Season, jpmorgan and wells fargo out with mixed results and well tell you exactly what you need to know. Charter Communications Says it wants to buy time warner for 132 bucks in stock and cash and twrawrm says how about 160 . Well get a reaction and exclusively interview with tom rutledge in a few moments. Google is buying nest labs a maker of Smart Thermostats and smart smoke alarms for 3. 2 billion, it would be the second largest ever in googles history. First up stocks are trying to bounce back from that poor start to the week. The dow coming off its worst day since september and experiencing its first 1 drop in three months. S p and nasdaq posting their biggest drop in over two months and the Bank Earnings are in the spotlight, jpmorgan and wells fargo out with quarterly results. We can talk about the bank or some of the internals, the mortgage internals, theres a lot to talk about. All people seem to care about perhaps we are out of the banking wilderness and were going to begin to talk about normalized earnings power. This has been threatened. Weve been thinking one day well come in and say, do you know what, i think jpmorgan has 7 earnings power. Every time you do that you begin to think its wait legal fees and more settlements and wait, theres still too many people in mortgages. Im actually seeing the possibility of putting a number on earnings. I think one of the reasons i can see that is because Net Interest Margins were actually up. And thats, again, what people they make they get your deposit. They invest it somewhere in the yield curve. They dont put it in a hedge fund anymore and theyre making a nice profit and thats all somebody seems to want. The mortgage original numbers are horrendous. Too much risk. Even if we x out or put to the side all of the money that jpmorgan has spent in resolving madoff and the whale and mortgage originations and everything else, it wasnt the greatest quarter. It was fine. We dont have the growth yet. We dont have a lot of growth yet but we saw a 10 increase in deposits. A lot of people think the deposit number is stunning. I know, you get the margin doing better. David, youll talk to a ceo who is making a tender bid. Not a tender. Just an offer. Offer, offer. If youre going to tell me that this is one of many. Theres a division, i dont know how many people are left in that division, jpmorgan, but that division will drive gross margins. If you really tell me this is the year of equity, equities bidding for other equities, and making making some sort of transaction, wow. Youre talking about the old Corporate Investment bank is that what you mean . Remember that . Yeah, i do remember that. Banking revenue 3 billion down 4 from the prior year and Investment Banking fees down 3 from the prior year and driven by lower debt underwriting fees down 19 and lower advisory fees down 7 . It turns. Looking for a turn would obviously be very helpful especially off of your you didnt have great quarters last year i dont believe either. If net Interest Rates have bottomed, thats what people really care about. When i look at commercial industrial loans, maybe theres hope here. Maybe people are going to take loans down and build something. All these thinks seem to be in the future provided the retail sales were seeing is not the precursor of something more negative out there and the change in psyche. I dont know. I like the number. I like it. You mentioned the legal expenses. Only 800 million in the quarter down from 9 billion in the previous quarter. Didnt give a lot of clarity where reserves stand on the jpmorgan front. But youre not saying well see a clean quarter in the next quarter. But i think 2014 may be a year where we begin to invest in bank stocks based on earnings not just, well, wait a second, we get a reversal of some sort of reserve thats taken or perhaps this is the end of the government going after. No, i mean, well be able to say, theres a pretty good item in deposit growth, not bad in Investment Banking. Theres some lending going on and that would be the beginning of what used to be the way you invested in bank stocks except for this time the guys own a gigantic percentage of the share in banking. It brings to mind something said today, s p spree correlation is down to 77 and last years average 83 because in a world where Central Banks begin to pull back, you have the market that you used to have, right . Stocks used to trade differently as a group. Right. And what will happen, though, is that i think were going to go back to concentration. Remember, these banks bought a lot of other banks and we never thought i remember during the Great Security pacific downturn when you had bank of boston and all these banks going under and no matter what happened the survivor banks, the acquired banks were quite conscious they couldnt have more than 10 share of this country, they were even worried about concentration in california. Take a look at the concentration of jpmorgan and wells fargo, if we get a turn in this country, people will say, listen, its absurd that these guys have so much market power. Yesterday the biggest decline since the 7th of november, but we could have cited any of those reasons any day for the last few months, retail, it hasnt been good for a while. The multiple seems to be getting a little bit stretched and yet yesterday for whatever reason now it was. We do have the jobs report that people are still digesting from friday. I think it was seminal. People tried to asterisk it, saying dont worry about it, dont worry about it, dont worry about in the face of the acena had been on mad money maybe a month ago saying things were good. You get this kind of precipitous decline, a bonton, still the bench, blaming slick roads, icy roads. Icy roads. I saw that. Stock was down. There you go, the old icy roadish you o isissue. The one thing retailers never run out of is excuses. The excuses per share here said i think its very high. Now, where was the excuse per share of macys . What did macys really do to make that number . How about we investigate. Yes. Right . I think its called selling a lot of stuff. If were going to investigate the long line that i had to wait at on the g. W. Bridge, i want a federal case against macys because it doesnt seem right that they did well. Theres something up there. In the meantime, david, youre about to have a very big morning in a few minutes with charter. Well be speaking with tom rutledge ceo of Charter Communications one of the larger Cable Companies in the country that wants to get a lot larger, of course, it was late yesterday where charter released a letter in which it stated it had negotiations with Time Warner Cable in which it offered most recently about 132 a share in cash and stock in the company and been rejected and is taking its case to shareholders. Its a bear hug of a sense. Of course, part of a story weve been following. We first brought you news of their first foray in june. What did you do now . And how do you succeed in purchasing a company that says, yeah, well take a number. The number is 160. How about 100 bucks a share in cash and 60 a share in stock and offer us a collar on your stock as well. How is it possible charter was bankrupt a few years ago and now its able to raise this kind of money . How does it happen . It reorganized in chapter 11 and its debt holders took significant stakes and then liberty 27 owner and controls a number of board seats and youre off to the races and plus they hire a guy known as a very, very strong operator that being mr. Rutledge who previously ran cablevisions operations and was a very senior guy at Time Warner Cable prior to that. What about this industry that they can make so much money . Werent we supposed to be cutting our cords and using arrow and going any way other than tethered line . It sounds ridiculous now. Thank you. Were in this pure land grab now for this last mile. You have muffey on a few days ago, one of the questions for rutledge does he expect other players to come in . One being, of course, comcast, consaldation and the idea of it since we first told you about it back in june has contributed a rise in all of the stocks, time warner and comcast and the whole group up sharply because they do want or investors want to see consolidation. The last number comcast Parent Company of this network, showing basic cable going up again. I wouldnt i wouldnt get too excited about that. Too excited, charter this thing could go out huge time warner. Its also trading at quite a multiple charter. Does anybody care about service . Is that part of i think so. Interesting question, yeah, yeah. Maybe they come in and do better than time warner in terms of not you have a lot of different homes, you would have a lot of different providers. Carl and i probably only deal with the same. My mexican provider is my best provider. Really . I dont believe that. It never goes down. Holy cow, they really know how to do it there. Thats just a big insult to the u. S. My mexican provider. You can use dominos in mexico. Comes just as fast. Meanwhile were going to after the break well talk about a lot of the calls today. This upgrade of google and the downgrade of microsoft. It all feeds to the same place, the nest. The nest deal with google. The bid from charter. People have been asking why such a down day on a day where m a showed life. Wasnt it incredible that beam is worth a lot more . I came back and said that, wait a second, theres core worth to the companies you are throwing away but we did see a giveup. Everyone shops in this country and you just felt like, wait a second, obviously things arent good, so nothings good. So, nothings good at starbucks, nothings good at disney. I think the Companies May be surprised. I think theres a secular change in how people shop. Nest, by the way, frank blake came on home depot and said weve got the new Smoke Detectors, you wave at them and they talk to you plaintively and they drive a lot of traffic and it turns out to be nest. It was nest. Fascinating. I keep thinking about privacy. Nest knows when youre moving around your house. I go into my living room, my xbox says hello to me. What do you have to hided . I have nothing to hide. Im going to give them everything. Everybody knows everything. I read that the book the circle it freaked me out. I read the orwell book, 1984. 30 years too early. And when we come back tom rutledge takes their takeover to the time warner shareholders. We look at what were trying to do with nest protect and our nest learning thermostat, were trying to reinvent unloved products, products that you use every day or you may ignore every day and try to bring them into a modern era. We talk to nest ceo tony fidel, two months before google announced a bid to buy his company. Take another look at that interview. Futures trying to rebound from the 179point pounding yesterday. When does your work end . Does it end after youve expanded your business . After your companys gone public . And the capitals been invested . Or when your companys bought another . Is it over after youve given back . You never stop achieving. Thats why, at barclays, our ambition is to always realize yours. voseeker of the sublime. Ro. 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Why not do that . Well, for one, weve been at this quite a while as you know and when we first approached them, more than six months ago, their stock was trading 96 and its almost run up 40 since we initially approached them. And we think that weve been at this process a while. Working toward the price that weve gotten to. And that its a rich and fair offer. Why is 132 lets call it that a rich and fair offer . They say its seven times and they point out that charter trades at 9. 2 times ebita, but a higher multiple than youre willing to pay to take control of that company. Why does that seem fair . When you think about whats been going on, since we started talking to Time Warner Cable they lost more than half a million customers. Its a troubled situation. And we think when you look at the cash component that were bringing, when you look at the appreciation that weve already put into the stock through this process, and you think about the fact that as part of our offer which is not an allcash offer, 45 of the company will still be owned by time warner shareholders, so those shareholders are going to participate in the synergies that we deliver. Theyre going to participate in the nols net operating loss that you bring to protect profits. Thats right. And theyre going to participate in a turnaround situation that improves the operation of the company, stops the subscriber losses, improves the Customer Services and creates more value than they would get with a pure cash offer. You know, ive spoken to some of those shareholders. Who agree in many ways with many of the things that you just said but not at 132 or 135 a share, at least thats what they tell me. Their expectation is if you truly want to own this company it may not be 160 but its got to be a lot up from here. Are you willing to go higher . You know, we feel like weve come a very far way and weve wanted to seek engagement from the company. We have not really gotten engagement. I think that their 160 response is a nonserious response. Why is that a nonserious response . Again, its a huge company, l. A. , new york, 11 million subs. Why wouldnt you if you were them saying, hey, you want us, you got to pay the nice price . New york and l. A. Is right, but, you know, in the last two years theyve lost the equivalent of an l. A. In subscriber losses. So, theres a big job to be done in terms of turning it around and that process is going to cost money. Its going to require investment. Its going to require taking the company all digital. And its an enormous amount of work. So, the other thing that you need to consider is that most of the cable deals that have been done have been done as allcash deals. When you look at the aftertax effect of our offer, its actually higher than most of the cable deals, in fact, all the cable deals that have been done in the last five years, so it is a rich offer when looked at in an aftertax environment. We keep referring to it as an offer. Really what you sent yesterday was you sent a letter that referred to conversations that referred to an offer. We have made offers. You made offers. I dont want to get caught up into the semantics of it. Offered. Why not offered a fixed ratio, for example . Why not have offered some sort of a collar on the stock component . Why not give us something yesterday that was a little bit more specific in terms of delivering value . Well, i thought it was fairly specific. But what were really seeking to do is talk to the shareholders and get the shareholders involved and ask the shareholders to let management engage with us. Because they really have not engaged. And the board has not engaged. And the issue before us is that weve come through this process for six months. We havent been treated seriously. We have a very good offer that will create a lot of value for shareholders. Were seeking engagement. The board has engaged with its advisers i can tell you that as somebody whos been following it closely. They seem to be very solidly behind the idea that its worth a lot more. Are you willing to go to a proxy might, the windows for which opens nominating directors next week . Well, were not there at the moment. Were making this offer to shareholders and asking shareholders to get involved. All of our options are open. But we think that if the shareholders look at the offer that we have and Ask Management to engage, that the shareholders will recognize that the offer is a good offer and that it actually creates more value than the alternatives. But, you know, you keep saying its a good offer. I mean, yes, the stock is up from 96, no doubt. By the way, your stock is up sharply. Comcast parent of our network is up sharply. The whole group is up, so they dont see downside to 96, they say, well, maybe if theres no bid and the stocks 115, 120, why should we take such a small premium on that as an unaffected stock price . Well, im not sure i agree with that. I think to some extent time warners performance is an outlier. In fact, it is an outlier. Its distinctly negative, it shouldnt trade at the same multiple as the rest of the industry until its fixed. The what do you do from here . Hearing you, tom, saying you think its a full and fair offer. Youre not going to win on 132, ill put my 27 years of experience behind the fact that youre not going to win at 132. We think if the shareholders look at the offer that weve made, that they will come to a different conclusion than you do. They say this is the advisers that im speaking to from Time Warner Cable that you could go up to as much as 110 in cash, is that true . We can borrow money. It is true. And but you have to think about this deal from the charter shareholder perspective and the time warner shareholder perspective. The company we have a fastgrowing company and weve turned it around. And its taking off. And the reason the share price is high is because theres a lot of potential value in the company thats going to be created. So, when you think about charter shareholders with the fastgrowing stock and a valuable stock, how do we manage the charter shareholder accretion as well as the Time Warner Cable shareholder accretion. Youve got to manage both. So weve got to be discipl