Lynch upgrading the stock to underperforming. Theyll release a statement about the potential buyout. Weve been watching the futures all morning. If you want to take a quick look, after yesterdays big pullback, some people thinking that was the beginning of the pullback, you will see the futures indicated higher. Up by almost triple digits. Dow up just by 84 points. We want to thank our guest hosts today. Great to have you guys. Thank you both. We dont necessarily come as a team, but sometimes. Now its time for squawk on the street. Futures higher trning, thats something the bulls might say, dont call it a comeback. Were still here. Im carl quintanilla, with melissa lee, jim cramer is here, and david faber. Europe stabilizing as service pmi showing overall slowing of contraction. In china, services pmi accelerating to 54. As markets climb back from the s ps worst day since november, is todays market going to demonstrate investors willingness to buy the shallowest of dips. The business that accounts for half of sales down 6 for the recent quarter. Justice departments lawsuit raising all kinds of questions. Is this payback for downgrading the sovereign debt . And will today bring news of a dell lbo, and if it happens, what is the effect on equity markets, credit markets, the pc sector and michael dell himself. We start with the markets today. Futures off the highs of the morning. The biggest decline of the year so far. S p fell back below 1,500. The markets topped out, or is there more room to run for the bulls. Jim is back from new orleans and other exotic locales. Oh, yeah. Good to have you back. Thank you, carl, good to be back. Are we in a new kind of environment . I think theres some program selling. The dow 14,000, a lot of institutions might say, okay, enough is enough. Lets do some lockin. I think we always have to return to earnings. Earnings have been surprisingly strong. We are now seeing deal flow. The dell deal, virgin media deal. I think they put a floor on the market. Yeah. The deals themselves you think . Yes. As a reflection of confidence . As a reflection of what . You know, virgin media, david and i were looking at the chart before this. Virgin media, this stock was at 23 in june. And people didnt think it was too high then. And they dont think its too high now. Very smart coming in. We could see a deal above 50 bucks a share. 50 . I dont know. Thats david faber just saying, according to a bunch of my hedge fund guys, hoping. We may get a deal today. Use third person for yourself. I did. Jim cramer said david faber said its 50, could be 50. Bo jackson used to do that a lot, too, didnt he. He had a reason to. Because he was the most unbelievable athlete of alltime. This is a global deal. I know were woe is me europe, do i want to own a European Cable Company if europes falling off the cliff . Someone smarter than me says yes. John malone is smarter than you. Hey, david. I feel so way to put a man down. As soon as he comes back. How about hes a close second. Thats pretty good. I feel so much better. Impact on markets of a del, lbo, if in fact thats what we get in the near term here. There was a moment where it would have been fanciful. Its too big. We heard that from you initially. Its too big. We may be in an ajr moment. I dont think so. Listen, the reason we thought it was too big was because the equity check is when you would have penciled it out enormous. At the end of the when we see the deal, which we expect to shortly, well see that the equity check was far smaller. And so i dont think it argues for i remember when you first in terms of lbos, it may begin animal spirits where you start to see a 10 billion lbo, or 12. Youll get to 20 much harder, because you do get to the large equity checks, because you have a founder rolling in 60 and putting in another 700 million. And microsoft playing in the deal, too. What does it say about microsoft wanting to finance part of the steel in order to keep their users alive, basically . Microsoft is everywhere. I think theyre flailing. I think theyll throw money here, throw money there. Theyll do gaming, telco, whatever is necessary to keep them in the game. Dell was at 9 and now its 13 and change. Thats a hardware and company. We came into the year thinking hardware was dead. Hewlettpackards been one of the great performers in the dow. And dell has been one of the best performers. That 9 level is important, because when we see this deal printed, whether its 13. 60, or 13. 70, im not sure of the specific price, some investors are going to say, well, thats not enough. Youre going to be reminded the unaffected stock price, 9. 50, where would it go if the deal breaks. Probably lower. And the pressure on the bonds, weve seen that already on the bond . Yes. When the news of the talks was broken. So again, your reporting indicates any minute now we should be getting the price release . Outlook waiting for the press release. It is my expectation that we will get it prior to the open of trading this morning. Separate from dell, jim, somebody pointed out on january 3rd, you said the markets would not face political equity risk until after the super bowl, which is exactly what happened the day after the super bowl. Europe reared its ugly head in a political context. I also predicted the ravens. So im 2 for 2. 2 for 2. I think that europe is worse than we think. United states, better than we think. Asia, far better than we think. So i think i mean, i saw the martinique i will go as far as to say, do not sell american stocks any more off of europe. Its a suckers game. On that note, ron baron on squawk this morning talking markets. Listen. Im expecting 7 average growth for an extended period of time. The economys growing about 7 a year. Including inflation. And how long is that going to take . If you grow 7 a year, that means you double your money every ten years. That means if the stock market is 14,000 now, it could be 28,000 in ten years, and it could be 50,000 or 60,000 in 20 years. Nice longterm bullish view of the markets. Not just for the six months or even the next year. You compare it to bonds, which is what hes doing, you feel pretty darn good. Its also theres a lot of good chatter about Pension Plans being so far behind. I would love it, just in terms of companies being able to return money, if they were less worried about Pension Plans. That kind of talk makes me maybe embolden Pension Plans to say, lets get a little more risky and maybe we can pay off. Thats also going to be very important for stock valuations. Right. Its going to be another flow of funds into the market from the pensions, not only from the individuals which weve seen. I mean, did you catch vanguards flows for the month of january . 24. 8 billion coming into vanguards. Youre saying theyre going to increase their allocation . Yes. Theyve been underfunded for a very long time. This is not a new situation at all. Weve been dealing with zero percent interest policy for a long time. The companies that are trying to ship the 401 k are doing better. That could happen, too. I think the money in, is already being bet against. You know what, go around the country, everybodys like, oh, the retail guy is back. Four weeks back, four years out, can you at least give Retail Investors a couple of months . Would that be so bad . Whos asking so much . Who are you now, highman roth . Jerry seinfeld. All right. Lets talk about shares of yum brands, because theyre down sharply premarket. Taco bell, pizza hut, comp sales in china, which is yums market, does not expect to achieve any Earnings Growth in 2013 because of the food scare in china. The worst part about this, jim, is for january and february, combined, theyre predicting a 25 decline in same store sales, which indicates this is not just a matter that was finished in january when the investigation by the shanghai food and Drug Administration was closed. But this is an ongoing pr issue that theyre going to have to deal with. We are hoping to get clarity this morning on the Conference Call. This is clearly much worse than expected. I think that this is right off of 2013, which i didnt want to hear. I think that, remember, whenever we have these situations, whether it be jcpenney, whether it be yum, when you have the double digit decline, what that says is, you cant come back within a reasonable period of time. Thats true. The ceo on the Conference Call saying, we cannot predict how long it will take to restore sales. Theyre confident they can do so, but they just dont know how long at this point it will take. The thing about, as you all know here, fast food in china is that people go to fast food chains, particularly u. S. Fast food chains because it is perceived they have Higher Quality food than local brands. So when that Higher Quality food that that reputation goes away, its going to be very hard to win the consumers back. If youre buying the stock, which im ng, youre betting on novak. Novaks a survivor. Novak is a fellow he had a very similar address that i did at one point the. He lived in his car. This guy is a comeback kid. He cant come back in the the one thing i will say is the head of yum in china, sam su, is regarded as the godfather of fast food in china. He is the one who really made yum its presence, bigger than mcdonalds on the ground in china. Born and raised in china, went to school here in the United States. Maybe he has sort of a better sense of how to get back into the chinese market. Its going to be a big challenge. Hes kitchen sinking, i think. One of the things that is the devil yum for the last 15 points, is that they cant get their arms around how bad it is. Yeah. Its real bad. Now theyre saying its real bad. Maybe that creates a floor. I dont knowment lets say 57. January, did you mention this . Down 41. Its hard to see how those numbers could continue to contract at that pace. Yeah. But youre right off of 2013, point well taken. The Justice Department meantime has filed a civil lawsuit against standard and poors and Parent Company mcgraw and hill. The firm had already responded to the lawsuit before it was even filed saying it was entirely without merit. S ps lead attorney floyd abrams will be a guest on squawk on the street in the next hour and a lot of discussion about motives. Why s p, why not others. Why civil, not criminal. I dont think theyre playing politics. I think this Justice Department is above that. I think that in the end, the fact is that if they can get a fraud charge, then everybody who rely, and some guys some of us say, well, you know, a lot of these people have their own credit departments. David, from your book, i know that a lot of people just rely entirely on those ratings. If you get a fraud count, and the government wins, isnt there potentially 400, 500 billion worth of you know, everybody will it unleash the gates of different lawsuits. They have said these are simply opinions. They have asserted their First Amendment rights in other cases that have taken place. In fact, they have actually won. Thats one of the reasons that abrams is one of their attorneys. Well see. Youve got to remember, they are prosecuting under forea, a remnant of the savings and loan bailout. It is a lower burden of proof that has been used most recently to go after a number of the big banks on mortgage related securities issues. And they have settled many of them. In this case, as i reported yesterday, they were looking for more than 1 billion in terms of a settlement. And they wanted an admission of guilt. Because then it brings up other lawsuits. How many did they say mcgraulhill they said they had no interest in settling. This will be years down the road before it goes to trial. By the way, we should point outer rick holder, the attorney general, is going to be holding a press release. Is it 500 billion how many did they rate . Oh, yeah, tens of billions of dollars. Structured products, as in cdos, enormous gravy train for the rating agencies. Moodys had the highest operating margins than any s p company for five years in between 2002 and 2007. Five of those seven years. But moodys is not a part of this. Which i do find strange. All the stocks down sharply. Stock down sharply. State ags may get involved, according to the new york times. I have not heard that. But my moodys was not a part of this. Its at least a question. I dont understand why it wouldnt be. Why wouldnt this be a concerted action against all the rating agencies . And we are six years since this was allegedly maybe they have someone. Right. Maybe someones cooperating with the government. There were plenty of people who testified in front of various committees in front of the financial crisis commission. Were on the floor of the Stock Exchange where people are convinced there is a con spir assy theory out there with the government. And the fact that the s p is the only one that did that. Exactly. United states of america, and i havent seen them, other than nixon, play politics. When nixon fired the Justice Department people. And i think that holders above it. I actually i mean, this is get out of law school, you went to work for justice. Ive always felt justice is fair and honest. Im not going against the Justice Department now. When we come back this morning, apple out with its new version of the fourth generation ipad today. Not for your everyday consumer, thats for sure. Talking more corporate customers. Well find out how the company is trying to change its game and if it has a chance of working. And looking at some of the most Expensive Hotels in the world. We continue to be on the outlook for any movement out of dell. Theres a look at futures up decidedly today. Squawk on the street is back in a minute. [ male announcer ] ive seen incredible things. Otherworldly things. But there are some things ive never seen before. This ge jet engine can understand 5,000 data samples per second. Which is good for business. Because planes use less fuel, spend less time on the ground and more time in the air. Suddenly, faraway places dont seem so. Far away. Disney is leading after the bell earnings break. Calling for the dow component to earn on its shares. Chipotle warned of higher food costs affecting its bottom line. Zinga also said to release results ahead of that report. Jim, lots to get through this evening. Yes. Disney, last quarter, people didnt like the movies. They even were worried about espn. And then the stock is up, this fabulous performer. I think the same thing will happen again. Trigger pullers will say its not good enough. We look at it, a month from now, and its above 54. I do not theres a lot of good theme park news coming. I think that espn has done remarkably in this recent quarter. A big year for espn. Those who want to sell it, and think they can be clever enough to come back in it, good luck to you. Its not worth selling. Will we see the turn finally in chipotle stocks on the back of the earnings . I think a lot of people are hoping theyll say theyll be able to raise prices. The drought is impacting their ingredients. I think they have the ability to raise price. I think theyve guided down enough. If you remember, the last guide down, this stock started going up. Yeah. That said, this has been paneras time, not chipotles time. I think chipotle has to regroup, and when they start to have big comp sales, because the tickers up, then theyll theyre going to cater like panera, and theyre offering new products. Theyre offering shredd eded to in california. Think they want to get it close enough to the opening bell . Thanks, guys. Good, david. I dont have it in my inbox, so im going off headlines like everybody else here. 13. 60 in cash. 24. 4 billion. 37 premium. And the release by michael dell and silver lake, david. All of what weve expected. In fact, yesterday during the show, heres the release of my inbox now. We were told it would be closer to 13. 50. There may be disappointment out there. Again, youve got to come back to the idea of where the stock was before they will argue before that Goldman SachsResearch Piece that posited the idea of the lbo, around 9. 50. It is an enormous deal in which michael dell will still have, or in many ways still have control, that he doesnt currently have, of dell, given that hes putting in his own outside cash and rolling in his 60 interest. They are valuing the deal 24. 4 billion. As carl said, 25 premium over the last trading day before they call rumors, with possibly going private. 30 del will continue to lead as chairman and ceo. Maintain a significant Equity Investment in the company, contributing his shares. Im always wondering, when a company goes private, what will they look like when they come public. This companys done a lot of service. They do a lot of consulting now. This company has to come back out as a nonhardware company. Does this put hewlettpackard at any sort of disadvantage . As it tries to rationalize its business . Being a private company, does dell have an advantage that it can move quicker in streamlining the business, selling parts of the company as hewlettpackard tries to do the same . You know, out of the spotlight of wall street and analysts and expectations, you can certainly do some more bold things, one would argue. At the same time, theyre going to be dealing with a lot of debt on their balance sheet, which does constrain them to a certain extent in terms of ak which sagss. Ive got to get more details of where that comes in. Youve got the microsoft money, a number of other things. It cuts both ways, you could argue. You also have the possibility that hewlettpackard could take some actions. I see the stock ticking up. Dont forget, hewlettpackard can come in and say, you know what, guys, take your dell out, well give you the pcs for free, well give you the sun micro for free, give it to us. The deal does include something now included in almost all of these go privates, which is a go shop of a 25day period under which a successful competing bidder makes a qualifying proposal. The breakup there will be very, very low n terms of any if you were to get that. My expectation is, youll not see any sort of strategic come. You might have already expected, were there some interest str strategically, they might have come before the announcement weeks ago. Dell has been considering its options for some time. In terms of trying to create value, whether it be splitting the company in some way, or examining strategics in the past. This special committee has been at it for a while. And they have run a fai