You can see kind of a mixed bag. Didnt give me italy or spain, normally i get italy or spain when im on the desk here. Theres germany, france and the ftse of course which is the only one in the green. Tenyear note yield, there it is. 1. 738 is where we stand. Crude of course had the nice move and helped some of those oil related Energy Related companies of late. Lets call it down a little bit as you see but still above 50. Our road map this morning starts with microsoft shares. They are set to hit an alltime high after strong earnings on a quarter that was boosted by what they are doing in the cloud. Were going to dig into a report with jim. Shares of tobacco maker reynolds soaring on news that British American tobacco offering to buy what it doesnt already own in the company for about 47 billion. Ive got a lot of details on this one. Youll want to stay tuned. Well share them with you. And shares of mcdonalds moving higher. Well break down the quarter and talk about what it means for some of its competitors as well. Lets get to microsoft. It is up as we said in the premarket this after posting better than expected Quarterly Results helped by gains in its cloud business. Ceo sacha nadela on last nights earning recall. Our annual run rate now exceeds 13 billion and we remain on track to achieve our goal of 20 billion in fiscal year 18. Once enterprise customers choose one of our Cloud Services, they continue to adopt more services. So the cloud is not just helping them because its growing so quickly, jim, but its also then having customers who are then moving to other services. Amazon for the first time has got a real credible threat here. Thats how good they are. Amazons 31 , i believe, what we call the cloud. Where you basically web services. Web services. As your revenues once again grew triple digits, 121 in constant currency, the margins here are good. Satya is killing it. When i saw him literally a year ago, he came to me with an 18 billion run rate that he thought he could do cloud. And im like, i said to him, dont give numbers that you cant deliver on. Now hes on target to do 20. This guy is such a heavyweight. Its really incredible how quickly he turned this company around. I would not want to compete against this guy. By the way, selfeffacing. But this is a monster good call. Sometimes all it takes is making one good decision. And if it was that decision, lets get in, this is where everything is going, all computing is moving into the cloud, its not going to be on the premises any longer. And this is a service. And they did. And they moved there and moved there strongly to potentially compete with Amazon Web Services as the giant. For real. Remember it was oracle, trying to get to ibm, people didnt like ibms gross margin numbers, but i have to tell you, david, even at one point they have to mention they have this device division. Remember Steve Ballmer on previously making a big bet on devices, he gives you throwaway number devices, there was one point i wouldnt have let him got away with it. He can get away with anything. This is a remarkable, remarkable turn. And the stock is still undervalued even up this much. Ive got to tell you Companies Like hp, hewlettpackard, that was a huge win for him. You mentioned mr. Ballmer, your former classmate of course many years ago. He was a guest on squawk box earlier. Of course the former ceo of microsoft. And he was replaced by mr. Nadella, heres what he had to say about him. We grew our revenue and we grew our profit. We made the transition from a pc company to an enterprise company. And now satyas got the company doing the right stuff. Hes going down this cloud path. Down the cloud path, jim. And theres a lot more path to be walked, it would seem. Yeah, this is one where they are on fire. And ive i just think that people dont understand that this was a we would be talking about the consumer business like two years ago. And we would say its kind of they actually did okay. Not bad. Down prenine print in terms of pc sales they actually stayed yes, they did. Remember, this has this renewable subscription stream that is fantastic. But this guy, you know, were talking about early 2014 that this man came in. This is remarkable. 2014. This is 2016, you hear people say i need more time, need more time. For now on we should be measuring against satya time. This is satya time. Nice guy, too. This is a very fought over area, weve got one leader, weve got another here significant. Who are going to be the big players in terms of offering these Cloud Services . If i dont say oracle, theyre going to yell at me. Okay. Because of the net suite deal i feel they are more challenged. The deal is in question. Well see whether it happens. What about ibm . Okay, so im back and forth with ibm. I think ibm is, look, every time i say ibm is trying to do bet ner cloud, someone finds a new problem. You know whats happened is people are measuring waiting for all revenue growth. Right. But i think theyve done impressive things. Weve got to make the difference the difference between the computing power, which is here it is. Right. And the all the software that rides on top of it that the likes of an oracle or crm or workday or so many other companies. Salesforce platform is used by all companies. Every time you Say Something and dont mention oracle get them out of your head. Dont worry about it. I know, mark hurd is a tough dude. This is in my head and oracles in my head. Its scary, but hes not behind you right now. Thats what you think. Its like pokemon go, right there. But i just think ibm has Strategic Imperatives have very Gross Margins but ibm is out of favor, oracle is out of favor because people feel they needed the net suite for for the small and mid size, okay, because that showed them maybe they cant get the high end. Which is going to microsoft. People like dealing with microsoft instead of dealing with amazon. Why is that . You know, maybe amazon is basically not as loved as we think. You know, theyre just not, theyre just not as loved. David, theyre considered more of an evil empire. Remember when microsoft was the evil empire . Remember when you had mr. Klein going after there and Steve Ballmer going, Justice Department though they play for free. Those are the most dangerous opponents in the world. I do think ibm, microsoft much more impressive. Salesforce i can understand one point they wanted to buy salesforce. They dont need salesforce. Right. And i dont know if salesforce needs twitter. I got to tell you oh, lord. Theres a lot of bad blood all of a sudden out there. Yes, there is. We should get to that in a bit. Weve got another 53 minutes of our show just you and me to talk. I love that because we havent even talked about how the biggest mistake i ever made was quitting smoking because thats where all the moneys being made. Lets get to that this morning. Of course people woke up to the fact British American tobacco which already owns 42. 2 of Reynolds American has made proposal to buy the rest, that 57. 8 that it doesnt already own, offering a 20 premium over reynolds Closing Price on the 20th of october, and a deal that values it at 56. 50 a share, were learning about this immediately. In fact at the same time more or less reynolds is because they own they have 13 ds, remember they would have to update their filings. Remember tesla, solarcity, they had to do the same thing. Right. Theyve got to just let everybody know as opposed to trying to negotiate this privately. So here we sit with b. A. T. Having made this proposal, reynolds now of course is reviewing it. They dont own a majority, but they do own a significant stake, as we said. Lets go through some of the values, jim. Altrias jumped three bucks this morning. Right. Youve got to explain this to me. That one im not im saying do people think no, no, theres only one buyer here. Okay. Reynolds is not in a position where they can go out and sell to somebody else. All right. Walk me through this. They cant. But what they can do is put up a strong defense. Now, in their defense b. A. T. s going to say the following. And theyve started to already. And i can communicate some of it this morning. Our offer already is 16. 3 times the last months ebitda that reynolds has put up. Is that an offer they cant refuse . Well, theyll say it is, but its not at 20 . Theyll say, listen, when reynolds bought lorillard it only paid 13 times ebitda. Theres going to be about 14 million of cost synergies, were giving you a decent amount of stock here. Why now is the question. Its never been a question of when, its been a question of excuse me, right, its never been a question of whether they would do this, just a question of when they would do it. All right. Why now . Obviously Interest Rates are very low, a lot of cash they would need for this deal. Hence being able to borrow. B. A. T. s been doing fairly well. I was going to ask you what the pound is. So many of their sales are international, and theyve been beneficiaries of the lower pound given its made their predict more competitive in overseas markets. And the two companies have sort of aligned. Reynolds just recently had an earnings miss, stock went down. So p e multiples are more closely aligned right now. So those were a number of reasons why now. Although theyve been planning this for weeks. Its not as though they were waiting for reynolds to miss earnings. They werent. They were planning on doing this for quite some time. But well see where they go from here. I think this is a key point that needs to be made, and what you may hear, the 20 premium some will say is what you would pay to squeeze out if you were a majority owner. Its sort of what they would refer to as a minority squeeze out premium. The question will be does reynolds go for what they may argue is a control premium, which should be higher than 20 . Is this like that netsuite . Oracle thats really larry el ison, give me something to understand. S. A. B. Miller . I got to think about it. Its a good question. Hard for me to understand. Well, what you need to understand is reynolds is going to do the best they can for its investor base. Its grown dividend and had growth until recently. Its got a ceo transition underway, but generally speaking i think its a fairly well regarded company, correct . Absolutely. And the lorillard deal is done in terms of synergies theyve been expecting from it. From their perspective how hard do they fight . B. A. T. Saying we want friendly, collaborative. Well see. Reynolds my understanding again this is a key thing in the details, that until they take full control buy all the shares, they cant control the committees on the board. Right now those are led by independent directors. Theyre going to set up an independent committee of directors, 5 of 14 directors, seven who are not affiliated and get a vote unaffiliated shareholders. My guess is reynolds is going to argue for obviously higher bid. The question is how high the a. T. Is willing to go. I see the stock reflecting perhaps that could happen. Okay. Weak euro, bayer going after monsanto, weak euro, b. A. T. , weak pound, why is it not the other way . Why are we not seeing u. S. Companies buying over there . What is that about . Thats a great question. And i dont know. Were on this. Im working on that one, too. I dont understand why the stronger dollar hasnt emboldened u. S. Companies to do the reverse. In some cases youre talking far Larger Companies buying smaller companies, bayer is larger than monsanto. Maybe its protectionism. Maybe theyre afraid. Stay on that too. Anheuser, bud, inbev. It should move fairly quickly but still going to take awhile. Reynolds is just getting themselves set up here to sort of deal with this. But keep in mind minority squeeze out premium versus control premium, my guess is thats where reynolds comes down in terms of its argument. But well see. Cbs has to do the best for its shareholders sd. Thats right. Kind of similar but not completely because they have a Controlling Shareholder in that case. This case theyre not a Controlling Shareholder. How about time warner getting a bid never mind. Lets tease that. Thats coming up next. Let him have the tease. We have a lot more squawk on the street coming back after this. Well, we wake up this morning to the possibility at least of ground breaking, really earth shattering consolidation in the Media Industry in the midst of course of a landscape that is truly changing, jim. And im referencing of course these reports yesterday from bloomberg that at t and time warner have had some talks. Now, theyve been about a range of things, but they have included the idea of at t buying time warner. Let me add my own reporting here to the extent that i can. And i can because i did have some chance to talk to some people. This is not this is a possibility. Youre not dismissing this out of hand . Im not dismissing this out of hand. Are you kidding me . I dont want people to seem theyre talks in a deal, thats not the case. There have been conversations, i know at least one key meeting. While they discussed a range of alternatives, its my understanding about would time warner at t really try to buy time warner or not. Now, is that likely . I think its easy to say no, but is it possible . My understanding is absolutely. Wow. And when you get a report like this and other people reporting on it of course and investors start getting involved and you start to see a change to a certain extent, not a lot, in the Shareholder Base and you just get people talking, sometimes you can build momentum. Jim, this is an extraordinary moment in terms of the media business. Weve talked about it so often. Ive said so many times about the unbundling taking place slowly at first and then suddenly. Im starting to think were getting closer to the suddenly part where people truly are thinking of tv as the internet. How much of this is defensive . I was on the verizon call yesterday. I think, actually, i think aol yahoo is going to be important. That was not a good call. Verizon did not do well. I think sprint and tmo. Fascinating they are truly having to compete. Younger versus older, frankly. But at t with directv was brilliant even though nfl ratings are down. Im wondering if theyre saying, listen, were getting out of the Greyhound Bus business. Its interesting to bring together of course in a significant way content and distribution. Now our Parent Company is in that business with the ownership of Nbc Universal and that. But we are in the midst of the seismic change thats going on. We talk about it so often. It is happening. Yeah, but david if you move even in all your houses youve got to start thinking about do you really need your cable. You dont, jim. No, i know. And more and more especially as we head into next year with all of the bundles that are going to be available over the top, meaning through your broadband, there are going to be real possibilities for you to figure out a way to cut your bill and get what you want. A 3 a month verizon bill, small skinny bundle at one of my places. So this is forcing everybody to think about things. But big time heisman to fox. Yes. Why stevenson and att, what is that about . Lets not go too far down the road you just went down the road. Youre on the entrance ramp. Yeah, im on the entrance ramp, and they are too. And if they get own the highway, theyre going to go 75 miles an hour, theyre not going to start at 20. Is stephenson different he used to be a plain vanilla guy. Does he got some pizazz . I dont know. Suddenly youve got people thinking about content in a big way. The question is will you see any come to have the forefront. Raising a good point. Time warner successfully fended off fox very much so. Yeah. Its not clear that they are ready. But if you bring them an offer that is really significant and delivers enormous amount of value to shareholders, hes got to consider it. Hes got to. Then that offer was a real good price, no he didnt believe it. He had a lot of room ahead of him at that point. But that was a couple years ago. Again, is this likely . No. But is it a possibility . I think you have to consider yes particularly in light of all the changes taking place. Its not idle chatter. Thats great reporting too. Shoot, i better have something jim, we have to start thinking about a lot of this stuff in a bigger way. Remember that report from goldman earlier this week about apple and creating ecosystem on the prime side, so to speak, to actually get moving on the hardware. But trying to get apples business. Does apple have to go out and do something . And apple wont. I think apple wont. No, they wont. How about google . Would they consider it . They have so much money they could consider it. They can consider it. What about facebook . Youtube is coming on so strong. Facebook doesnt need to do anything. Doesnt need to do anything. No, were giving them their content. Twitter twitter not saying anything. Salesforce really just crushed them. Twitter just really they crushed them. They did. What they did to them. That wasnt fair. Wasnt nice. 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