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QUEST MEANS BUSINESS

EBay Sells Skype; Obama Talks Swine Flu Prep

Aired September 1, 2009 - 14:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, CNN INTERNATIONAL ANCHOR: One Internet phone company is slightly used, the cost, $2 billion. Is this the ultimate eBay bargain? Markets falling in the U.S. and Europe. Is this a September surprise? "NY- Lon-Kong" continues.

I'm Richard Quest, live from the city of London. Yes, I mean business.

Good evening, eBay has sold Skype, bringing the curtain down on what many people are calling a flawed relationship. Was the deal a strategic mistake for eBay all along? Or simply a missed opportunity?

It certainly (INAUDIBLE) in the final years of eBay's former chief exec, Meg Whitman. Later in the program we hope to be speaking to the current chief of eBay, John Donahoe.

A group of investment firms from the U.S., Canada, and the U.K., have emerged as the new majority owners of Skype. They are paying $2 billion. They get 65 percent of a business that is growing fast.

Four hundred million users log on to the service, make free video and voice calls. It has vast usage, Skype. The problem is, much of the usage is free. Jim Boulden joins me now to talk about one of the high-tech deals of the year.

And I have to put a little bit of hands-uppery and conflict-of- interest here. I'm actually a user of Skype.

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: How much do you pay?

QUEST: Sorry?

BOULDEN: How much do you pay?

QUEST: I'm probably the exception. I actually have a Skype in number and a Skype out number, which I find extremely convenient from that point of view. But most people don't.

BOULDEN: They don't pay, even though $400 million users, eBay said all along, in the beginning, this was going to be a way for their users to do deals on eBay using Skype. It never worked. EBay has said for a number of years now, it was not synergistic to what they were doing.

And they were going to either send it off as an IPO, or, surprisingly now we know, selling it to private equity.

QUEST: I find it extraordinary that a company like Skype, which has become the generic name, whichever way we may look at it, for Internet phone calls, friends, relatives, business, has not been regarded as a success by its parent company.

BOULDEN: They wrote off $1.4 billion of this in 2007. They've admitted they spent a billion more on it than they should have to begin with. Some people say it was up to $3 billion, the original deal. And the current CEO wants to get the company back to what it does, eBay: online payments, online broker, not dealing with other things.

And this is definitely something outside of the remit.

QUEST: Did Skype, to some extent, shoot themselves in both feet by offering the whole thing free? I mean, there are many other Internet phone companies.

BOULDEN: Yes.

QUEST: . VOIPs.

BOULDEN: VOIPs.

QUEST: But few offer video in the same way. And some of them charge.

BOULDEN: They were an early mover and they thought the name would get them out there and they would get all of these customers and they could monetize. I love that word. Monetize your list. Monetize the people that you have as your users.

However, eBay was never able to do that. So as a standalone company, or as majority-owned with private equity, they're hoping those guys can come in and do something with those numbers.

QUEST: Let's widen it away from Skype.

BOULDEN: All right.

QUEST: Yesterday we had Disney and Marvel Comics. Today we have Skype and eBay and private equity. Are these sui generis, on their own, or are we starting to see the beginning of M&A activity?

BOULDEN: We talk about M&A every quarter and it has been very bad for a while now. This is, I think, the beginning of something really good in M&A. The banks need that activity and we know the last quarter the banks made a fair amount of money off of doing bigger deals.

These aren't huge deals by numbers, not the ones we used to have. But it is a good start for some M&A. Tech, media, we know that's where some are going to be coming, we don't know where, but that's a good start.

QUEST: I'm not sure whether you've sort of suggested that we are back to the races here.

BOULDEN: Some good deals. You know, people can use the rising share prices. Of course, we've seen shares going up, and they can use shares to go in there.

(CROSSTALK)

BOULDEN: Yes.

QUEST: And the wall of money we hear that's out there.

BOULDEN: It is out there. They're just afraid to use it, now they're beginning to use it.

QUEST: Jim Bolden, many thanks, indeed. Thank you.

BOULDEN: Yes.

QUEST: All right. And by the way, there is our Skype name that you can contact us along with our Twitter, @RichardQuest, we also have MSN. We have a variety of ways. Our Skype name is QuestMeansBusiness. It's one name, one word, QuestMeansBusiness. And there, of course, we also will take your comments and your thoughts. QuestMeansBusiness.

The Big Board and the way (ph) the Dow Jones Industrials -- a bad start to September. The Dow, the Dow is down 1.6 percent. It's actually off of its lows of the day. Those -- we were down 1.9 percent, 155 points. Dear oh dear, I seem to remember saying 9,500 was a little bit OK the other day.

Bank shares down. AIG is off 17 percent. Manufacturing, home sales data all coming in more disappointingly. It was a similar story in Europe. Indices across bourses losing around 2 percent on Tuesday.

If you want to know what did the damage, the banks, Lloyd's, HSBC, BNP Paribas, they all took big hits. Mines and commodities fell sharply. Here in London, the huge mining company, Anglo American lost nearly 5 percent.

Volkswagen shares sank over 8 percent, and that took Frankfurt's DAX down. In Paris, Renault and the hotel group Accor were amongst the worst performers. Look at that. The DAX down 2.5 percent.

The markets, one has to say that it is the dog days of summer, and to some extent things are very, very quiet as volumes are still on the light side.

For news headlines, Fionnuala Sweeney is at the CNN news desk.

FIONNULA SWEENEY, CNN INTERNATIONAL ANCHOR: Richard, we begin with a somber ceremony in Poland marking the 70 years since the first shots of World War II were fired. Several world leaders attended the ceremony in Gdansk saying it was important to remember the war so as not to repeat it.

The battle goes on near Los Angeles. Firefighters are trying to control wildfires that have charred nearly 50,000 hectares. Officials say they won't be able to tame the so-called Station Fire until the weather changes. It's cooler now, but temperatures are still high. So it will be a few more days before any real progress can be made.

Libya has launched lavish nationwide celebrations to mark the 40th anniversary of the coup that brought Muammar Gaddafi to power. Parades, dancing, and fireworks highlight the festivities. The celebrations are designed to showcase Libya's acceptance from the world stage, but they come, as it is, at the center of a controversy, this time over the return of the Lockerbie bomber.

Iran's top nuclear negotiator says his country is ready to hold talks with world powers to ease fears over its nuclear activities. The official says Tehran has a revised package of proposals for Western countries to consider, but no details have been released.

Germany recently warned Iran that it has limited time to join international talks or face stiffer sanctions.

And those are the headlines, Richard. Back to you.

QUEST: We thank you for that, Fionnuala Sweeney, we'll be back with you shortly in about 15 or 20 minutes.

A weak economy, unemployment at painful levels, politicians don't normally choose to go into a general election in such a terrible economic scenario. Angela Merkel is facing her voters in Germany. We'll be in Berlin after the break.

Also, it was a year ago Lehman brothers collapsed, AIG nearly took the market into the abyss. And now we're having a September fall. Is this inevitable?

(COMMERCIAL BREAK)

QUEST: One sixty-one, sixty-two, looks a little bit weaker than usual. We are waiting to -- for President Obama, who will be speaking in the Rose Garden. The U.S. president is expected to talk about H1N1 and the effects of that on the economy and the measures that U.S. will be taking this winter.

When the president speaks, if it is of relevance to you in terms of our economic coverage, then we will bring it to you.

September has begun and the question is whether or not you've sold your shares. Now of course, I'm not saying you should, but if you work out the averages, this is the month shares have been more likely to fall than rise.

Is there a trend here that you need to buck? Stephen Pope is the chief global market strategist at Cantor Fitzgerald Europe.

Stephen, good to -- of you to come in. "Sell in May, go away" used to be the old saying.

STEPHEN POPE, CHIEF GLOBAL MARKET STRATEGIST, CANTOR FITZGERALD EUROPE: That's right. But now we're in September. And I think what you're finding is that people are looking at the historical patterns that show September is a month for selling.

The truth is, what you have is many funds use September as the fiscal year-end. And they can look back over the last year or two years and find those shares where they've made losses, get rid of those, and it can be balanced against profits they've made so they come out net tax advantage.

QUEST: You're suggesting -- you are suggesting -- we'll just pause for a moment, if we may, Stephen, forgive me. We will pause at the moment and go straight to the White House where President Obama is now walking to the podium. And the president is due to speak on H1N1 and the economy.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: . the output is the highest it has been in over two years. This means greater production of transportation equipment like cars, and electronic equipment like computers and appliances.

And it means these companies are starting to invest more and produce more. And it is a sign that we're on the path to economic recovery.

There's no doubt that we have a long way to go. And I and the other members of this administration will not let up until those Americans who are looking for jobs can find them. But this is another important sign that we're heading in the right direction, and that the steps we've taken to bring our economy back from the brink are working.

Now, we just had a good meeting about our ongoing efforts to prepare this country for the H1N1 flu virus this fall. And I want to thank John Brennan, our CDC director, Tom Frieden, and secretaries Sebelius, Napolitano, Duncan, and Locke for all the good work that they've been doing to get us ready today.

As I said when we saw the first cases of this virus back in the spring, I don't want anybody to be alarmed, but I do want everybody to be prepared. We know that we usually get a second, larger wave of these flu viruses in the fall, and so response plans have been put in place across all levels of government.

Our plans and decisions are based on the best scientific information available. And as the situation changes, we will continue to update the public.

And we're also making steady progress on developing a safe and effective H1N1 flu vaccine. And we expect a flu shot program will begin soon. This program will be completely voluntary, but it will be strongly recommended.

For all that we do in the federal government, however, every American has a role to play in responding to this virus. We need state and local governments on the front lines to make antiviral medications and vaccines available, and be ready to take whatever steps are necessary to support the health care system.

We need hospitals and health care providers to continue preparing for an increased patient load and to take steps to protect health care workers. We need families and businesses to ensure that they have plans in place if a family member, a child, or a co-worker contracts the flu and needs to stay home.

And most importantly, we need everyone to get informed about individual risk factors, and we need everyone to take the common-sense steps that we know can make a difference.

Stay home if you're sick. Wash your hands frequently. Cover your sneezes with your sleeve, not your hands. And take all the necessary precautions to stay healthy. I know it sounds simple, but it's important and it works.

And finally, for people who want to learn more about this virus, please go to www.flu.gov or talk to your doctor.

I want to commend every member of our team. I think we've done an extraordinary job.

QUEST: President Obama speaking at the Rose Garden on the H1N1 strategy session that he had just been hosting with members of his administration. The president specifically saying that a second wave of H1N1 swine flu incidents and cases is expected in the fall.

Stephen Pope, the chief global market strategist at Cantor Fitzgerald Europe. And, Stephen, before we talk about the market, let's just talk briefly on what the president said. If there was to be a repeat or an escalation of the pandemic at a time when countries' economies are just recovering in the fall, what happens?

POPE: In terms of a developed economy, it won't be that serious, because there will be some small setback, but you can see already from his remarks, in the U.S., Western Europe, great strides have been made so that provisions are available.

If this does have a second wave, there will be a supply to make people stay healthy, be able to keep working, and the economies will move on.

QUEST: So for economists like yourself, the fear factor that we might have seen in January or February of this year at the worst moment of the recession does not apply now.

POPE: No, because though we had data coming from less-developed countries and people in the developed world didn't know what they were dealing with. That's why there was some concern and worry. But it doesn't count now.

QUEST: Back to the market. September, you said you were talking about technical factors why a market might fall. What we're worried about is whether there is a fisher in the market. Is there a crack in the market?

POPE: No, because in the U.S. and in Western Europe, great strides have been made by the government stimulating the economy. Companies are now very lean. So anything they gain in terms of their revenue goes straight through to the bottom line.

There will be some setback in September, but from October onwards, people are moving out of the risk profile. They are going to take these markets higher into the year-end.

QUEST: That is -- I'm wary of pouring cold water on your bullish sentiment. You can't knock a rising market. It's happening, it's in front of our faces. But why then are people worried?

POPE: I think because you see the situation is they have missed the opportunity since March. There is a good opportunity to sell into some of the strength. And we don't just have to be actually selling the shares themselves. We can be using options on the share market as well.

And then I think people are making a chance that as the market comes down they can leverage those options and then they can get back into the cash market.

QUEST: As we look at European economies, France, Germany, out of recession. Parts of the -- the old Eastern European block are mired in recession and not turning round any time fast. The U.K. economy still giving numbers worse than expected.

POPE: Absolutely. I think you're seeing France and Germany have had one or two good statistics coming through. However, you look at the rest of the Eurozone, they are dragging that region down. U.K. today, it's PMI figure was a setback, below 50 once again.

So we are not moving forward, Eastern Europe we know is struggling, and that will drag certain banking sector areas in Sweden, Austria, to lower levels.

QUEST: And we're going to Germany in just a moment, before we talk to Fred Pleitgen on the political side of it, just tell me the economic side of it. Does Angela Merkel face an improving economy as she heads towards her elections?

POPE: I think she definitely -- she's in a little bit of a stall (ph), because very soon the who cash for cars deal is going to come to an end, and suddenly you're going to see the good numbers that sales have had in the last few months, will halt.

So the election can't come soon enough for her.

QUEST: Even though there were some encouraging unemployment numbers, or the things have slowed down a bit?

POPE: Yes. But it doesn't mean to say there's going to be improvement in the unemployment, because companies will not hire until they've really sweated the assets, because they've got so much excess capacity.

QUEST: Stephen, thank you for taking that last question. Many thanks, indeed.

Let's go straight away, though, to Berlin and to our correspondent, Fred Pleitgen. Just been hearing Stephen Pope talking about the economic scenario that Angela Merkel is going to face. Despite the unexpected boost just a few weeks before she faces reelection, the people out of work fell by just 1,000.

So, Fred, as she faces reelection, how is she going to put a brave face on it?

FREDERIK PLEITGEN, CNN INTERNATIONAL CORRESPONDENT: Well, that's a very good question, Richard. But I think one of the things that Stephen touched on is actually very interesting, is what happens when all of these government schemes run out that are actually keeping people employed right now.

The "Cash for Clunkers" thing is actually one thing, because German car sales have been doing very, very well over the past couple of months since that scheme was initiated. And that, of course, has kept car companies from actually firing people on a large scale in the past couple of months.

But, one of the things that the German government says has been a major factor in these very good employment numbers that we're seeing today, are these government-induced schemes, and the most important one of those is the short labor program that the German government has, which is currently keeping people -- keeping companies from laying people off because it is paying companies to keep them employed.

People are working shorter hours, companies are paying them less, the government, the taxpayer is picking up the tab.

Now those programs are going to run out at some point very, very soon as well. So Stephen is certainly absolutely right. This election can't come too soon for Angela Merkel because even the federal employment (AUDIO GAP) here in Germany says, Richard, that unemployment is going to continue to rise throughout the year, 2010.

And they believe the peak month will probably be January 2011. Then they think the job market will be out of the worst and will bounce back -- Richard.

QUEST: Yes, Fred, we've been talking "NY-Lon-Kong" over the last three weeks. Let's add in Berlin. "NY-Ber-Hong-Lon," whatever version of that. We could put "Fran" in as well for Frankfurt. But let's add in Germany. Is there a feeling of relative optimism that the worst is over, the ship is turning, there is light at the end of the tunnel, whichever cliche you want?

PLEITGEN: I think, you know, here in Germany, surprisingly, people were never that worried about the economic crisis as, for instance, I see people and you've seen people in places like London or Hong Kong.

Here the crisis really hasn't hit the job market that hard or as hard as people had been expecting. So certainly here I think that people were worried about it. They were thinking that something big was still going to come.

And if you look at the way the government has been talking to people, they've been saying, listen, right now we're seeing that the economy is out of recession, but we might not actually be through the worst of all of this because there are these government programs.

So certainly the people fear that this could also have a major impact on the job market in this country. A lot of them they'll have taken the recession a whole lot easier than I would have thought.

I mean, if we would look at the recession that Germany faced, or the tough times Germany faced in the year 2002, 2003, 2004, sentiment here in Germany I felt was much worse than it is now.

People were going on the streets. There were protests because of the high unemployment numbers, none of that going on right now. So people are certainly taking all of this, it seems, a lot easier than they were in the past. But a lot of people are warning this could still get a lot worse than people think -- Richard.

QUEST: Fred Pleitgen, who is in Berlin, Fred, many thanks, indeed, for that.

Now when we come back in just a moment, think of these buildings behind me, think of them as like the fins of sharks swimming with the sharks ain't easy. When we come back, Adrian Finighan braves the waters of London's financial districts. It's part two of our weeklong series "Rookie Trader," will he sink or swim.

(COMMERCIAL BREAK)

QUEST: That, of course, is Canary Wharf and over towards Docklands, just behind me all this week on the program.

One of the most recognizable skylines in the world, it's London's financial district, the City of London. One big player seems to be getting one heck of a deal. I have a map here, which I'm not quite sure I can actually show you where the building (INAUDIBLE).

But the Financial Times is reporting that the Japanese brokerage Nomura will not pay any rent for almost six years, yes, six years on its U.K. headquarters. It's a new building back there in the square mile.

I'm over here. By my reckoning it's somewhere over there. But unfortunately I think we're blocked off. Experts say the move shows how much has changed in the City of London's real estate market in the past few years, something tells me I won't be getting six years' free mortgage on my apartment.

Good deals like that not necessarily easy to come by. It takes a strong nerve to get by. Adrian Finighan has been finding out for us this week. He has been going back to school. He is learning how to become a trader, in his case, "Rookie Trader."

In part two, hard choices that the traders make.

(BEGIN VIDEOTAPE)

ADRIAN FINIGHAN, CNN INTERNATIONAL CORRESPONDENT (voice-over): Traders, characters molded by the sharp end of the world's financial markets. Wheeler-dealers consumed by the ebb and flow of money. Buy, sell, and turn a profit any which way you can.

DAVID BUIK, BGC PARTNERS: If money is not one of your goals, you're wasting time in this environment.

FINIGHAN: I'm on a crash course with the experts in the City of London.

UNIDENTIFIED MALE: You need to preserve your capital.

FINIGHAN: An apprenticeship so I can trade online, anytime, anywhere. This is my journey as a "Rookie Trader."

Off to work in London's financial heartland. Three companies are at my disposal, willing to share their wealth of experience. I must understand the mechanics of trading, but also the mindset.

(on camera): Is it gambling?

BUIK: Yes, it's a bet. Let's not try and dress it up as something that it isn't. It is a straightforward bet. It's your hunch and pitting your wits against the marketplace. And there is a huge element of risk.

RYAN O'DOHERTY, MARKET STRATEGIST, CMC MARKETS: You see the right click on that instrument, and it says "close out the position."

FINIGHAN: Right.

(voice-over): (AUDIO GAP) the classroom are getting to grips with the online software, my gateway to trading heaven or hell.

IG Index: spread betting, in the volatile world of currencies.

DAVID JONES, CHIEF MARKET STRATEGIST, IG INDEX: So with us, on the pound against the dollar, you can trade as low as 50p a point.

FINIGHAN: Around the corner, Ryan at CMC Markets is filling my head with the workings of CFDs, contracts for difference.

O'DOHERTY: Trade all of these types of insurance. And the big element of CFD trading is that you can trade on margin. So you can just put in a small amount of your own capital to take out a much larger position.

FINIGHAN: CFDs and spread betting are pretty similar instruments, they allow you to take positions in the markets without actually paying up front for the underlying assets or shares.

O'DOHERTY: If we were looking at Vodafone, for example, a 300 pound deposit, our margin requirement would give you access to a 10,000 pound position in the underlying security.

Instead, you bet on the direction in which you think shares will move. So you buy or go long if you think the price will rise. But you sell or go short if you think the price will drop. The amount it moves in either direction dictates how much you win or lose.

(on camera): I suppose if we thought that the pound was going to go down against the dollar, then we could -- we would press on "sell."

JONES: That's exactly it. You would short sell. And as we know, short selling has got an enormous amount of press over the last year. The beauty of products such as this, you can trade markets in both directions.

So whatever your view on the market, you can position yourself to try and profit whether you're bullish or bearish on that market.

FINIGHAN: All right. So today is all about the principle. And I think I'm getting the jargon, longs, the shorts, margin, and everyone here is making me feel so confident, but I've got these eight booklets to get through full of information. It's such a minefield.

How am I going to have the confidence to trade on my own?

(voice-over): When you learn to trade online, fixating on a computer screen, it's easy to lose sight of what trading was set up to do. It's about the buying and selling of real products in the real world.

The London Metal Exchange is a global trading center for the likes of aluminum, copper, and zinc. Traders have been yelling across these floors since 1877. A gesture here, a shout there, money and metals move around the world.

It's nearly 5:00 p.m. and the markets are about to close. Time to ramp up the noise and strike a last minute deal.

(on camera): You know, there are a lot of teachers (ph) about what it's like to be a trader. Looking at this lot down here, it's easy to see where those perceptions come from. It's your stereotypical boiling cauldron. It looks so stressful down there.

(voice-over): This is now the last open outcry (AUDIO GAP) pit in Europe, not a place for the faint-hearted.

Mercifully, I'll never have to compete in this, but in my own modest way, I'm trying the same thing as the high rollers at the big multinationals. So it helps to understand the nature of the competition.

BUIK: If money is not one of your goals, you're wasting time in this environment. And also the driving tenacity to want to actually better your own personal lot in life, because you know that you're probably washed up at the age of 40, the chips are (INAUDIBLE). You get your opportunity, but this is the most unforgiving business and the moment you stop producing, you're out the door.

FINIGHAN: Wherever and however you trade, the markets can ruthlessly punish poor judgment and lack of experience.

O'DOHERTY: We don't want you to trade with your own money just yet. We'll give you.

FINIGHAN: So far, I've been sheltered from the prospect of losing my own money. I'm paper-trading, simulated transactions using a dummy account.

O'DOHERTY: One of the mistakes traders make when they have a dummy account is to take much larger positions than they normally would. I want you to trade it just like you would with your own funds.

FINIGHAN (on camera): I've taken in a lot today. I think I've got the jargon, I think I've got the trading platform. What I don't know yet though is whether I've got what it takes to be a trader, whether I could smell a deal.

Either way, I've got a lot of homework to do. I'll see you tomorrow.

(END VIDEOTAPE)

QUEST: Adrian Finighan with his "Rookie Trader." More from him tomorrow.

When we come back after the break, the eBay chief executive, John Donahoe, joins us to talk about why he's selling such a large stake in Skype, in a moment.

(COMMERCIAL BREAK)

QUEST: Welcome back.

Good evening.

I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN.

We've been reporting eBay is to sell a majority stake or a main stake in the Internet phone and video service, Skype.

We need to get the details from the eBay chief executive, John Donahoe.

And Mr. Donahoe joins me now.

The fundamental question I've been dying to ask you is since Skype has become the generic accepted VoIP used by consumers, why do you want to get rid of something that has become so popular?

JOHN DONAHOE, CEO, EBAY: Well, Richard, Skype is a -- is a great business, a phenomenal, phenomenal business. However, it's one that doesn't have a lot of synergies with eBay's other two core businesses, the eBay Marketplace and PayPal.

And I'm just a firm believer in focus, that all three of our businesses compete in the Internet, which moves very rapidly. And given that Skype doesn't have a lot of synergy, I believe that Skype was best positioned as an independent company -- an independent entity. And this deal achieves that.

QUEST: You see, that's fascinating -- that's fascinating because that, of course, is a diametrically opposed view to the original decision to buy Skype by your predecessor. And I'm wondering whether this really comes down to the old-fashioned view of conglomerates versus tightly focused companies.

DONAHOE: Well, I -- I'm a firm believer in -- at least in the Internet space, which is still in its early days -- that tightly focused companies are going to be more successful. And we're blessed with two very tightly focused companies that still have some synergy with eBay and PayPal. (AUDIO GAP) And it allows us to -- to eat our cake and have it, too, where we've got the strategic focus on our core, but still share in the financial upside in -- in Skype over time.

QUEST: Because that's the one thing I noticed about this deal that I thought was particularly interesting, you really have kept your foot in the door with quite a large stake, just in case it all proves to be rather beneficial in the long run.

DONAHOE: Absolutely. We're -- you know, this is great because we achieve a strong valuation for the 65 percent. I mean, $2.75 billion, in today's market, is a strong valuation. It's certainly well above what -- what almost anyone estimated. And then, by retaining a stake, we -- we are allowed to share in what we think is going to be tremendous long-term value creation.

QUEST: But...

DONAHOE: It's got...

QUEST: What will you do with the money?

How are you going to spend it?

Do you -- because if you -- if you're not going to, if you like, for extraneous bits of different companies to add on, what development can you do for eBay and PayPal with that sort of cash?

More acquisitions?

DONAHOE: Well, we -- we've got a long history, I think, Richard, of being very disciplined with our cash. And this will give us $1.9 billion of additional cash in -- outside the U.S. which will bring our cash position to well over $3 billion. And -- and we -- we're not afraid to make selective acquisitions. We've made two billion dollar acquisitions in the last eight months. First we bought Filmulator, which is an adjacent business to our incredibly strong PayPal franchise. And then, three months ago, we bought Gmarket, which is the leading e-commerce business in Korea, which, combined with eBay Korea, gives us a -- a very strong platform in Asia.

QUEST: Right.

DONAHOE: So -- so our focus is strengthening our company. And if we see an acquisition that's valued attractively, we'll pursue it. If not, we'll find other ways to utilize that capital effectively for our shareholders.

QUEST: And, finally, as you look around the world and the eBay world, where do you now see the best growth market, even as a young company, fairly mature now within the United States?

So where are you going to get the best growth, which parts of the world?

DONAHOE: Well, Richard, the thing to keep in mind is that e-commerce is still in its early days. E-commerce today only represents roughly 5 percent of offline retail. And if you think about it, e-commerce should, over time, I believe, represent 15 to 20 percent of offline retail.

You may -- you may research online or buy it offline, you may buy -- you may research offline and buy it online. Those lines will blur, but the underlying market in which eBay and PayPal participate, I believe, will have strong growth characteristics over the next five to 10 years, both in large established markets like the U.K. or -- or the U.S. or Germany -- and in new and emerging markets throughout Asia and -- and South and Latin America and -- and others.

QUEST: John, many thanks, indeed, for coming and giving us the time today. It's -- I know from people who are our viewers who use Skype and who use your products, as well, this is something they'll be fascinated by.

John, you're always welcome on the program.

Many thanks, indeed, for joining us.

DONAHOE: Thank you, Richard.

Happy to be here.

QUEST: John Donahoe joining us from the U.S. with that.

Now, the markets are down very sharply. The issue is whether or not eBay and Skype have sort of given it a bit of a boost that might otherwise have been non-existent -- Stephanie Elam we're calling out to, at the New York Stock Exchange.

STEPHANIE ELAM, CNN CORRESPONDENT: Richard, I can tell you, quickly, that the answer would be no, considering eBay is on the down side now by about 2 1/4 percent. So not having much of an affect.

And, you know, on top of that, we got some good economic data today. And that did not factor in, either. We saw a bit of a pop for a minute or so -- longer than a minute, for a short time -- and then the markets actually sold off more aggressively than before that.

And that good economic news comes in the form of the Institute for Supply Management taking a look at the U.S. manufacturing sector and saying that it expanded in August for the first time in 18 months. The good news there.

Then, also, good news coming from the housing sector. We've got pending home sales. And they were on the up side for the sixth month in a row in July, to their highest level in more than two years.

So that -- those are the -- those little key pieces of economic data showing us that things look better, showing that the economy may be getting better, especially in the housing sector, where all of this madness first began.

But all of that not really playing a part right now, the Dow off 162 points, up about 1 3/4 percent.

The NASDAQ off 1 1/2 percent. More than that not right now.

And the S&P 500 off about 1 3/4 percent -- Richard.

QUEST: Stephanie Elam at the New York Stock Exchange.

We thank you for that.

And the news headlines now.

Fionnuala Sweeney at the CNN News Desk.

FIONNUALA SWEENEY, CNN CORRESPONDENT: Richard, more fighting in Pakistan, where government forces have reportedly killed some 43 insurgents and captured dozens of others, including two top rebel commanders. The latest fighting took place in the strategic Khyber Agency in Northwestern Pakistan.

Thousands gathered in Taiwan to hear the Dalai Lama lead prayer for victims of Typhoon Morakot. China has canceled some official visits to Taiwan to protest the Tibetan spiritual leader's visit to the island.

Authorities are urging residents along the Pacific Coast to take precautions, as Hurricane Jimena roars toward Mexico's Baja Peninsula. The category four storm is expected to strike later Tuesday. Officials are hurrying to set up shelter, while grocery stores are seeing long lines as people buy

(AUDIO GAP)

Amazing images now of the latest stunt by French self-proclaimed Spiderman. Alain Robert sneaked past security (AUDIO GAP) Malaysian landmark. (AUDIO GAP) Tower Two of the Petronas Building. It was his third attempt at scaling the 452 meter high tower after twice being stopped by (AUDIO GAP) reaching such giddy heights, he was quickly brought back to Earth. (AUDIO GAP). He was arrested for trespassing and faces up to six months in jail or a fine.

And those are the headlines -- Richard, back to you.

QUEST: Fionnuala Sweeney at the CNN News Desk with some particularly extraordinary pictures.

We'll be talking about English football's transfer window in just a moment.

This is QUEST MEANS BUSINESS, tonight coming to you from the City of London, where the evening is drawing to an end. People are going home tonight. The day is over.

(COMMERCIAL BREAK)

QUEST: Welcome back.

If you're praying for your favorite football team to make a mega star signing in time for the new season, well, it's too late now. The deadline for English clubs to buy and sell players passed just a few hours ago. Even amidst the recession, big sums changed hands. The consultant Deloitte estimates English premium league clubs spent $720 million since the end of last season. And there was plenty of money spent outside the U.K. or England.

The Spanish club, Real Madrid, of course, $130 million for Ronaldo back in July of this year. That was a world record. Ronaldo reportedly became the world's highest paid player, as well.

Real Madrid also paid big dollars for Atlam Packer (ph). They paid the Italian club around $100 million for the Brazilian striker.

And who paid what and was it all worth it?

Let's go -- and we're joined by Alex Thomas here in London -- Alex, the big ones are obvious.

What about the rest?

ALEX THOMAS, CNN CORRESPONDENT: Well, I think the overall picture is really interesting, Richard, because the English Premier League, the richest football league for clubs in the world, has again been the biggest spenders -- as you said, $720 million, roughly, according to Deloitte's figures. And that is 10 percent down on last season, and, significantly, the first time it's dropped -- or hasn't risen again, I should say -- after six seasons of significant writers mainly fueled by TV (INAUDIBLE).

So England, again, the big spenders. But individual clubs, that's interesting (INAUDIBLE) we heard about the -- the big spenders they were. In England, it was Manchester City making up nearly 30 percent of the entire spending.

QUEST: So those big -- like the blockbuster deals, are they the important ones or is it the vast rump of a smaller number of -- of players going between clubs that are strategically more important?

THOMAS: Well, it's been a freakish summer in European football, for a start. There's Florentino Perez, the Real Madrid owner, thinks he should spent absolute mega bucks, but everyone thinks it's insanity, because he'll get that back in terms of marketing and merchandising and just so many people want to watch (INAUDIBLE) play.

QUEST: If we learned anything from the Chelsea and Abramovich experiment with a similar sort of policy -- spend as much as you possibly can to -- I mean the punters love it.

But do the results demonstrate that it was worth doing it?

THOMAS: At the end of the day, you have to get results in the pitch. And Perez is (INAUDIBLE) second (INAUDIBLE). You had the Galactagos (ph) era before and it failed, Richard. People think that he's coming back with a similar philosophy, but a bit of a tweak -- this time, being successful, get trophies, as well, and then it should work.

QUEST: Let's talk about the people like Beckham and the stars of -- I hesitate to say the stars of yesteryear, because, at the end of the day, he can still pack a stadium.

THOMAS: Well, Beckham was part of that Galactagos era the first time around for (INAUDIBLE)...

QUEST: Absolutely.

THOMAS: But when he joined, that's when it wasn't quite so successful. But this time around, they're confident they can be.

QUEST: Do you think this transfer window idea is an anachronism?

What purpose does it serve?

It's like me saying you can only buy stocks and shares over there for three weeks in September and a week in January.

THOMAS: Well, it's a really good point, Richard, because football is business now, the same as any other (INAUDIBLE)...

QUEST: But why do they do it like that, then?

THOMAS: Well, it's UEFA's rules. They're the European football governing body. They want to stop people worrying about who's going where during the season...

QUEST: Oh.

THOMAS: ...and get them to worry about the action on the pitch, you see.

QUEST: They're carting themselves around for the rest of the time. Admit it.

THOMAS: Well, it inflates the market at the wrong time, as far as clubs are concerned. People -- most people watch with 24 hours to go are desperately trying to settle their scores. And so it does create a slightly unrealistic market just for those brief periods.

QUEST: You have a birthday today.

THOMAS: It is my birthday.

QUEST: I won't say how old you are.

THOMAS: Are you going to sing me "Happy Birthday?"

QUEST: I'm working...

(CROSSTALK)

QUEST: ...but I -- I assure you, the boss (INAUDIBLE) for one of us and probably tonight it will be me if I start singing.

Happy birthday.

THOMAS: Thank you very much.

QUEST: Many thanks, indeed.

We could always have a sweepstake, couldn't we, if there's a transfer window -- how old to you think Alex Thomas is?

No, that would be unfair.

The weather forecast -- Guillermo at the CNN World Weather Center -- I have to say, Guillermo, the wind is getting up and I'm a little bit concerned.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Well, you are -- you are right. And it's coming away, though I was checking the London City Airport. We had rain in 1:00 p.m. Your time, slight rain. And then it -- it was dry. It remains dry. There was a wind change first to the -- there were (INAUDIBLE) winds from the southwest, now from the southeast. And we are seeing those rain bands going your way.

But you had a wonderful evening, no doubt about it. More coming up on that.

Let me tell you what's going on with Jimena. This hurricane -- this major hurricane that is getting our attention, very close to the Baja, California peninsula there in Mexico.

Well, of course, you know, the question is when is it going to make landfall and where?

And that's where we have to actually update it regularly, because the National Hurricane Center is updating and changing the forecast path a little bit.

In any case, it's going to be a major hurricane that -- getting very close here to these islands, Islamig Valena (ph) and the worst part of the storm is going to be there. So throughout the night, we'll keep our viewers updated.

Let's go back to Britain and to the bad weather. I was looking at the long-term forecast and tomorrow we see heavy rain. So I wouldn't think that you're going to be able to be there outside, unless you get a little bit of a lull. And that would be fantastic and we hope so.

But then Thursday appears to be a little bit better, when the system goes by and temperatures go down a little bit. But you have had wonderful weather. I'm happy to see that. You see here in Britain, we see the new band that is coming away.

Apart from that, the rain that I see is associated with this front here in Germany, into France and the Switzerland area and down into the Pyrenees. And that's about it.

So I hope it cooperates very soon.

We'll see you on the other side of the break.

Stay with CNN.

(COMMERCIAL BREAK)

QUEST: There's something quite majestic, actually, about a city as it slowly winds down after a long business day. Think about it -- you've checked your baggage, you probably have to pay for food. You've paid more to sit on the plane. You have fewer flights to choose from. We all like to think we're doing our bit for the aviation industry.

But what are the airlines doing to take care of us as they grapple with the global recession?

(BEGIN VIDEOTAPE)

QUEST (voice-over): How can airlines attract more flyers, while economies plunge and fuel prices rocket?

It's a problem that causes as much head scratching in Hong Kong as it does in London and New York. Cathay Pacific's Tony Tyler believes that one thing you can't do is cut customer comfort.

TONY TYLER, CEO, CATHAY PACIFIC: Well, I don't like to talk about cost cutting, because that sounds a negative thing and what I like to talk about -- maybe it's a euphemism -- but cost management. What we've done is all the obvious, sensible things. So we've cut back on systems and (INAUDIBLE) internal (INAUDIBLE).

We've also suspended some routes that were unprofitable. What we haven't done, though, is reduce what we're spending on our customers. And, as a result, I think, we're able to sell.

QUEST: Selling seats they may be, but not enough to stay in profit. According to AARTA (ph), the aviation industry is headed for a $9 billion loss this year. The battle to fill premium seats could signal the end of luxury travel.

TYLER: For a while, possibly, you know, the ship could have gone done. It hasn't done that. The problem is what if -- and this is where (INAUDIBLE) to break this done -- what if things don't really recover?

Then -- then we have to work out how do we maintain a profitable, successful business in a new revenue and (INAUDIBLE) environment.

QUEST: Airlines' profitability is dependent on premium class travel. British Airways gets more than 40 percent of its revenue from this section of the plane. But as corporate travel budgets are slashed, B.A. is encouraging face to face meeting, offering U.S. businessmen 1,000 free international flights.

SIMON TALLING-SMITH, EXECUTIVE VICE PRESIDENT AMERICAN, BRITISH AIRWAYS: It is critical that all airlines get travelers at the front. And that's a really challenging time right now. We did some work, actually, recently with the "Harvard Business Review." And they surveyed a bunch of their top leaders. Ninety-five percent of them said if you're going to forge a business relationship, you must be there. You've got to meet people. You don't seal the deal if you're not pleasant. So that's what we've focused on.

QUEST: Even low cost carriers aren't immune. The trend toward downgrade has now started the market. They're having to innovate in order to survive. The U.S. budget airline, JetBlue, now partly owned by Lufthansa, is offering a $599 pass. It allows you unlimited internal travel for a month.

ROBERT MARUSTER, CEO, JETBLUE: Because we're not the higher priced carrier, we're not going to gouge you with a $1,200 fare from New York to Los Angeles. Our highest fare is $599. In fact, you can go as many times as you want in September and October.

From a JetBlue standpoint, what we're really looking at is a lot of people on JetBlue that have never been on our airplanes before and we look at that as a great opportunity to get people to try us, try us a few times, try us as many times as you like. And hopefully, we'll earn their business over the long haul, as well.

UNIDENTIFIED MALE: Good-bye. Thank you (INAUDIBLE).

UNIDENTIFIED MALE: Bye, now.

QUEST: The JetBlue passes sold out two days before the sale ended. Whether or not they've enhanced the airline's fortunes remains to be seen. The tale of the balance sheet is that special deals can only be sustained for short periods. Sooner or later, the real deal tries to kick in.

(END VIDEO TAPE)

QUEST: And you can see more on CNN's "BUSINESS TRAVELER," Wednesday, 6:30 -- U.K. time, 7:30 Central European time, here in London -- an hour later. That's right here on CNN.

Finally tonight, from the skyline, do come into the garden, Maude (ph). There is a report that says we are not wearing pinstripes these days because we don't want to look like bankers. Pinstripes, apparently, are out. We don't want to look like those who work in the financial industry.

How different it is from the days of greed is good, when everyone wanted to look the part, when pinstripes were the uniform of success and we all dressed with fancy cufflinks and bright ties.

The old saying used to be never wear brown in town, because brown was only ever worn in the countryside -- a reference to the fact that brown suits are very out when it comes down to doing business.

Apparently now, though, brown is in when you're at work. Just remember to wear brown shoes at the same time.

Unfortunately, I have got more than my fair share of blue and grey pinstripe suits in my wardrobe. They look good on television. I think you'll have to agree. They are still a sign of business attire.

I've been through many fashion fads, as I'm sure you have, too. We've seen turnips (ph) go up and then they've gone down. We've added buttons here and then we've taken them away.

Well, guess what?

I've got lots of grey pinstripe suits and I ain't buying anymore just for a bit of fashion.

And that's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in the city.

As always, wherever and whatever you're up to in the hours ahead, I hope it's profitable.

I'll see you tomorrow.

END

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