break. Megamerger meltdown. Scrapped. Ion deal apple makes a play for dr. Dre. It is close to buying beats electronics. Sanctions. Ies new welcome to the program. Good morning to our viewers in europe. Welcome to those just waking up in the United States. I am an edwards. This is the pulse. How do you organize the Worlds Largest selection . We will take you behind the numbers. We will take you inside the , thedary Beverly House most expensive real estate listing in america. Lets get back to our top story. The abandoned megamerger. Billion dollar deal has been called off to create the largest Advertising Company in the world. We are not that relaxing a dream does not mean that we have no dreams. It is disappointing that we have this dream which is not going through, but it is much better to not ago to the Church Rather than going to the judge. We are divorcing before getting married. Lets bring in Jonathan Ferro and matthew campbell. Because wet a divorce did not make it down the aisle. How can i put it better than that . Be a bigs going to hangover here. About the factg that size matters. Size is still important for publicis. Why did this fail . We talked about tax and regulatory issues. Therell so sang, we could not find a balance of responsibility. Wethey are also saying, could not find a balance of responsibility. Ultimately they failed. Maurice leavy said he has seen improvement on margins in the first half. Wheng to defend a business many had been asking the question whether there were going to lose track and be sidetracked by this kind of activity. I think there was something to what both were saying. Interesting is that this deal was a long way from completion. They were still haggling almost one year and over all sorts of things. When they looked on the road and say, this is uncertainty that could continue indefinitely, that is a not that is not a great way to run a company. Theo we know enough about types of taxation issues or regulatory issues they were having to enable us to say anything about the future . Two views you could take of this. This is a reasonably on plex structure. Structure. Complicated but not impossible. What was more interesting about that theituation is delays created opening for managerial challenges to come to the fore. Complex deals are hard to do, but they do get done. Where there is a will, there is a way, generally. Should ascribee too much importance to the tax side. This was a clash of egos. Many of these businesses have been talking about trying to live up to the competition. It is a complicated relationship. Both of these Companies Wanted to go in. They thought they were better together. Have they taken their eye off the ball . About foris morning everyone employee, he was gaining four. The last 10 months, he has been able to get on with his strategy and push forward. Have the other guys been able to do this . The winners are the competitors, to some extent. Publicis has a few acquisitions in the pipeline. Certainly, this is not going to be a stable landscape. Sitting in the executive offices of one of the big advertising holding companies, increasingly, you do not necessarily see your competitors in the ad agency across the street. You see it as google, apple, facebook. The largest advertising agencies, these are gigantic layers players. Thiswas the idea behind merger that they would have the half to take on silicon valley. You have to take a look at the secondtier of ad agencies. They could certainly have targets on their back at this point. Gentlemen, thank you very much. Jonathan ferro and matt campbell. An apple payday for dr. Dre. Sale. Billion why apple ceo tim cook could be making the companys biggest acquisition . Why does this make sense . There was a lot of cash that apple has. At the core, there is a lot of Corporate Cash that wants to be put to use. Beats. Ets hardware from they sell these headphones. Ferro onsk jonathan which model he has later. It is a hardware company. Apple is going to get into wearables. Our glasses will soon have wearables. The years is someplace ears is someplace where you can have wearables that has not quite been dominated. The number of downloads for apple are down. You are seeing declining growth. People are streaming more. This is a chance for apple to get a streaming business and to get more hardware. It looks like theyre going to get 3. 2 billion. If this all goes through, it could make dr. Dre the first rap billionaire. If phenomenal success story. It is. Business, especially, there has been a steady progression toward ownership. They rap about billions all the time. Typeindustry was a bootleg of industry when it started. It was entrepreneurial. They were selling cassettes out of the backs of cars. The record industry wanted nothing to do with it. Owning their masters was a big thing, creating record labels. The wealthiest ones make more of their money out of things not making the music. Such as dr. Dre with his company. Without a doubt. In the past, the way to make wealth in music business was through music publishing. That was supplanted by these guys who do not really write their own songs. They never really stopped publishing is a way of making the money. Owning the masters was another way. That was the record label business. Bill created their own record labels. And they all created their own record labels. Vodkahey got into the business, closing business, headphone business. A brilliant move. I im still debating whether can wear those headphones over the top of my hair. Company has tried to get into streaming. They had itunes radio, itunes match. They were not the successes they had hoped for. Maybe tim cook is looking for some outside help in this particular part of the business. Why does it make sense for apple . Everything you said has a virtue, a benefit of being absolutely correct. I have been waiting several months now. Apple needs to have streaming revenue. They need to have people involved in the products. Story, about the earlier it strikes me that these are the same piece. Omnicon, publicis is a global ad company that can go after silicon valley. Ofle is making sure that all the content you consume is provided by them. This is going to be a remarkably busy summer in terms of m a. Send matt should campbell to see what he can pick up. He likes a holiday. We will put it to him. Lets talk about some of the other entertainment stars or billionaires. No other raptors rappers. Puff daddy is making good money. Do entertainers typically feature high on the billionaires list . Not typically very high. There are very few of them. The poster child is oprah winfrey. George lucas, steven spielberg. They all relies to early on that someone along the way took the roof off of my brain you should not just be looking at a 10 million salary or a big royalty payment. You need to go into ownership. In earlye a great deal star wars when nobody wanted it. It turned him into a billionaire. Spielberg did the same, oprah did the same. Obviously, it is happening now. That mentality has permeated the entertainment industry. Thank you for joining us. Hans, thank you to you as well. Coming up on the program, russia flexes its muscles. Putins military showcase. In a couple of minutes on the pulse. Welcome to the pulse. Live from london. Currencyck in on the markets with Jonathan Ferro at the touch. There is only one trade to talk about. It is eurodollar and what happened yesterday in the ecb press conference. Mario draghi said a couple of very words. We are comfortable acting in june, we use this month to preview next months meeting. You will struggle to find a bank, a strategist who is not calling for a rate cut this june. A lot of people are saying that Mario Draghis credibility is at stake. That is where you get the First Reading for inflation for the month. That june 5, the ecb meeting, the big one. Lets move on. Thousands of troops marched on moscows red square. The European Union is preparing to expand sanctions over the ukraine conflict. Lets get some more perspective on this story. Thanks for coming in. Give me your analysis of where things are. Our think escalating or deescalating in terms of the amount of tension we are seeing over ukraine . We should probably say whether the call from moscow is genuine or a way to try to avoid this is one president putin told separatists not to hold independence referendums. That theyis saying are not controlling the separatists on the ground and it is fair to say that they probably do not directly control them. The largest challenge ukraine is facing right now is the situation in Eastern Ukraine, where we do have citizens who essentially do not respect the authority of the Central Government anymore. Statements from moscow did not necessarily change the situation on the ground. The challenge for kiev is to reassert control of the Central Government before they can hold a vote. You think that those elections will go ahead, the president ial elections on the 25th of may . We still might see these referendums taking place amongst these parts of Eastern Ukraine the want to be independent. Referendums on sunday are going to go ahead. The most likely announcement we are going to hear, probably on monday or tuesday from separatist forces, is that there was high turnout in the referendum and it was in favor of an independent republic. The separatists also do not these individual regions. There is a mixed control. On the 25th of may, we are shortly going to see a vote on the new president of ukraine and may oral and city council elections. There will likely be some disturbance sees in the east of the country, depending on what the situation is on the day. Some ofite likely that the polling sessions will not be able to open, but the vote is going to go ahead. Will trigger certain sanctions from the west . We spoke to an analyst to a saying that the russian economy had been remarkably resilient in the face of the sanctions so far. If we start to see the next stage of sanctions, that is when the pain will be felt. What we will meet to see on the 25th of may to take further sanctions would need to be largescale disturbances where there is a strong suspicion that russia has been involved in them , either by supplying separatists with strategic advice or material help. Not necessarily take Russian Troops actually in ukraine. What youre getting from the u. S. And the European Union now is the wider economic sanctions not being tied to actual invasion anymore. There are options in between. There is the option of escalating targeted sanctions. Covering more individuals, more entities. Those are options that they will be considering. ,n terms of the russian economy expectations for the ruble have been slashed considerably. It is not that they have been inconsequential. Forecast had been more than 2 . That paled in significance when you consider where russian growth had been some years ago. Thatis a russian economy was suffering before these sanctions were implemented. We should also consider that we have just up to 50 individuals on the sanctions list. The nervousness in the markets is actually quite considerable without having wide economic sanctions. What pressure is fought amid putin under to not let the russian economy to collapse . The middle class in russia have got quite used to and being tapped into the western economy and do not want to risk that any further. In the first place, president putin is a politician. Care more about ratings than money. His ratings are very high now. It is not only him, it is the defense minister and the foreign minister. Flying high onre the annexation of crimea. They can perhaps take a little bit more heat on the economy. Thank you so much for joining us. We will take a short break. See you in a couple of minutes. It is time for todays hotshots. With the world cup fast approaching, football will be taking the center stage this summer. If you are not going to make the world cup scene, you can still put your ball skills to use. Freestyle football. A new water sport discipline known as kite boarding. With nothing attached the boards to the feet, they can create with a whole new variety of wind power tricks and jumps. Although notrne, attempting those maneuvers, we have had numbers from iag. His feet firmly on the ground as he provides us with analysis of iag. Beating estimates. The First Quarter is already always tough. Guidance is going up. You have flight carriers. And close up operating rosters. Theyre still losing money, but it is flat. The one standout feature is that employee costs have gone down by nearly 12 . Thecost of staff is one of biggest components in anybodys management budget. Fuel costs are coming down. Staff costs are coming down. They all had a fairly constructive First Quarter. The businesses benefiting from a recovery in the uks economy and from trying to turn around the iberia pot of the business. Part of the business. Toyou paid 5 billion pounds buy the iberia part of the business. They shredded 3000 jobs, they have done new deals on pay with cabin crew, ground staff, and with pilots. You are looking at cutting wages by about 7 . At the same time, looking back at the naysayers who said that was a pretty terrible deal that you did or a tough deal, they llie thecall him wi slasher for nothing. He has a bit of a track record. You were talking about employee costs that are big for many businesses. Indeed, it is quite a unionized background. Therefore, being able to take on these tough challenges, that is something you have to have the appetite for. Iberia was losing over 1. 7 Million Euros per day. Out byezed the pilots 100 hours over 28 days. Salaries are around 35,000 euros. Were talking about dividend. That is music to any investors years. Pulse get to the number. 130 5 million. That is how much the legendary Beverly Houses up on the market for. The mansion has 30 bedrooms, 40 and an art deco nightclub. Manus thinks it sounds wonderful. We will give you a sneak peek inside. Stay with us. Welcome back to pulse. Live from london. I am anna edwards. Here are the top headlines. Russia is celebrating victory day in moscow. Tanks and Missile Systems rumbled across the red square to commemorate the soviet victory over nazi germany in 1945. Russia is flexing its muscles in a standoff with the u. S. And its allies over ukraine. The European Union is getting ready to possibly expand sanctions. Credit suisse is hoping its annual general meeting in zurich. The meeting comes as it is trying to settle a u. S. Tax evasion probe. It could include a penalty of more than 1 billion. Publicis have abandoned their plan to create the largest Advertising Company. Unanimously decided to end the deal with no termination fee. Lets take a look at how European Equity markets are doing. Manus cranny is here with more. We are 2. 5 hours into the trading day. We are. We are coming off a sixyear high. I think you have to put this little bit of a dip you can hardly call this tragedy. We are coming off those sixyear highs. Telefonica underwhelmed the markets in spain. Italy had a disappointing number in terms of industrial production. Youre in the united kingdom, manufacturing was stronger than the market had anticipated. Is already pricing in action from the European Central bank in june. Rates are showing at 0. 1 . Fairly flat opening. Jobless numbers came in down. The big move is technology in the United States of america. I am dying to see how market takes the apple story in terms of dr. Dre doing this deal. What are they going to do . Maybe i am being overly further on apple. Buying a headphone manufacturer . Does it show a lack of inspiration . Manufacturing here is doing quite nicely, thank you very much. Dollar sterling it has had a cracking run. Cable has had a oneway street. How long is the market going into the weekend . In terms of currency and in te rms of European Equity markets you are going into elections here. Eastern ukraine. This is where the weekend news flow will be. The us is where the agenda will be set on monday morning in terms of what is happening with the troops that are amassing along the border. And in terms of Eastern Ukraine separatists over the weekend. Monday morning is going to set the tone with what happens there. We ever beginkets to respond to what is happening on the side of the map . A 25 minutes time, surveillance will take to the airwaves. Tom keene joins me with a preview. I know you we fascinated you will be fascinated by this falling apart of this ad deal. Martin sorrell might be reveling in the collapse of this intended relationship. It is all fairly tragic. We will speak to the head of wpp here. I dont know anything about divorce at all. I am just shocked at this omnicon fallout. We will speak to sue Martin Sorrell. Sir Martin Sorrell. I was stunned by the images you showed of the russian celebration in moscow. We will talk about ukraine through the weekend. Tackle holland will join us on the banking industry. Erik schatzker with us for bloomberg surveillance this morning. We are focused on the banks as well. Lots to talk about. It is a busy friday. Are you going to be talking about dr. Dre and beats . Is anunderstand there east coastwest coast rivalry as to which side of america is going to create the first rap billionaire. There are a lot of doubts about the initial thinking on this deal. We will look at this apple transaction. Scott kessler will join us with his first ideas. A lot of the conversation is less about the headphones and more about this dreaming capability of what jimmy ivey ovene and dr. Dre have done. Tom, thank you very much. Tom keene back at the top of the hour. Lets talk telecoms. We had numbers from telecom this morning telefonica this morning. They agree to a 1 billion deal that makes it the most powerful tv broker in spain. David tweed has been following the story. Shares came under pressure early. Tell us what is going on behind the numbers. You look at the numbers and you can see there are a couple of things going on with telefonica. Washare taking a bit of a because of the decline and some latin american currencies, in particular the argentinian peso down 18 in the First Quarter. It looks as though they are going to have similar difficulties in the second quarter. That might explain why we have seen the share price weakness. On the other side of the coin, you have mentioned telefonica trying to do what it can to find new revenue streams, which explains why it is going to do of digital plus. They have the lions share of the sports market, in terms of sports programming. This is going to give them the rights to all of the games by fc barcelona, real madrid. Internet. Lso bundle they can bundle traditional services. I can try to create a better revenue stream out of this area. They can try to create a better revenue stream out of this area. When will they be able to get permissions from the european really, to approval go ahead with the purchase of plus, the el german operator here in germany. . Once they do that, they will have the biggest Wireless Company in germany. That could be a game changer for telefonica. Thank you. Lets stay with this theme and talk telefonica. Thank you for coming in. What sparked your interest in the numbers coming out of telefonica . The domestic business seems to be struggling . The argentine peso, the chilean peso have been weaker. That has damaged profitability. What stood out to you . Surprising these results. There were little bit weaker than since expected, but it is not very surprising. The fact that they have been relying 45 on the European Market is quite important. That theurprising is latin American Business, which has been and was and still is the business that is driving the revenue, driving the profits for the company is not doing it anymore. Telefonica needs to look inside and rethink a little bit of what they are doing in europe. For a number of years, it seems to have been slightly neglected from a corporate point of view. They are doing a lot of m a. Digitalnt 1 billion in for spanish sporting events. Is that the type of deal that you are likely to see them doing . Theres another one awaiting European Union approval. That is a german deal. Before these two events, lets not forget the Czech Republic business they disposed and the irish business, both wireless business. They disposed a business in the u. K. As well. They have put together a few pounds and invested a little bit more. They are trying to invested little bit more. What is happening in the spanish market, the german market. In spain, the situation is slightly different to the one in germany. In spain, they are the big incumbent operator. All of these businesses are very much businesses to be protected. The acquisition of a paytv operator is not only going to grow you, it is also a protection mechanism. Bundlee trying to everything together. If they sell us something that is tv, phone, etc. , etc. They have more chances of keeping our spending with them. Lets not forget that vodafone is making an important acquisition in the spanish market. They do face competition with vodafone. Tell me about the latin American Business as well. You are saying some interesting details about their expectations in brazil. It is very new. This morning or yesterday, their expectation about this world cup the effect of the world cup on their business. It is the opposite of what anybody would expect from a largescale event. They publicly say that there was concern about the effect on the revenue and the profit of the world cup. Is that concern about how many people are going to watch in brazil . What is the concern . Officially, the concern is will be closeds for Public Holidays for the events. Effect on negative revenues generated. It is strange that they Say Something like that. Any other Telecom Company in the world would welcome such a largescale event. Live events to generate communication. Thank you. We will see how that develops. We will be back in two minutes. I think we were surprised by the speed of which it fell apart. At which it fell apart. After the calls they made three or four weeks ago, i think it was highly predictable that it was going to fall apart because they did it separately. They criticized one another. Was actually both said it good to be separate. That was wpp ceo Martin Sorrell earlier. He was talking about the collapse of the omnicon and publicis deal. Were talking to the ceo of london advertising. He joins us in the studio. Thank you for coming in to talk to us. What do you make of the collapse of this deal . Does it signify . Does it tell us anything about whether we need to see consolidation in the Advertising Industry . It is quite a momentous moment. It would have created the largest Advertising Group in the world. Industry will be shocked, but not surprised. There was more surprised when the deal was announced. The cultural clash between the two organizations. Savings ve been 500 million from the merger. The clash from a client conflict, it was already seeing a lot of fallout. You dont think the talk of culture clash, that that is overplayed. There are other reasons, arent there . Regulators. Tax all of that is playing in year. Andthink the culture clash you are a man with a great deal of experience camino some of the players involved, do you think coulter and the clash of cultures are enough to break down such a big deal . If there is a will, there is a way. The factorial issues of regulation and tax can be addressed if there is a willingness to see it through. I think what was probably the most telling part and the size of the announcement was inversely proportional to the issue and the difficulties they were facing already, there have been large fallout. There are two things about advertising. It is the peoples business internally. The people delivering the service. Those people need to be managed appropriately. It is a peoples business in terms of working with clients. We have seen vodafone moving out. Gs k. You could argue that Martin Sorrell is going to be disappointed. He almost said as much. He was suggesting that he felt that his business is benefiting from this limbo state of these two businesses. As they try to nail down the deal. He is saying, perhaps that there was, this appointment that they would not be in the limbo state forever. This was about getting ready for the next wave of the advertising market, if you like, and google being a big player, facebook. Other entrants who might not have been considered competition for advertisers. How is this going to shape up . How are the older companies and advertising going to fend off that newer competition . I think it is a real tipping point. I think the 20th century model of constant consolidation in the industry we are in is difficult to see continuing, i believe. Whilst there is a need to have ,hat level of scale and clout it is actually about creating strategies that will generated by people. Look at those two businesses, they are a combination of media buying, but also created agencies, and a lot of other things like that. You do not need dots on the map anymore in order to deliver a global product. For advertising. It seems that some consolidation might still happen. Maurice leavy was talking about some consolidation plans. Do you see that as a running theme . Leavy will mr. Continue to deploy that strategy in his business. Im not convinced it is going to be the future of the industry. Im sure they will have further acquisitions along the way. When it comes to actually creating messaging and new reason i set up my company after 20 years working elsewhere is that we can deliver global campaigns from london in any market, in any media was a small team. Global presence is very different today. The wayther aspect is you mentioned google and facebook. Their ability to deliver messaging that can work on the social media platforms, which media, freent relationships through clever thinking that does not need media buying to influence channels. Thank you so much for joining us to talk about this fascinating story. The ceo of london advertising. After the break, you may recognize it from films like the godfather to the bodyguard. We will take a look inside the Beverly House. Welcome back. Lets get a check on the currency markets with Jonathan Ferro. Mario draghi suggests that the market could act in june. This is what the corporate world skin for. It is what the french politicians were asking for. A lower euro. How much lower can ago . Will they act. You will get your answer in june. The luxury market for home sales is apparently on fire. If you are house hunting for Something Special with lots of room and brimming with character, this iconic Beverly Hills estate is available. But it will cost you. This is truly one of the legendary estates in Beverly Hills. I am the listing agent of the Beverly House. This is the most expensive estate for sale in the United States. There are five structures on the property. 30 bedrooms. 40 bathrooms. Two tennis courts, three swimming pools. The art deco nightclub is perfectly suited for nighttime entertainment. This wine cellar is unique. The wine is chilled behind these glass doors. Here in the billiard room, the intricate spanish handcarved ceilings brought back from one of the casios in spain. It. Uld have to say, this is this is what i can show you. The honeymoon for john and Jacqueline Kennedy stands out as one of the highlights. It is known as the home for William Randolph first, the most important newspaper magnet in the world. The Beverly House is very famous. It is famous for the movies that have been filmed here. The godfather. Were the hollywood producer wakes up in the horses head is in the bed. Alsowimming pool is famously recognized from the bodyguard. With Whitney Houston and kevin costner. Whomever buys the house is going to pay cash. There are 2000 people around the world who are ready, willing, and able to purchase the estate. There was nothing anywhere of this stature that is available. It is iconic, it is unique, and it is oneofakind. You cannot duplicate it. Ehouse with its own nightclub. A house with its own nightclub. I know a few gentlemen around the stable who would quite enjoy that. We will look at what is ahead for the day. Dont know if this deal is final between apple and be. Beats. Some sound for you that the forbes list may be changing. It just changed. It came out two weeks ago. They need to update the forbes list. First billionaire and hiphop. Write your from the west coast. Here from the west coast. Im glad we just clarified that that was west coast rap and east coast rap not east coast rap. Gentlemen, you will not be talking about acquisitions of that nature. You have another deal to watch. Publicis, omnicon, it is over. Maurice leavy said size still matters. There could be plenty of deals, a big hangover, over the back of this one. Geopolitics. Fighting has begun between the Ukrainian Army and the separatists. Where Vladimir Putin is. We will leave you in the safe hands of surveillance. This is bloomberg surveillance. Vladimir putin may review the russian fleet off the coast of his crimea. The merger is dead. We speak with Martin Sorrells. And apple stuns the tech world. Tim cook wants to dance with dr. Dre. Good morning. This is. Bloomberg surveillance. Joining me as scarlet fu and erik schatzker. Adam johnson is off today. It is a friday brief. What on earth am i doing here . Here is some overnight data for you. Hasas inflation decelerated to the lowest point in 18 months. In europe, u. K. Manufacturing grew. 5 more than forecast. There is some Economic Data. 10 00, the job openings we will also get wholesale inventories are it