Transcripts For CNBC Squawk On The Street 20151021

Japanese exports were weak. Not a lot of macrodata on tap. Shares of boeing and gm both higher in the premarket. Better than expected quarterly results. Lamb research buys koa. Western digital buying sandisk, the price 19 billion. Well have the ceo of Western Digital later on the program. And coke reporting a mixed ka quarter. First up, upbeat earnings news from boeing better than expected Third Quarter results on stronger demand for commercial aircraft. The dow component raising their full year guidance and theres gm beating the street with its q3 profit and revenue. Cfo Chuck Stevens this morning on squawk box. A strong truck market a strong suv market is helping, but i think also its our view and our continued focus on driving cost efficiencies and if you look at the material performance and the cost efficiency that we had in the Third Quarter overall about 700 million, a lot of that accrued to north america. I think its seizing the opportunities from a market standpoint but also continuing to drive efficiency in the business. Everybody looking at that north america operating margin, jim. They see 10 for the year. Look, gm, i dont want to say its back because there are still other parts, moving parts that you not so good, but china getting a little better, latin america still bad, europe not that bad. But the u. S. Is really able to carry this thing, and i think theres going to be more calls to be able to say, listen, you have so much cash, lets do something. This stock is back from the brink of 28, 29 where people felt china is so bad that its over. Its clearly not over. The numbers are extraordinary. The u. S. Auto market remains the strongest single part of our industrial economy. There was a guy here who is going to be on the floor who is going to want to do something with gm. They dont want to do something about him. Im talking about sergio mar chone and fiat. Theyre both operating from a position of strength. I lost faith in General Motors in part because they had repeatedly been able to take lemonade and turn it back that lemons. Maybe this is the quarter they dont do that. Theyre just making too much money. The u. S. The job correlation between job and auto is stronger than anything else. When people get a new job, they are buying a new car. The number of cars that are 12 years old on the road remains very big. This is a good quarter from General Motors and it is a surprise. Suvs help a lot. Yes. But in cars u. S. Market share is actually down in cars for gm year on year. They hit 11. 5. A year ago it was 13. 3. They are making more money and trucks matter. Its odd because i know meme have been questioning it, but this is the quarter where the gasoline money finally matters. We know from visa that wasnt in the first quarter. We know from john morgan interview steve leaseman did last week that the money is starting to be spent. We know from this auto number where its being spent. Spent in domestic autos and thats quite exciting. Talk about cash building up, boeings cash flow is up 72 . We mentioned the massive beat, the guidance up, commercial air revenue up 10. I guess whats to worry about, a bubble in wide bodies . The delta situation is now looking to me as if it was a major misdirection play. It was a run at delta and it was supposed to really be a pass and i feel data last week which lowered the boom and said theres a wide bodied glut, they used that term, may have positioned to be able to buy planes cheaper. It looks like a blowout quarter. Boeing has periodically said things on the Conference Call that makes you less optimistic but i have to tell you, i do not see anything in this about the wide bodied glut, and im beginning to believe thats one more time delta is trying to get the best of boeing. Its not going to work this time. The exim bank, maybe that comes up at the debate. Alcoa said aerospace remains a very strong area. Is it as strong as autos . I think thats difficult. Remember, you buy boeing in dollars so its not a weak dollar strong dollar play. I want to hear more about china and whether china is still buying the planes. They did get that big order from boeing. I want to hear more about defense. At the meeting we have at the conference at our debate, i want to know about defense spending because everybody is saying it has to pick up, and thats the line i didnt like in boeing, otherwise i like what i see. A lot to get to, and back to cars for a moment, as david said, ferrari debuting at the big board. The car Company Pricing at 52. Thats the high end of the range. Values the company at 9. 8 billion. Automaker is going to trade under the Ticker Symbol race, race and we will talk to Sergio Marchionne later. As david said, were likely to ask him about why he wants to pair up with gm so badly and whether that can ever be done. And electric cars and a lot of things. Let me get to some specifics on the offering itself before we move into the fundamentals. It looks like it was very well allocated. Heavy management allocation. Im told mr. Marchionne was actually involved in the allocation himself. Remember, hes got Institutional Investors already at fiat, so he wants to make sure to be nice, a lot of management also getting stock. 500 accounts put in, 200 got zero, 65 of the offering going to 25 accounts. It was 20 times covered, jim. Well, i got to tell you, if the price at 52 it sells at 29 times earnings, lets say 65, 70, its at 40 times earnings. Thats highly unusual. 14 multiple to ebitda to the pricing. These are high multiple approximates. Theyre ridiculous multiples particularly because there will be a lock up that expires rather early. But you know what . This is the kind of case, this is a tesla situation. Key to be able to making the numbers is for them to be able to mass produce more cars. Why do we like their cars . Because theyre not mass produced. This is a conundrum deal. Obviously the public is very excited about it and you can tell it when they dont get any sorry. They dont get any. Gm is selling 11 times earnings, ford at 13 times. Fiat chrysler being valued at 18 times earnings. Remember, this is a luxury good. Typically selling at 19 to 22 times earnings. That would put fiat, ferrari, well what low. This is going to be one of the deals thats going to be talking about it comes at a bad time for tesla because tesla just got pulled from Consumer Reports for the new model. This is the new tesla except is burns aton of gasoline and very exciting. The new tesla. They werent subject to emissions standards unless they have 10,000 cars. Are they using i dont know that theyre there yet. Will they get there if they boost production 30 . They have to boost so big and they have to figure out their fleet issues and how you get to these emissions numbers. And you always like to talk about the family stakes. How about piero ferrari, he does pretty well today. He does. Hes going to be richer than elon minsk at the end of the day. I dont know. Its possible. Times were good even before this i think, but theyre getting better. Theres no doubt. Absolutely. Were seeing that over and over again, and this is by the way, sorry Doug Mcmillen to say this, but when you have when ferrari does this well, walmart is the other side of the trade. The Walton Family still has more than mr. Ferrari. They can have all the ferraris they want. What do they drive, david . Station wagons . I dont know what the chosen vehicle is. Eight ferraris at the big board. Weve been onetenth of production. About that. Have you seen the blue one, the ferrari 250 thats outside . Its just a real bad day for husband wife tension. Really . Yeah. Cant you just say no . Shes got an suv for heavens sake. Why does she need a ferrari . Just say no. How about maybe. You can say that. I just got married a year ago. Youve been married lets move to m a, second only to the mets and what i love. We got boy, it was an incredibly busy morning if you missed some of it. Lamb research agrees to acquire kla tencor at 10. 6 bl 10. 6 bill the open. And sandisk to be bought by Western Digital, 87. 50 in cash and stock. Right around 19 billion right now. Its a twotiered structure also which ill get to in a minute. We are going to speak to Western Digital ceo stephen milligan. I like that guy. As for the deal itself, first of all, when it comes to price, they actually have another tier of pricing if they dont get that money from the chinese. Some of that money is going to be allocated towards this deal. Thats the 8510, a share in cash. If for some reason that doesnt happen, then you get 67. 50 a share in cash. A lot more stock. In fact enough it would require a shareholder vote. In speaking to people close to the situation who were involved in the transaction, they think its unlikely theyre not going to get that money from china, but a review is going on, a National Security review, if you will. Its a passive investment, about 15 of the company. Remember, jim and i talked about it at the time. Nonetheless, thats got to be at least a small concern for people. Theyre also talking about this deal not closing until the Third Quarter, although frankly ooirp hearing it could be much closer to june in terms of the expectations. They seem to be very cautious which is why they have the twotiered approach just in case they dont get the money from china which keeps reminding me of a sweetener of some kind. A sliver of stock. And they are also somewhat cautious on saying it could take as long as it will even though its unlikely to go into the Third Quarter. More likely lets call it june. As for the fundamentals, let me just share this with you. 90 of the data in the world has been created in the last two years. Anyway you want to store it, now we will be able to have it for you. Yes. In commodity is the reason. This is a white flag thrown up by sandisk. When this whole chatter started, the stock was at 48. You have done quite well unless you bought it last year when it was 107 padr 107. Its part of a worldwide trade of what i consider shrinkage of the market everywhere. You want to take advantage of Western Digital, the stock got hammered, bad quarter. If you want to buy flash, intel is starting to spend a ton of money overnight about flash. Going to flood the world, 5 to 7 increase in flash. This is a sign that the commodity guys have said you know what . Im done. Sandisk is done. And Western Digital to bulk up and be able to compete has to do this to offer more of a soup to nuts situation. Ive got to tell you, other than arm holdings this morning which used the term apple, saying its a good earnings, everybody single one of these Component Companies is getting crushed. Yes. You mean like a vmware today . Thats another wow. Corvo, skyworks solutions, Western Digital, seagate, intel, sandisk, micron, theyre all getting crushed. Their Addressable Market will grow as a result of the deal and who theyre selling to is also getting larger. Emc dell is one example. Its going to be a larger company. Were going to talk about vmware a little later in the program. Disgusting. Nine down grades. The most in a single day. They bagged so many people. We have to talk about that but before we go, the Lamb Research deal i want to thats a brilliant deal. Why . Why is that a brilliant deal . Because Lamb Research bought novellus at the right time. Kla selling a at good time but this is about having Critical Mass and being able to destroy applied materials. David, you talk about china, i think the chinese are going to drag their feet on approval of this. It matters tremendously because china is trying to put together a johnnycomelately competitor to these, but this is going to be a strong company. Lamb is going to be very strong, and i got to tell you, you could actually argue theyre totally dead. Intel, samsung, and tmc and taiwan semi will love this deal because the give who runs lamb, this fellow, hes a genius. I have had him on you think their customers will like it. Hes again jugenius. One Company Makes the chips, one inspects them. Its one stop shopping. Rick hill smart, smart guy, saying everything is right here. I love that deal. I love this deal. Youre getting a half a share of lamb and 32 in cash. M a, 38 billion. This year 130 billion. Because theyre all getting crushed. How much can you sell into hewlett. Late stage. We like to say. Late stage capitalism. The ugly face of capitalism. They have to do this. Theres no antitrust in these because its like, wow, everyone is getting crushed. This morning is maybe the single most exciting morning i have come across its pretty good. Im going to get out the penguins for vmware. I think thats deserving. Did you see the line that carl this is in the vmware. Not just vmware, we are seeing a massive secular shift right now. Massive secular shift away from what he was talking about. How many days ago . Eight. Yeah. I would use this for some of what Kimberly Clark is talking about in their unbelievably good quarter and im talking about some things they have for adults and some things they have in the bathroom. When we come back, well talk cfo coke cfo on earnings today and, of course, the ferrari ipo first trade coming up in the next hour. Well be right back. Here at td ameritrade, they love innovating. And apparently, they also love stickers. Whats up with these things, victor . We decided to give ourselves stickers for each feature we release. We read about 10,000 suggestions a week to create features that as traders wed want to use, like social signals, a tool that uses social media to help with research. 10,000 suggestions. Who reads all those . He does. For all the confidence you need. Td ameritrade. You got this. Cocacola out with mixed results this morning. Lets get to sara eisen at post nine who spoke to coke cfo earlier. Morning. Profit beat but sales missed expectations. Some eng kournment in the fact volumes came in better at 3 , but my worlds are colliding here because for coke it was currencies that really slammed them during the quarter. I talked to the cfo moments ago. She said the macros remain challenging. She said Foreign Exchange was a worse hit than they expected. It hit the top line, the sales number, 8 instead of the 7 that they expected. She did say that we are, quote, aggressively driving productivity. This is a big part of the bullish case on coke, that they have been cutting costs, that included layoffs in the beginning of the year trying to get savings on productivity. She said in terms of the bright spots geographically, north america and latin america is where they saw the most pricing power. They have been going to smaller packages where they can get more profits per ounce on these cans. If you break down the volume numbers, you see the story pretty clearly. All the growth is in packaged water, bottled water, 11 volume growth, teas, the nonsodas, the healthy stuff. Simply orange is killing it. Sporting drinks very popular. In terms of other commentary from kathy waller. Diet is still a problem. She said were still having challenges with diets and lights. Its the change in consumer, however she says we do believe we have loyal diet coke customers. Part of it she did say is a lot of people are switching from diet coke to coke zero where theyre seeing nice growth. I saw a rate of decline in diet drinks a little bit better. What i was quite struck by is the Mass Marketing to mass personalization. The coke cans are mattering. Its working. Its been a huge success. The marketing is very powerful. The estimates from the bite from 4x is enworse than prior. This is a huge problem for them, especially in key geographies for coke, mexico, brazil where the currencies have actually taken quite a beating. China is another big one, big important coke market which is not important to the pepsi market. A lot of people like to compare coke and pepsi. Pepsi had way better organic Revenue Growth. It has the snacks working for them on fritolay. Its almost impossible to hedge against some of the currencies in latin america or turkey. Global beverage grew 3 . Is it one i want to go buy . I think Warren Buffett wont sell on that which is important. Pepsico has better growth, but pepsico is because its snacks. The snack business grows. And they say this is a quarter that was in line on strategy with their expectations. This is a transition year for them. A lot too look forward to in the next year which will put pressure on them to bring setter sales results. But perhaps volume has stabilized. I think thats a very fair depiction of what it was, a volume stabilization. If you want to compare it head to head against pepsico, its apples versus orange unless you want to compare prop can that versus simple orange which he would like. Do they buy monster . I dont know if theyre any hurry to buy monster plus its getting more expensive by the day with all the positive weaker quarter but i think the Distribution System based on germany which is on sales force. Com not s. A. P. , but is strong. I like monster very much for a host of reasons. Better than keurig which hasnt been as hot for pu. Well see new 40 minutes, thank you. Well get cramers mad dash and count down to the opening bell. Still havent gotten to yahoo , biogen. More squawk on the street from the nyse where ferrari is going public today. So whats your news . I got a job ill be programming at ge. Oh i got a job too, at zazzies. friends gasp the app where you put fruit hats on animals . I love that guys, ill be writing code that helps machines communicate. interrupting i just zazzied you. phone vibrates look at it friends giggle i can do dogs, hamsters, guinea pigs. You name it. Im going to transform the way the world works. proudly i programmed that hat. And i can do casaba melons. Ill be helping turbines power cities. I put a turbine on a cat. friends ooh and ahh i can make hospitals run more efficiently. This isnt a competition the most advanced iphone yet. Get the new iphone 6s at tmobile. The network thats doubled its lte coverage in the past year. Our new extended range lte signal now reaches twice as far as before. And is four times better in buildings. Get our lowest price on iphone 6s with tradein. Zero upfront and just 5 bucks a month with jump on demand. Get it now at tmobile. Awfully big ipo today at the nyse as ferrari has its first trade probably within the next hour pricing at the top of the range. Well bring you the details and an interview with Sergio Marchionne in a little bit. patrick 1 whats it like to be the boss of you . patrick 2 pretty great. patrick 1 how about a 10 raise . patrick 2 how about 20 . patrick 1 how about done . patrick 2 thats the kind of control i like. And thats what they give me at national car rental. I can choose any car in the aisle i want without having to ask anyone. Who better to be the boss of you. patrick 1 than me. I mean, you. Us. vo go national. Go like a pro. All right. Little later in the morning for our mad dash a few minutes before the opening bell. Where are we headed, my man. The last thing you want to talk about right now is buying chipotle. July was the strongest month and then it went down after that. Wage costs and real estate costs nothing to write about. Underinvested in technology because of the huge amount of the twothirds of the food is consumed outside the foods. Only 7 is ordered outside. They have to order it inside. Still no aggressive, aggressive rollout of his pizzeria. Now you will hear the other side. You love this company. There have been three resets over the last four years in chipotle. Every time within one month after they do a reset, you had to buy the stock. Why . Because the company is in there buying, in part because they fixed this. With the carnita shortfall, people thought things would get better but people didnt anticipate wage hikes. They ought to start anticipating price hike at the store which will cover the wage hikes and let me just say and wont dissuade a customer from going to chipotle . The big problem has been lines. They under jeff underinvested v starbucks. David, listen to me. I will. Chipotle is going to go down. It will go down big. It will not be done going down today. It will go down again and when that thing settles, you take a look at the chart, you take a look at what the company does. They fix problems. Theyre not going to do a big rollout, i like chipotle. For all of their quarterly troubles, keeping it below the 200day has been virtually impossible. Can i just say, youre selling a stock that was at 50 nine years ago and it is going to come back. The stock is anticipating a weaker quarter. Dont buy it yet. There is the opening bell, and a look at the s p at the bottom of the screen. At the big boar as you know by now ferrari celebrating its ipo. Were going to speak with ferrari chairman Sergio Marchionne when the stock opens. Customers union ba wow, is there its like where do you go first . I guess kla tencor will lead us to semis. Continued consolidation has been great for the industries. A lot of the machines they make were deeply rooted in what intel needs. I do like intel very much when the altera deal closes but this is fantastic for shareholders on both sides. You will see lamb up even more than it is. And i would point out very important to watch the acquirer stock price. I pointed out lately broadly speaking in merger and acquisition activity, we have not seen the acquirer stocks move up the way they had even a few months ago and it can be an important component of the overall environment and the judgments that ceos make in the future if theyre considering a deal. In in case, jim, lamb moving up. Lets look at Western Digital, the other large deal. Thats going to be theyre talking to me about the fact that its going to be a lot about deleveraging here. They start with about 17 billion of debt once they get the deal done to acquire sandisk at about 3. 2 times ebitda the leverage ratio but they immediately start taking it down. Get to Investment Grade within a couple years. Theyre doing 5. 5 billion in ebitda as a combined company. So they think thats an important component that perhaps is being overlooked right now by investors, but the stock is down, not sharply, down nonetheless on the news of that enormous transaction, almost 19 billion in cash and stock. Depends how much stock and how much cash depending whether the chinese come in with that money, as expected they will. But whether its in a timely manner before this deal is done. Yeah. You know, im not as crazy about the Western Digital deal because im not crazy about flash, and, remember, intel is coming on strong about flash and flash is really a second Rate Technology now. Questionable strategic move. The arbitrage is important. Western digital gets that money, then i think its okay. Theyre also going against seagate. 52week low. Im waiting for the ceo to do something, to pull the rabbit out of his cash. They have great cash flow. This is not as good a deal as lamb because dam is offlamb is enforcement officer lets watch the Semiconductor Companies and see if they dont go up. Maybe were back in the days when sky works comes back with a higher bid. As youre talking, jim, Sergio Marchionne has made his way closer and closer to post 8 where ferrari is expected to open in a little bit. Theyre making big investments, new models in alfa romeo and maserati. A fair amount of cash theyre raising for themselves. A huge amount. Its going to become a favorite. Its been managed very well. Its also one of the plays i hope we bring about at the debate. I want to focus on the debate also because theres so many questions. The weakness in the euro got these guys to have great numbers versus gm and ford. Its been such an advantage for fiat. This is going to be the biggest Consumer Discretionary ipo of the year and in the meantime as we look at the earnings today, jim, people say not enough top line beats. Weve got them today from boeing. Got it from gm, tupperware, Kimberly Clark. Look, tupperware is a nice surprise. Kimberly, boy, they had some terrific organic growth. Is it coming at the expense of proktor or are just more people having babies . You know what . We should watch something demographically of whats happening since the end of the great recession. Its really impacting kimberly. Kimberly is so well run and very selfeffacing. I think its done a good job, some really great numbers in diapers. Twitter is down almost 6 . Which one . Twitter. Morgan stanley goes to underweight. They say the product is already loaded with ads. More so even than facebook once you account for users and that average time spent per mobile user is falling and falling at an accelerating rate. Yeah. This was a killer. Weve been watching it when Steve Ballmer bought it. We watch it as some of the newer features come out. The newer features will make it so the load is less of a ceiling but this was a devastating downgrade and it didnt happen it happened right when the stock had a big run so its very impactful. Phil lebeau joins us on the big board. He just spoke with marchionne. Were over here at post 8 waiting for the first trade. Were hearing early indication of trading between 60 and 65 a share. We know it priced at 52. We talked with sergio as he was walking in. The big question, will they be able to grow the brand without diluting the exclusivity of the ferrari brand. Here is what he had to say. The unexplored potential of ferrari and developing businesses adjacent to the car and and you think you can keep that intimacy even as you grow the volume. Absolutely. Were already going to close the year at 7,700. We targeted 9,000 by 2019. The world is a big place. We can find 9,000 for 9,000 customers that deserve the car. The world is a big place and Sergio Marchionne has a big smile on his face as we await the first trade. Well send it back to you. Were waiting for first trade with you. Phil lebeau, thank you very much. Thats going to be key, getting that world to stay big if youre going to boost production 30 over the next look, this is not a growth story. Its somewhat, of course, like tesla so i like the analogy. If tesla produced more cars, then the numbers go way up, but does ferrari go way up if they produce more cars . Does that get rid of the scarcity value of these cars . I dont know. Yeah. Its a reasonable question. Speaking of reasonable questions, investors in vmware may have a number of them for the management of this company, for emc, of course, which controls the company, and even for dell which is in a deal to buy emc and take control vmware as a result. Why the questions . Because its a little over the week ago we got the enormous dell deal, and at the time vmware issued a preannouncement but we didnt get the details they might now say they would have preferred to have gotten then as they judge the merits of the dell transaction. Take a look at what has happened to that stock. And by the way, take a look at whats happened to it over the last lets call it week or so because it went down enormously on that preannouncement. Now its down another 14 , just to put it in some perspective. The dell deal when it was announced last monday, 2405 in cash and 0. 111 of a share. In the press release, jim, in the press release, they say, oh, yeah, and were assuming a price of vmware of 81. 78 a share. Thats the valuation that were assuming for this tracking stock which will represent 53 actually the outstanding shares ofv m ware that were going to issue thats going to be a key part of the consideration to you, emc shareholders. Its now below 60. And we have penguins. I was reminded of it when we did the 20year anniversary, nine down grades today as carl said earlier. Nine. There they are. Take a look at the penguins. Theyre all getting out of the water now instead of last week. I typically would not offer any defense to the penguins if it werent for the fact that this company is bagged people it was hard to see through it. It was just the preannouncement, this is one of the worst bagging i have ever seen but, yeah. Im running. Im bank of america, im running. You name a firm. I havent seen nine down grades in a long time. I dont bring these out very often anymore. It is incredible, but the company did major the company fooled a lot of people. What can i say . The evil face of capitalism today. I suppose. Of course, the question has to be, all right, the dell deal itself, whats it worth, whats the tracker worth . 0. 111 of 58. 80 is a lot different than 0. 111 of 81. 78 in terms of your consideration, but down is down. I dont want that tracking stock. Yeah. You know, the financing, of course, is more aor less togethr for dell for that deal. The tracking stock is simply considered a common stock of dell. I just am aghast talking about the secular shift to cloud, well, wake up and smell the coffee. Thats been going on forever. It seems it was this joint venture they form which they didnt give people full tra transparency into. Vmwares growth rate is 2 to 3 lower and their Free Cash Flow guidance is well below where the estimates of analysts were. Made a lot of sense for emc to sell, didnt it . Pure technology coming in against them. This wholesale shift in whats liked in technology is rather extraordinary including yesterdays ibm, very disappointing. Very few companies that are a winner in this scenario. Salesforce. Com is a winner. Red hat is a winner. Even adobe started coming down. Thats been a winner. The consolidator plays are very smart. Intel not that bad. Remember, they, too, are expanding though. Theres a lot of losers. Very few winners. Yahoo is another loser though not as much as people may have anticipated given the core business is not performing well, revenue declines for yahoo . A Firm Commitment in terms of 384 million shares the company owns of alibaba. Thats the vast majority of the value at yahoo , of course. As i said, Third Quarter results and guidance, some calling it a tortured transition for core yahoo . What theyre transitioning too, they keep talking about mavens, mobiles. And one has to start to wonder when youre going to hear questions about the leadership of the company. What are we, almost four years in, although Marissa Mayers done a good job of returning capital to shareholders. Aol was more than an asterisk positive in the verizon call. Yahoo in the end with a 1 billion ebitda and small stock price is going to be bought by someone. Dont buy it for that reason, believe me. It wont be at a premium. Just not a great quarter. Do you want to end up on good note . How about biogen . 11 of your workforce gone. Hardly good news but the stock is up. We have been buying this because we felt there would be a big restructuring, a lot of people fired, and they did a big restructure and they fired a lot of people. Revenues were better than expected. Revenues were good. Progressive ms did not remember, biogen spiked big. Stock had been down almost 50 off of an alzheimers formulation that then the street got very ahead of versus what biogen did. I like biogen, i just dont think theyre doing as badly as people think. They took a lot of action, fired a lot of executives in underperforming divisions. Thats fine. This Valeant Valeant is not even making a valiant effort at staying anywhere near this has been a hedge fund killer valea valeant. Down again today. Pershing square alone owns over 19 million. Value act had sold some. This thing has been crushing. Those are the big holders but there are so many others. Oh, i know. It was loved. And f. A. N. G. Going down, too. You see obviously you just see massive sellers in google. I dont think google is nearly as bad. I thought it was down because people thought they might be buying yahoo . That is wrong. S p has climbed to within 1 of going break even for the year. Well watch that at 2035, and then ferrari indicated 59 to 62. Bob is on the floor. Hey, guys. Phil and i were just joking were surrounded by impossibly well dressed italians this morning. A lot of zegna suits and valentino. 59 to 62 is thecati indicatio. The feeling is this wouldnt open until 10 00 but theyre narrowing the indications here very rapidly. Somewhere between 59 and 62 and i think this is going to go a little bit quicker. Again, the key point about today, priced at 52. Two key things about this, theyre only selling 10 of the company. Thats a very small float. Thats a strategy thats been employed very successfully in the last two years by a number of other ipos. They were appraised for only quoting 10 of the company and secondly, not going above the kaegs. Not going above 48 to 52, pricing it right at the top end of the range, making sure theyre leaving a lot of money on the table potentially. As you see indications of 59 to 62. The initial pop looks right now to be very good. Theyre still narrowing in the indications. Very quickly right now were getting a lot closer. Let me get to market hits very quickly and let you know whats going on overall. The strong dollar has been a real problem for most of the Major Companies and we saw this today with kimberly laclark and coke. Kimberly clark 12 what do we got . Whats the price . We just opened. Ferrari has just opened at 60. Ferrari sells 17. 18 million shares at 60 after pricing at 52. The high end of the range, and you see a lot of clapping and applause. A lot of people wearing blazing red ferrari jackets here. This is the culmination of a long, long effort. Initial value of the Company Close to 10 billion. At this price were talking about a little bit more than that, close to 12 billion, and there you see sergio you probably cant see him but hes ringing the informal bell a lot of people ring when they open. A lot of Smiling Faces on the floor. Ipo opening at 60. A nice round number overall. The important thing about the market today is that this is not very typical of the ipo market that we have seen recently. Weve seen a lot of Different Things going on. Weve seen a lot of different issues. Well come back in the next few minutes and talk to you about how the market is looking overall, but there are a number of reasons why ferrari is a unique ipo and in some ways an anomalous ipo. Its not typical of whats been happening in the ipo market. Its primary attribute is the overall sexiness of it and the extreme identification of its customers with its brand name. This morning talking with Sergio Marchionne, he made it very, very clear that they are relying on that very tight customer relationship, and i spoke with him and asked him the key question a lot of the critics of ferrari have had, which is you have told us youre going to increase production. Only 7 st,200 cars and the crit said youre going to have to cut prices and thats going to hurt your margins. Sergio marchionne came back to me very emphatically, were not cutting prices. We are going to maintain those tight relationships with new customers out there around the world with the ultra wealthy and were going to have the same prices as before. He came back very forcefully against critics who say youre not going to be able to maintain your margins because you will have to cut the prices. Initial trading we have at 59. 41. So holding up pretty well here. Lets take a look around the corner and see if we can get any of the other see if we can see mr. Ferrari. I dont see him here right now, but sergio im sure is going to be making his way over to talk to you very shortly. I think the important thing right now is getting the price done at 60 overall and a lot of people, of course, very happy about that. Ferrari share of the luxury sports car market, we asked about that. They have published papers. About 22 of the luxury car market, the sports car segment, about 25 overall. But sergio when i spoke to him made it clear, were not emphasizing a percentage of the market. We dont want to get necessarily a higher percentage. We do want to sell more cars, but were manufactuour emphasis supply, exclusivity, the fact theres waiting list, and the fact we maintain the tight customer relationship. Over and over again he made it clear to me thats really what theyre going to be talking about. As far as the issues go, theres going to be a number of them but well talk about it in the next few minutes. Important thing, ferrari 57. 51. Thank you very much. You mentioned mr. Marchionne has made his way to post 9 as ferrari debuts at the big board just moments ago. Last trade 57. 83. Phil lebeau joins us as well. Phil, good morning. Sergio, good morning to you. Phil, do you want to kick us off. Lets start with the main question. You talked about it a little bit. You know everybody is concerned that youve got such an exclusive brand and that youre going to dilute it over time as you grow. I know you have heard this question many times but how do you reassure people you can grow yet keep that exclusivity . The objective and we have reiterated this position throughout the road show is that what is at the heart of the brand is this intimate relationship between us and the customer base. We have 60 of the people that buy our cars every year are returning customers, and, therefore, it would be almost suicidal to try and expand volumes to the detriment of that relationship. So one of the things weve done, were going to close the year at 7,700 cars. Were going to get to about 9,000 by the end of the planning period, and we think its just available from the utilization of two cars, one is the california and the other is thef f which i think probably needs more space in the market and i think from simple geographic coverage of the rest of the world. Its a big world. We only have 204 points of sales. We only have 180 salesmen that really cover that network. I think the potential is much larger. High net worth individual. The population keeps on going up. Where are those high net individuals going to come from . Theyre everywhere. To be perfectly honest. Theres a large number of them here in in country, theyre in the middle east and asia. Theyre everywhere. And right now theyre buying what instead . Theyre buying cars that i think that are not on par with the ferrari. I dont want to make derogatory remarks about the competition but if you have to wait over 12 months to get a car, people have a tendency in some cases to go somewhere else. You have done a markable job with the company and also with chrysler, with jeep. But would you want to sell the rest of your stock which youre free to trade in 2016 . I think this stock is going to be distributed to all shareholders at the beginning of january next year. Weve done the 10 placement to bring down the debt. The rest of the position is going to be given to our shareholders just for free. Free. We will be distributing all the stock out to the shareholders at the beginning of january. Can you make lets say 7,200 units. Can you double that and will they buy them in china given the fact that the communist party is trying to crack down no. I think doubling that number is not within the realm of possible. I think we need to maintain, look, this company was founded o on one simple principle. You only produce one car less than the demand for the real car. You dont exceed that equation. We need to grow the demand side before we try and supply it and destroy the exclusivity of the brand. Its a very careful walk and a very, very tight relationship between us and the dealer body. Jur going to be the chairman. You are the chairman of ferrari, but there are a lot of people who are saying ultimately you will be the man who makes the calls when it comes to ferrari, and you will essentially be the ceo. Who will be the ceo of ferrari over time . We have a ceo in place now. I should actually thank him publicly for all these done over the last years. The cars you see out there are his stepchildren and he has been at the heart of the Technical Development of ferrari for a long period of time. Hes the best engineer i have known in my whole life and i think we owe him a lot because hes continued to refine the brand and push the technical limits of the vehicles to places where nobody else but over time you have no interest in being ceo. It doesnt matter. I think one of the things i did over a year ago was to make sure we had adequate succession mechanism to deal with the eventual handover to other people. Amadeo is 69. Eventually hes going to get tired. We all get tired. I think we have to make sure somebody can pick up the baton from him. Weve been talking about these unbelievable run rates and unit sales in this country and then we also watch the labor negotiations. What do you say to people who say the unions deserve a piece of this extraordinary year . I am totally in line with the fact that i think Wealth Distribution for carmakers needs to be redimensioned to allow labor to take a piece of that Wealth Distribution. Youre preaching to the converted. Im not the guy who is the diehard. The problem is you need to create true enduring wealth in order to allow that to happen and you cant institutionalize costs. Sergio, when you make a car in mexico, its 5 an hour, health care paid. Really good workforce. Why should anyone make a car in the United States . Because i think that the level of Technical Skills seen in this country, especially with the amount of engagement of uaw is displayed in terms of the resurrection of manufacturing puts them in a unique position to do many things. Theres a large chunk for the automotive space where their skills can come to bear. One thing thats made in this country is a tesla. I know you havent been that big a fan perhaps in the fast. Im a phenomenal fan of elon musk. Hes a disrupt er and a great marketer. Like showman. No, i think hes a great marketer. What about an electric car for fiat . We have an electric car. And what about the threat that represents. And do you think apple will make a car . Yes. Why . Because i think the space in which they can exhibit their skills. Its something that the question that you asked is not sure i answered it properly. Are they going it get a car made or build a car . Those are two separate questions. I doubt it very much they will set up infrastructure to manufacture cars. They will rely on somebody. They have not approached us. Could fiat become the fox con for cars . Im not sure i like the parallel with fox con given the margin distribution but ignoring that issue, i think that this industry in general is needs to open up to disrupters whether its the google car, the apple car, this notion were seeing now with autonomous driving, assisted driving. Its going to change the traditional nature of carmaking. Its going to change the nature of cars in the marketplace, and its going to change the demand supply equation. All these things will happen in the next five to ten years, and i think you need to be ready for that. Are you talking like transmission or interface, user interface, both . Everything. Everything. I think these cars will be completely revolutionized and i think were here for ferrari, but ferrari has learned about hybrids in the formula 1 circuit. It now has a hybrid in one of the cars outside, the ferrari, which is the most expensive car we make, over 1. 5 million, but we do run hybrids. Hybrids are going to continue to be the mainstay of the Automotive Industry in the next phase of development. You cannot do without them. Not full electric. Are the traditional automakers, the big three, have they been lapped by the Technology Companies out in Silicon Valley in terms of innovation . Not in terms of understanding where the market is going but in terms of the real innovation is happening in Silicon Valley. I think we have been late to the party. Do i think its not a recoverable delay . The answer is no. I mean, to be perfectly honest, as much as i reiterated my affection for elon, theres nothing that elon does that we cannot do. We just we cannot make the Business Model work at that scale. I recently tried to buy a jeep for my daughter. Geez, 55 gs . You can command that. Yes. And that is because what has changed to make it so that this was you were priced over lexus. Yeah. How . Because jeep is jeep. Theres only one jeep in the world. Only one ferrari in the world. Theres some unique brands that really deserve premium pricing because of the uniqueness. Jeep represents a way of life. Its not just a car. Its like ferrari. Im sure that the pricing equation is somewhat different for a jeep, thank god, but its a unique brand and i think it needs to be treated with respect. I think the products that we put into that brand and we nurture that Product Portfolio needs to be carefully managed. I have no doubt this is a brand that can run 2 million cars a year. In europe in first nine months of this year we sold more cars than we sold in the whole of 2014 of jeeps. In a market thats relatively flat or benigbenign, but jeep h done in nine months what it did in 12 months the year before. Are you done trying to convince mary barra to do what you want her to do . I dont think i ever tried to do any particular act with mary barra. I think weve had an exchange in writing which has come to an end. The thesis that we pitched and which i have been rather public on does not change. I saw the results this morning from General Motors and i compliment them on their achievements but the underlying thesis that we presented in terms of capital consumption is an issue that will not go away. It wont go away because regardless of how well we perform, were not talking about performance at the peak of the cycle. Were not going to be here forever. We will go through a downturn and when we go through a downturn they will not be achieving margins of this caliber. The question of being able to save capital remains on the table. When do we see major consolidation within the Auto Industry . Within two years or further out . I think theres a great chance you see something in the next months. Its no use of me trying to hypothesis who the marriage of partners are. And will Fiat Chrysler be part of the consolidation move . I have no doubt they will try to play a role. We were successful in getting it done or not i cant tell. Very impressive turn that you have done. Just wanted to tell you that. I have always felt if i ever got to meet you. Thank you. You just did it and i just think its important sometimes to sit back and say, congratulations. Thank you. Did you recently sell one or change the model that you own of ferrari . No. Which one do you have . Most of them. But im a ferrari collector. Have you seen jay lenos show . Yeah. What do you think . Yeah. Sergio, thank you for coming in and congratulations on a good start. Phil, thanks so you as well. Our gphil lebeau. What a segment. Jim, whats on mad tonight. I cant even think about it. Okay. All right. Tupperware, better quarter. Steve singh. Its very rare im not speechless. Sometimes im in awe of what people have accomplished in life. They have done it in way not for show but because its the right thingtodo. Well see you tonight. Lets catch up with bob pisani. Morninger importathe importa got done. Price talk was 48 to 52. They priced it at 52. It opened a few moments ago at 60. Right trading a little off that, 56. Still up about 7 . Two things i think stand out about this number. Number one, they priced only 10 of the company. The strategy a lot of these Companies Price a small number of shares, increases demand. Obviously creates natural demand. Secondly, they didnt go above the indication. At the top end, 52. Didnt go to 53. Wanted to leave some stuff on the table. Make sure you get some first day pop. This is a big ipo. And in a lot of way its an unusual ipo. Its not typical of the recent ipo market. This one is unique because it oozes sexiness and because of that very special relationship between the customer and the company itself. Its something Sergio Marchionne talks about all the time. We want market share but were not doing it at the expense of our relationship with the customer. Thats the most important thing. There are issues owe tlut. 7,200 cars out there. They said they want to increase that number and, of course, that means theyre going to have to ramp up production. A lot of people have said that theyre going to have to cut prices if they want to get to, say, 15,000. If they want to double the cars. Marchionne was very emphatic to me this morning, hes not cutting the prices. Theyre going to maintain quality and maintain the margins as well which are very handsome, not typical automotive margins but very nice margins for them overall here. Of course, theres a lot of issues with the ipo market right now and thats what i mean when i say its not really representative of whats going on in the ipo market. We have seen some real price cuts. Theres been 14 ipos in the last month. Only 2 of the 14 have priced within the range. This would be 15 now and this would be only 3 that priced actually within the range now. The average price of the ipos in the last month, 22 below the midrange. Thats according to renaissance capital. Thats really a big haircut and thats really whats going on in the ipo market. The good news overall is that this has increased interest in the ipo market. Ipos are trading better in the last month after they had cut their prices. So were seeing ipo prices increase an average of 6 , 7 , 8 , 9 since the first day of trading in the last month. Thats good news for the kpts, for the people interested in investing in the ipo market. Nobody wants to see what we saw in the middle of the year, the ipos are pricing 5 above where the anticipated range was and then a month later theyre below their initial price. They want to cut the price and then make sure prices stay to the upside. Right now ferrari trading at 55. 33 after pricing at 52. Gi guys, back to you. Thank you very much. Robert frank joins thus morning at post 9 this morning to talk about what it means for the brand at large. What did you think sergio is an interesting man. A dynamic ceo but the real challenge for ferrari begins today and that is the battle for the soul and the economics of this company. For years ferrari created enormous amounts of wealth for collectors, for auction companies, for ferrari restorers because ferrari is the only car where if you bought one today at a dealership and turned it in next year, you can pretty much get the same price that you paid for it. Its truly an investment. Thats because they build so few of them. If that changes, hes going from 7,000 to 9,000. Doesnt sound like a huge number. But collectors, owners, dealers, telling me they are very worried about shareholder pressure and what that will do to this company. Yet if you listen to what Sergio Marchionne said, he would grow the classic phrase is we only produce one car less than the demand. We need to raise our demand before we increase our supply, and then saying in the middle east and i think i got him correctly here, you might have a 12month wait period for a car. Of course, people are going elsewhere. If we can sort out our supply, if we can deliver on the shorter time scale, then instantly you could presumably bump that up by hundreds of cars and then you get towards the sort of figures youre talking about. You dont want it to be so exclusive its unattainable. Theres still room to grow. Look, i did a chart yesterday showing the number of potential ferrari customers out there. Those people were 30 million or more. That population has more than doubled since 2008. Ferrari production is up only 10 over that period. So if you say ferrari should keep pace with the multimillionaires who can afford them, they should be doubling production. They have more room to grow, but having said that, there are a lot of collectors and owners who have made a lot of money and justified their ferrari purchases as investments who are very worried. But there are many places where you presumably cant by a ferrari because its so low slung and the roads are so bad. Its a real issue. Theres emissions standards which are becoming tougher in china and the u. S. Off slowdown in china. They had a decline in china sales in the double digits in the most recent six months. No one is talking about that. So they need emerging markets to come back here to really get their growth. One Hedge Fund Manager told me yesterday, this is the ultimate rebate programs for rich guys that buy ferraris. You can buy shares of ferraris and capture some of the profits youre paying when you buy a ferrari. So a lot of people are buying these shares as a hedge against their own ferrari purchase. Thats pretty good. Maybe thats why they wrote to everybody last summer saying were coming through. Nice to see you, robert. Ferra racing past its ipo price, trading around 55. Now that ferrari is public, how will it impact the broader Auto Industry . Joining us now, richard hillgot. Richard, would you buy the stock here . We dont have any numbers out on this yet, so i cant give you a fair value estimate. In our preipo research we did on the stock, we did have a valuation on the company of 12 billion for enterprise value and around a 10 billion number for the equity value. So to us it looks like its reasonably valued, but i dont have a fair value estimate for you per share to give you on ferrari today. Interesting. But youre generous in your figures today. Before we discuss the Auto Industry overall i dont think were generous at all to be honest with you. I think its right in line with where it should be. Okay. Fair enough. Before we talk about the Automotive Industry overall, what about the way in which they conducted the ipo and this argument that march yon uionne throughout the radio show that its a luxury player. He was even going through the allotment deciding who would get this stock that hes now trading and who would not. I mean, has he succeeded in your view in making it a very different deal, a very different offering to shareholders . Look, i dont care what either one of them say. I think if you do the research and the reason why im giving it the valuation that i do is that i did look at what the history of this company has been in terms of its Revenue Growth, which has been around 9 , what its value growth has been which has been about 4 . This indicates substantial pricing. Its got average revenue per unit that exceeds 500,000, u. S. Dollars, per year. The next closest is lamborghini and its below 350,000 per year. So its got substantial pricing power. It just sold out 40 units of a very high priced 3 million per unit model in december by making a few phone calls to its existing customer base. It solgd out by invitation only. 40 units at over 3 million a piece. So this company doesnt grow by, you know, the volume or whether its got market availability for units. Its got pricing power. That sounds to me like its got an economic moat from its brand and that brand i think if you take a look at this company and how it compares on standard deviation of revenue, standard deviation of ebitda, the standard deviation of the ebitda percent, the profitability as well as the high amount of margin that it generates on a regular basis, it looks like a luxury Goods Company. It looks like richard, just to zero in on that point a little more one second real quick. One last point, look, calling this an Automotive Company is like calling tiffany a glass company. I think thats a good point. I was looking back actually historical Revenue Growth during the financial crisis, and you saw ferrari sales take a little bit of a dip but they came back pretty fast and pretty strong. Usually automakers are very economically sensitive. Is ferrari recessionproof . It is. Its much more so recessionproof than any other automaker on the face of the planet, and, again, this is why it looks like more so a luxury Goods Company than it does a car company. Its not a car company. What happens to the share price, richard, when they distribute the other 80 of the company in january . That would seem to be a very big overhang for people who might be buying the stock now. Yes, it could be, and it could also be an overhang for Fiat Chrysler because obviously youve got a lot of folks that are trying to buy up Fiat Chrysler to get the ferrari shares at a lower discount based on where the shares are trading at today. But i think that, yeah, that is an overhang but i think that there are so many people around the world that are so fanatical about f1 racing. We dont understand this quite as much in the United States because its not as popular. But everywhere else in the world, its like european football or soccer as we call it, theyre fanatical about it. I think were going to see a lot more demand for the stock with the ipo or with the spinoff in january of this year. Richard, youre really clear in your analysis. We appreciated you joining us. Richard hilgert from morningstar. With a lot of fancy cars outside the new york stock exchange, phil lebeau is here on the floor. Lets get his take on the early pricing action. You know what strikes me about talking with Sergio Marchionne is morning is this question of exclusivity when it comes to the ferrari brand and this question that has come up from people saying, well, look, there are a lot of luxury automobiles around the world, ultra luxury automobiles around the world. What makes ferrari different . Not only here in the u. S. But around the world . Here is what he had to say. Theyre buying cars that i think they are not at par with the ferrari. I dont want to make derogatory remarks about the competition. But if you have to wait over 12 months for a car, people have a tendency to go somewhere else. If you spend any time overseas particularly in china you will notice the appeal of ferrari. I have seen it in the middle east when i have been in dubai, i have seen it in asia, particularly in china. Theres so much focus in this country understandably looking at the ultra wealthy in the u. S. And north america and what theyre buying but you have to look at asia. As sergio said to us within the last half hour, its a big world out there and ferrari intends to meet the demand out there for this car. But, phil, just to be clear on the china point, when you guys asked him specifically, he said he wouldnt get double digit increases there. Partly because of the crackdown and it was clearly a tough market for them to grow. In fairness to the point youre making. Hes not expecting double digit increases but hes expecting steady growth and my guess is based on what weve heard back from people who specialize on the china market, especially when it comes to luxury autos, there will be substantial growth there. Not double digit and thats not just for ferrari but thats for all automakers, but there is still plenty of growth there. Phil, you know, to your point, they are not anymore the only game in town. You have mclaren ramping up with new models that are by some measures better than ferrari at a lower price. You have audi with the r8. There are a lot more choices for buyers and ferraris share of the performance market is declining. So they are not the only game in town. They arent but one advantage theyve had and people will say it may not last as well as it has in the past, ferraris hold their value better than almost any other ultra luxury car, especially at the volumes theyre being made at. The question is does it hold that value in the future . I understand the argument against it. Sergios argument is we can still grow and hold that value. Phil, thanks so much for that. Our phil lebeau and robert frank at post 9. A lot of excitement on the floor regarding ferrari. Well talk about that and keep an eye on the price action. Meantime, s p has gone back to the flight line. Dow is up 18. Dont go away. Hello, ken jennings. I havent seen you since that tv quiz show. Hello, watson. You can see now . I can recognize people, analyze images and watch movies. Well i wrote a few books, did a speaking tour, i. Ive been helping people plan for retirement. And i help doctors identify cancer treatments. Is that all . I recently learned japanese. Yeah, i was being sarcastic. I havent learned sarcasm yet. I can help with that. Our phil lebeau and robert frank the drought is affecting all of us. At pg e weve definitely put a focus on helping our agricultural customers through the drought. When they do an Energy Efficiency project and save that money they feel it right in their pocket book. Its exciting to help a customer with an Energy Efficiency project because not only are they saving energy but they are saving water. We have a lot of projects at pg e that can help them with that and thats extremely important while were in a drought. Its a win for the customer and its a win for california. Together, were building a better california. Big day at the new york stock exchange. Turns out since the midaugust market crash, ferrari is the first ipo to price at the top end of its range. Here to talk more about the turbulent ipo market lately, kathleen smith, principle of ipo etf manager at renaissance capital. Does fer srari say anything abo the ipo market . Its a helpful data point because weve had challenging data points. Its been a turbulent market for issuers. Most of them have had on average, the ones that have priced over the last 30 days, have had to discount their prices 20some percent below the midpoint of the range. Its nice to see one priced and trading fairly well so far. Do you think it will encourage some of those that have decided to wait like albertsons to go public . I think we have a lot of work to do to repair the ipo market. So its a data point, but i think we need a little bit more time to see these other companies do so well. Fiat chrysler is selling 9. 1 of the business in this deal. Just refresh our memories as to what the normal float would be. Is that representative of the people that were recently coming to market, less ambitious, more ambitious . You can look at photos of percent am of total market size. Theres enough shares in the market to be traded. The issue we have with ferrari is theyre going to be about 150 million new shares delivered into shareholder hands, fiat shareholder hands in january. So if you so its a big overhang. Just on the specifics of getting an ipo off and getting a nice little bounce at the open, what typically, what size of the business do they normally float in order to ensure that demand is restricted enough so you get a decent pop . I think some of that calculus is from the issuer side is really not that important. Okay. So from a stock market side, if theres a small deal, it can be squeezed up, but ultimately thats a shortterm trading thing. I think that the issuers dont really look at it that way. I ask because so many ipos do well at the open and then for a couple days and then sink afterwards. Some of it has to do with a lot of maybe positive media, positive attention to the company, and perhaps not a good connection with the fundamentals. You said we have a lot of work to do on the ipo market. Its a point bob pisani has been making all morning long. In terms of Market Conditions it has been calmer and the stock market has rallied over the last three weeks. What do you still need to see . I think the positive market backdrop is a good thing, but the ipo market itself if you look at the deals that have been trading in 2015, on average theyre down about 2 . So if youre an investor and willing to invest in this segment, youre going to need to see some improvement in the ones that are already trading. Were starting to see a little bit of that, and we do know that over the last those that have been discounted so heavily are generally trading nicely above their ipo prices, so thats how were working away this price reset that has to happen. That would be where the opportunity lice surely, Quality Companies that come to market but discount in order to do so. Thats a win win all around. Generally its the larger, more stable businesses that come out at attractive valuations in that type of market environment. That should be a good thing for ipo investors. S p and says their ipo and spinoff index is up 2 . It still beats the market. Still beating the overall market. I think we have to see a little more time in that and the strong outperformance and then well see a better environment. And do you see any change to the tech, biotech, Health Care Trend or does this lend credence to the rebound in Consumer Discretionary . We would say with the ipo market, the bubble weve had is in biotech, and that buge bble starting it deflate. The rest of the market, technology is starting to look a little better. Well have a good test of it with the square ipo thats lining up to get done. Mobile payments company. And thats going to be the issue of a unicorn with a 6 billion valuation and how it reconciles itself in the publicly traded market. What about the behemoths, ubers ceo said in california last night dont expect their ipo anytime soon. He felt it was years away. Theres airbnb other big players like that. As you go through a business cycle, are people able to ipo all the way through or if uber held off now, could it be locked out because its so big for four or five years . How does it tend to work . I think the issue with the very large airbnb and uber, those large valuations, is there is a disconnect between that valuation and i think what the Public Markets would pay. So we think the reason theyre waiting has everything to do with the fact that they dont want to mark down that last very high valuation, that the Public Markets wont understand how to get to auto 50 billion for you be ear. Another one were watching is match. Do you expect that to go on time . Match should be very interesting. They will probably do their deal before the end of the year. One of the ones im looking at is ballast brewery. A craft brewing company. Almost 100 billion in revenue and has the stock symbol pint, pint. How very unamerican. Should go to london. Thanks for being here. Kathleen smith, renaissance capital. David . Sara, i want to take a look at shares of valeant because theyre in essentially whats free fall. Sort of just been focused here on this. Take a look if you can at vrx. Weve been talking a lot about valeant for a long, long time, during its incredible run up over the last couple of years on its acquisition strategy, of course, which involves buying companies to a certain extent, using not just being able to use debt and willing to operate with a decent amount of leverage but also what was a rising stock, whether it was the bausch lomb deal, and the generally positive reviews it would always get from the likes of investors. That is reversing. We got to get to Speaker Boehner right now who is speaking, of course, on the potential i would assume for congressman ryan to take over. Lets listen in. Ill come back on the other side and give you more on valeant. For our troops in the kridkri Critical Mission they have ahead. Good morning, all. Quickly give you a little snapshot of what we have this week. I know we have a lot going on, a lot of other issues you what tonight talk about. That went well. That was quite edifying, wasnt it . Thats the problem with me talking too much. But lets quickly finish on valeant the blooiottom line is octob 28th is the date of the full vote. The 28th is the day of our debate. It will set up an interesting discussion. And the fed meeting. Ryan has not said he will take the job. He will take it under certain conditions. We dont know the conditions will be met. Its a discussion thats up in the air. I dont know what their other options are . A fight because they like to fight. Back to valeant for a moment. Let me, of course, dont forget, your money, your vote, october 28th. Valeant, lets take another look at the stock. Im not sure if it has continued to move down or stabilized in any way. Now its in complete free fall. Citron, which is a noted Investment Research firm that focuses typically on the short side, has come out with a report this morning, and listen, these are allegations, of course, and often times you dont want to be i cant be in a position to necessarily tell you whether they are true or not, but theyre focused on a drug called filadore and they are claiming there is a connection between the two that is very close. It has to do with invoices that were sent from valeant to socalled r and o and they at least are claiming phantom accounts, smoking gun, all the kinds of things that would concern shareholders. Lets give it some time here. Let me take some time to take a look into this. But that seems to have sparked the recent selloff in a stock thats come off dramatically over the last few weeks. Yesterday the Company Reported earnings. Was it two days ago . There was great disappointment with what people believed was a change in strategy. Valeant would say thats not the case but nonetheless, it is a company that has focused on not delivering a lot of r d, raising their prices and now im told the stock is halted. Halted. I would assume thats not news. It my be on an imbalance. Stock circuit breaker. As an order of magnitude this is about 18 billion of wealth that has been destroyed in that move. Just as a rough calculation. This is a big market down 40 in one week. Ouch. Yeah. And the stock, of course, the high on the year was 260 and it wasnt even that long ago that we were at that number. Youre talking about a stock that is heavily owned by hedge funds amongst them, of course, Pershing Square run by bill ackman. Long time owner of this has been value act, the extraordinarily successful socalled activist fund. They have had Board Membership as well for a long time and they have been a key proponent for the strategy pursued by michael pearson. Again, want to read through the citron report and do some reporting because i think thats important. I wonder how many times Hillary Clinton have been mentioned or marco rubio. They got caught in that as a result of Turing Pharmaceuticals and that incredible price increase for that Small Company but then a focus largely speaking on how often prices were raised by valeant and others of existing drugs that were required and immediately sent up in terms of the prices. So, yeah, theyve been coming under some scrutiny and, again, in the presentation that came along with their Earnings Release the other day, valeant seemed to indicate they were going to be spending more on r d and their pineline and sort of a change to a certain extent that seemed to alienate on those who were focused on and believed in the strategy that had been followed so far to Great Success until recently by mr. Pearson. Well keep an eye on the stock and tell you when it opens. It has been halted down 27 . Coming up, the consolidation continues in the chip sector. Western digital buying sandisk for 19 billion. The ceo of Western Digital joins us for an exclusive interview right here. Well be right back. The ceo of Western Digital joins welcome back to squawk on the street. Im Bertha Coombs at the nymex. Weekly inventory numbers are out, and they are even worse than some had feared. Much more bearish. We had an 8 million barrel build in crude stocks. That was higher than any of the expectations, even higher than the petroleum institutes bearish number last night which was just over seven. Of that we saw a 1. 1 million barrel build it looked like at cushing, the delivery hub for nymex. Meantime, gasoline inventories fell less than expected, down 1. 5 million barrels. Distillates were down 2. 6 million barrels. Were watching oil right now trading at just below 45, falling to 44 and change. Already we were on the downside this morning with concerns about another selloff in china with no move towards easing in china, and the fact that, carl, we have that opec technical meeting with nonmembers and it appears according to folks who were in that meeting that there was no discussion at all about trying to limit production or set some sort of price floor. Back to you. Thank you very much, Bertha Coombs. Were keeping our eye on shares of vrx. Valeant has reopened after being halted for a circuit halt, down as you can see about 16 , 17 as this report from a firm called Citron Research makes some very bold, bearish calls about the structure of the Business Model and lowers their price target to 50. Well watch the price action to see if other analysts take stock of that and follow suit. Calls the whole thing a fraud. Pretty bearish although the loss is being cut a little bit, down 20 . Still ahead, semiconductors a focus. Western digital buying sandisk for 19 billion. The ceo of Western Digital will join us for an exclusive interview. Were back over this quick break. Opportunities arent always obvious. Sometimes they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. Im sue herera and here is your cnbc house update. John boehner has said october 28th is the date House Republicans will select their nominee for his replacement. The full chamber will vote next day. Last night representative paul ryan said he would be open to the speakers job but only if republicans unite behind him. Syrian president Bashar Al Assad met with russian president Vladimir Putin last night to discuss future military operations. Its the first trip abroad for assad since civil war broke out in his country since 2011. Israeli Prime Minister Benjamin Netanyahu is under fire for suggesting a world war ii Palestinian Leader convinced hitler to adopt his final solution. The German Government responded by saying the responsibility for the holocaust rests with germans. Stanford engineers have built an electric delaurean to do research. If you didnt know it, today is the day the cast of requests back to the future 2 journeyed from 1985 to 2015. Various events are being held across the country common rating that film. And youre up to date. Sara, back to you. Got some nike news on that later in the program as well op those self lacing shoes. I want to thank you, sue. A check on cocacola. The stock has been unchanged. Its up now slightly after it reported profit that Beat Estimates at 51 cents a share though revenue missed. Big problem for cocacola is currencies. Especially in the emerging markets where the dollar has strengthened against the chinese currency, brazilian currency and the mekts cxican currency. One positive is the volume growth which is a key metric for cocacola and for the Beverage Companies in general. 3 overall. That was driven primarily by noncano noncarbonated drink. Soda continues to be a weak spot. One particular bright spot there was the packaged bottled water up 11 . I talked to the cf o kathy waller. She said macros continue to be challenging. Currencies took a bigger chunk than expected, 8 . Though analysts and investors are encouraged by the volume numbers and the aggressive productivity. Diet cola is still a problem. She said, kathy waller, were still having challenges with diets and lights, however its not going anywhere. Still the number two beverage and she believes we have loyal diet coke customers. She explained part of the volume declines is consumers making the shift from diet coke to coke zero. It will still be a big question mark Going Forward as they try to rebalance the portfolio focusing more on sport drinks, focusing more on their premium dairy product, fair life, which is the cf o told me continues to do very well and theyre going to continue to build a pipeline for this product. Overall though, its a pricing story when it comes to growth and profits. That is cokes smaller packages, more profits per ounce, and, of course, the cost cutting story. They still are in a transition year. So for a transition year executives are happy theyre on strategy and living up to expectations and it looks like investors are, too. Id like to lie permanently in a transition year. Its always a brighter year. From the stock standpoint its basically flat. People are giving buffett a lot of difficulty owning that name, but better than deere this year, american express, procter gamble, and ibm. Fast moving consumer goods are in difficulty overall not least because of china and the big move there is online. The share price performance, carl, a lot of it has to do with deal speculation. When you have deals like inbev, there was speculation they would go for the biggie and buy cocacola. It doesnt look imminent but it has been moving stocks up especially in consumer staples. When it comes to loyalty schemes offered by the Big Four Hotel groups, it looks like marriott is the most generous. In the first ever survey researchers make an apples to apples calculation of the dollar value of the payback you get per 100 you spend. Their conclusion is that starward is the least generous of the big four, paying back 6. 6. 10. Marriott pays 9. 40. Rewards for loyalty that are often seen as critical in the fight back against airbnb. Researchers also found that the payback you get from each hotel Group Remains constant as you travel internationally which surprised them because thats not what you normally find when you survey airlines. Frequent flyer programs typically are more generous for travel in the u. S. And less generous for travel overseas, and i was influenced by that practice of frequent flyer perhaps, and i expected it to extend to the frequent guest programs, but it does not. There was a consistency across the globe. Idea works normally survey the airlines. You have the profit warnings, on the other hand you have intercontinental with good numbers. Two other earnings before we go to break, and that is boeing and General Motors. Boeing came out with a quarter that was better than expected. Also raised its outlook. Profit climbing 25 . Obviously higher orders of commercial jets and then lets also check out General Motors. Another beat this morning on the top line. North america margins were a particular benefit. Also china doing well despite the fact they had that charge for the justice department. Both stocks are trading higher. General motors up more than 5 . When we come back, ferrari had its first trade at the nyse earlier this morning. Stocks currently 56. 55. Well talk about that when squawk on the street continues. Had its first trade at the nyse were well off our lows but are stocks set for a greater rally into the end of the year . Thats what one strategist says. You will hear his case at tradingnation. Cnbc. Com. But more squawk on the street coming up. Kid do you pay him . Dad of course. Kid how much . Dad i dont know exactly. Kid what if youre not happy . Does he have to pay you back . Dad nope. Kid why not . Dad it doesnt work that way. Kid why not . Vo are you asking enough questions about the way your wealth is managed . Wealth management at Charles Schwab wanted to update you on shares of valeant which have been extraordinarily volatile all on the downward side of things. Have reopened after being down 27 . Briefly halted on various breakers and things of that nature. Reopened but still down enormously. This is a company that has lost well more than half its value. In fact, the stock was up around 250 a share not that long ago. Now down to around 125. The latest reason, a report from citron, this is a company that does tend to focus on short selling ideas alleging any number of things and very incendiary language talking about relationships in terms of ownership with specialty pharma or i should say yeah. Dispensaries so to speak of pharmaceuticals that are owned by valeant, not that rare a thing actually to actually have your specialty pharma owned by the specialty pharmaceutical company. Nonetheless, coming to an allegation that involves channel stuff, and weve heard nothing back yet from valeant. I have encouraged their executives to provide some sort of response here. The stock coming back rather sharply as you see right now. Also hearing valeant which just reported earnings a couple days ago can start to buy back stock, may be doing that quite actively right now in terms of pursuing its buyback. That stock now well off the lows but still down over 13 . Simon . Lets just have a quick check on where we are with ferrari. The big news of the day, ipoing within the last hour. Actually deflating somewhat but still at 56. 99 as you can see. More squawk on the street after this. Lets show you what shares of ferrari are doing in their public debut. They spiked in the opening trade. They got as high as 60. 97. Were now trading at 57. 24, right in the middle. They were as low as 55. 15. Looking at a gain of 10 . That was an 11. 5 billion market cap at the height coming back down towards the 10 billion where they priced. But overall, if youre a banker on this ipo or management, got management, you got to be happy. Its a successful debut. Were also watching shares of chipolte. They missed earnings numbers after the bell. Escalating cost. For more lets bring in david palmer at rbc capital market. This has been one of the hottest stocks. Last year we were seeing 15 to 20 same store sales rose. What happened in the past year . There was volatility in the stock as well. Were seeing it again this quarter as people are digesting the trough of their samestore sales cycle as theyre lapping these monster samestore sales a moment ago. What is the real earnings and comp growth going to be over the next year for this . The exit rate in october. Is it healthy . Obviously its expected as the suspect has expabded to almost 2,000 stores, but is there a bigger problem here when it comes to their control of spending, their expanding even farther . Can they actually capture the sales growth that they need to bring the stock higher . You know, theres some very real evolutionary things going on here. Mobl order seems like a good opportunity. They just hired the chief Information Officer from starbucks, and it looks like mobile order will be an emphasis in the years ahead and is an opportunity for comps. Would you be buying on this dip . We would be. We think this is a stock that trades volatile on these earnings and trades disproportionately on the weeks after the quarter . This is an opportunity to buy a longterm grower in low 20s earnings growth, and its reasonable in the low 30s pe range with something in this return and this sort of growth. How much of the interest in the stock is what you could call hot money that might leave suddenly . How worried should people be about that . Well, its something that gets traded around a lot, and the visibility the street has on comps is one of the reasons you see that volatility. The fact that these guys could update us on recent weeks and the stock gets knocked around by 6 , 7 is evidence of the low visibility on that. Going forward, theres reasons to hope that the comps will reaccelerate. Certainly the comparisons get easier, and theyre going to be doing stuff on mobile order. This brand is the choice of a new swrrgs. Its the millenials favorite fast casual brand. Theres reasons to really be hopeful that theyre going to get it going on comps. I know you cover mcdonalds, and you have been positive on mcdonalds, david. Investors have jumped on the bandwagon here with you. Are you expecting them to spin off some real estate . Whats the next catalyst for this stock and to continue the momentum . Yeah. You know, with mcdonalds, their sales are doing well since the all Day Breakfast where are their sales got a boost in september. Probably because the competitors discounted less. Some that is feeding the sentiment on mcdonalds. Its hard to know how its going to their analyst day in november will be a little bit more of a catalyst and a clearer view as to what this company is going to be doing into 16 which is probably the turnaround year for these guys. Dave palmer, thanks very much. Rbc Capital Markets on restaurants. Singenta investors are disgruntled. They pressured the ceo out of his job. The cfo will take over temporarily. Its up in europe about 6 as things stand at the moment. Maybe mondaysanto will go back. Do you think, david . No time soon. Because of takeover rules . They really gave is t a strong shot and gave if a lot of effort. It can be very distracting, and so i my anticipation is they wont do it for a bit. Shares actually up. Its about 19 billion. Continuous. A lot of consolidation that were seeing in the semiconductor industry. Specifically in this part of the industry. Here to shed light on some of the details of the deal, steve milligan, ceo of western milligan and will be the ceo of the combined company which will be continue to be head quartered in irvine, california, where with they had a lot of traffic basically from what i understand. Why did you want to own san disk . One of the things weve done our story is really all about what were seeing from a digital data perspective. Today Western Digital has the broadest array of digital data storage devices in the market, but there are segments in the market that we have not been able to participate in and that is really those markets that take advantage of the solid state device and solid state market and so we wanted to make sure that we had a broad portfolio of products to take advantage of the data explosion that were seeing in the tech market today. Part dependent on the recent investment you announce coming in from uni splend o. Thats leading some to think is that deal not going to happen . Let me ask you the question, is that deal in jeopardy of some kind. We do need to get through the Regulatory Approval process that will take a little bit of time, but we feel very good about the way that we straushgted that transaction from a were highly confident that that money will be approved and that transaction will be approved as part of the process. What gives you the confidence weve done an extensive amount of analysis as it relates to the sandisk weve looked at it. We will be able to get cost benefits as it relates to being vertically integrated, as it relates to our enterprise business. Also, we do think that theres some operating expense synergy that is well realize. Were highly confident in our ability to realize the 500 million Financial Synergies as part of the transaction. You know, today we also got some guidance from sandisk itself. It preannounced what some people are calling sort of mixed results. Not bad on the top line, but people are a bit concerned about the gross margins. Is that a concern at all for you . Sandisk has run into execution problems, but we believe that from a longterm perspective, this is a great transaction for us. Its a great transaction for our shareholders. Its a great transaction for our customers. Were very comfortable with the longterm view as it relates to our company and the perspective for the combined company. Youre going to be running with a decent amount of debt. Wont be Investment Grade. Will you delever it quickly. Any concerns at all in terms of running somewhat highly Leveraged Technology company . Well, we evaluate in theed very carefully. We we have been very careful allocators of capital over a number of years, and obviously this is an incredible increased amount of leverage for us, but were highly confident in our ability to generate Free Cash Flow over time. Well look to that to quickly delever the balance sheet. And position this for further Growth Opportunities as we go forward. Were very comfortable with the financial terms of the transaction. Well, its all a response to that explosion. Our story over the next several years has all been about how do we take advantage from company perspective, how do we take advantage of a technology perspective, this explosion that were seeing from a data perspective. We want to make sure that we have the broadest set of stories devices in the industry. We want to make sure we want to use that platform to create even more unique devices for our customers and add even more value. Fundamentally, this transaction is all about the growth and digital data that all of us are seeing in our personal lives and from a business perspective. That is really the fundamental thesis behind this transaction. Later is a Third Quarter close. It doesnt seem to face any significant antitrust hurdles to close. Where give us so much time in temz of potential when you can close the deal . Well, obviously were going to look to close the transaction as quickly as we with can. Western ta