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QUEST MEANS BUSINESS

Microsoft Buys Skype for $8.5 Billion; Does Greece Need Another Bailout?

Aired May 10, 2011 - 14:00:00   ET

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


MAX FOSTER, HOST, QUEST MEANS BUSINESS: A big call by Microsoft, will buying Skype put its competition on hold?

Google has plans of its own. The sound of the cloud is music to the search giant's ears.

And deja vu all over again. European leaders argue if Greece needs another bailout.

I'm Max Foster in for Richard Quest. I mean business.

The world's largest software maker snapped up the world's largest Internet telephone company. Microsoft announced today it has agreed to buy Skype for $8.5 billion. That, again, includes the Skype debt that Microsoft will also take on.

Now Skype is Microsoft's biggest acquisition ever, but it is hardly a cash cow. Skype's main use is to (AUDIO GAP) calls and video conferencing with other Skype users. You can also use it to make cheap calls to real numbers. It reported a net loss of nearly $7 billion for 2010. Microsoft, on the other hand made nearly $19 billion in its last financial year in profit. Now much of that was in sales of its Windows operating system, Xbox games console and Office software.

CNN's Maggie Lake joins us now live from New York.

On the face of it, it doesn't really make (AUDIO GAP), Maggie, but there is more to it than that, right?

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Absolutely, Max.

And you say it doesn't make financial sense, but Microsoft certainly not touting that today. In fact, a lot of people when they are talking about the price tag, wondering if they would address it. They didn't defend or apologize how much they had paid for it, which depending on who you talk to, it was a massive, massive premium.

Listen, Microsoft needed to do this deal and it needed to keep others away from the deal by paying such a high premium it basically neutralized any possibility of arch-rival Google making a bid for this. But they held a presser today and the CEOs of both companies talked about how they could each other's strengths to really leverage their business and get more people using Skype from more place. Have a listen.

(BEGIN VIDEO CLIP)

STEVE BALLMER, CEO, MICROSOFT: People do have one life and the ability to call somebody from-or communicate with somebody, participate in a meeting with people who work in your business and who don't work in your business. Who are in your PTA, and who you haven't met before. We want to stitch together the world. And we have big customer bases that we can connect in a way that will add value to I think all members of the community.

(END VIDEO CLIP)

LAKE: So, Microsoft, with its mountain of cash is hoping to buy itself some cool factor. It could be its last chance to get its business going in these growth areas of mobility and search. Remember, that is where the action is. They still make their money off of software on PC operating systems. But interestingly for Skype, the CEO there, also sort of giving a hint at what is in it for them. While they dominate on video chat on PCs, they really see this relationship with Microsoft is a way to leverage that onto more phones and into living rooms through Xbox. So, certainly both CEOs putting, you know, a happy face on this deal, saying it is the best one they could get, but boy it is certainly at a premium. And Microsoft shares, Max, reflecting that a little bit today. They are down about .025 percent. Not that much but they are negative.

FOSTER: OK, Maggie, thank you very much indeed for that. Well, Shelly Palmer is a tech expert and host of "Digital Life with Shelly Palmer". I asked him if $8.5 billion is the right price for the right buyer?

(BEGIN VIDEOTAPE)

SHELLY PALMER, HOST, DIGITAL LIFE WITH SHELLY PALMER: When you talk about what a company's value is, it is worth what anyone will pay on a given day. Today, Microsoft though $8.5 billion was the value of Skype, so that is the value. Whether that is overpriced or underpriced, that is the value that Microsoft placed on it and they were willing to make the purchase.

You could argue that when Rupert Murdoch bought football, American football licenses, back in the day, for FOX, he overpaid. Did he? I don't know. FOX was driven by football for the longest time and maybe still is. So, what is it worth to Microsoft? Apparently the answer is $8.5 billion. And really nothing else matters.

FOSTER: To Microsoft it is worth a lot of money because of what it has already got in that internet space, right?

PALMER: That is exactly right. Look, Skype is a strategic buy for Microsoft. They have kind of been left behind. Their messenger service isn't that great. Google has GoogleTalk, Apple has FaceTime. Microsoft has made a big acquisition today but it is also on the heels of writing a gigantic check to Nokia to try and shore up their Windows Mobile 7 phone system, which they really need to shore up. And look, they are going to try and put Skype in all those devices. People would have downloaded it anyway. In a data driven future, where the data really matters, Microsoft is beautifully positioned now to use that customer data to enhance and increase the value of Microsoft. I think it is a good strategic purchase.

FOSTER: How good is that data, though? Because we know that they have something like 600 million users, haven't they, Skype? But I think only one in six are active users. So how powerful is it for Microsoft?

PALMER: I mean, look, that is a very good question. But you have to remember that there will be more people connected via broadband tomorrow than there are today. There are going to be more people with smart phones tomorrow than there are today. The business is trending forward and upward, not backward. So whatever the value of that data is, Microsoft bought a very large customer base of people who already know how to video chat, who already like to do that and have exhibited a behavior that says I like to video chat. And I think they will be able to monetize that over time. Oddly enough, in a way that Skype could not. And of course, the big winner today, is the VC firm, and eBay, who obviously made a nice bit of change, for $8.5 billion, yes?

FOSTER: Yes, absolutely. Just for Skype users, a lot of them love the service, don't they? It was-they feel like it is a friend in many ways. They may be concerned at this point that Microsoft may damage their servers, their service for them. But do you think that is true? I mean, Microsoft has said that this is going to be in its own unit.

PALMER: You know what? Look, Microsoft is a bureaucracy that more resembles a government than a company. They are gigantic. My suspicion is they are not going to mess with Skype. Why would you buy something like this and then kill it or hurt it? I think Skype's value is that it is free and that it works, and that people like it. I have a Skype account. I am addicted to it. I've been addicted to it from the first. All of my friends on Skype know my Skype address. None of that is going to change. Microsoft will incorporate that into their global registration. They'll start to learn from the data. They will build a bigger, better business for themselves, based on this acquisition. All in all, I think this makes a lot of sense.

(END VIDEOTAPE)

FOSTER: Well, Microsoft has its fingers in lots of pies. This means that it has plenty of products that can integrate with Skype. There is the Xbox gaming console, for example. It's new mobile phone software, Windows Phone. Microsoft also has its own instant messaging clients. Now experts say Skype could give Microsoft a boost in the consumer and the professional markets because we have Skyped video conferencing capability directly into Microsoft Office software for example. Then there is Link, Microsoft's corporate, targeted voice/video call and messaging software. It is not well known at the moment, but Skype's visibility and user base of 663 million could change all of that.

Now, this is just one in a long line of acquisitions for Microsoft, and Google. Some more successful than others. Let's compare those. First of all, Microsoft has acquired a Hotmail. Now, Hotmail is one of the first services for free web-based e-mail. Many people use it. Many people rely on it. PrimeSense, here is another one, 3D sensing technology for Kinect, which works with Xbox. That is seen as a large success in many ways. And there is Bungie Software, that was repurposed, repurposed, the popular Halo game. That was for Xbox. And then MultiMap, which many people knew in the early days of the Internet. That became Microsoft Maps, then Bing Maps. And that has been used quite widely.

If we take a look at Google. Here are a few of its acquisitions. And you will recognize many of them. Android, that is very much taking the fall right now. Not much was made of the acquisition of the mobile operating system upon acquiring, but we hear a lot about it these days, don't we? Picassa, $4.7 million, it is an image organizer, a viewer and an editor. That has been seen as quite a success. YouTube doesn't really need explaining, $1.65 billion in stock. Seems like a bit of a bargain now. And then there is Grand Central, as well, services. Those services will really-uh, they became Google Voice, but they will be competing with this new Microsoft Skype venture.

Here is what consumers are telling us. At Facebook.com/CNNQuest about all of this.

Filipe in Lisbon, in Portugal says, "I think they have two very different DNAs. And when that happens, we all know the outcome."

Tatenda in South Africa says, "They won't tamper with the Skype formula. Don't fix something that's not broken. We could see Skype piggy- backing off Microsoft's huge marketing budget though."

And Maria, a South African, living in Greece, says, "Hope it does not change Skype. The Hotmail chat was terrible and so what their Hotmail email."

Now another major deal could be in the cards in Europe. At least reports of more help for Greece. They are helping to cheer up traders' day. In Greece, they say it is not true. We'll sort through the speculation for you, with John, in just a moment.

(COMMERCIAL BREAK)

FOSTER: Worries about the future of the Euro Zone are easing tonight. It is all because of a report that says there is another bailout on the way to Greece. Greece says the report from Dow Jones isn't true. But traders are still making the most of the more positive signs today.

Now, the report says this: Greece is to get another $86 billion. That is to solve a potential shortfall in borrowing, particularly for next year, and 2013. Greek borrowing costs edged lower today. The yield on 10- year bonds is still about 15 percent. But it is falling and Greece raised $2.3 billion on six month T-bills, a 4.9 percent today.

Now, Greek borrowing, so far, well, they have received 53 billion euros, that is $76 billion. A total aid package awarded last May is worth 110 billion euros, that is $158 billion. Now the next tranche, 12 billion euros, $17 billion, is on the way. But it depends on the outcome of EU and IMF scrutiny. They've got teams there, in Athens. And that is all going on at the moment.

And the European markets, they were in a pretty positive mood, as you can see. Up more than 1 percent on many of the main markets. Banks, minors, they all gained, ground. And that reversed many of the losses that we saw on Monday. And without help, Greece could decide to try to restructure its debts. An option that one European central banker calls political suicide. Lorenzo Smaghi said it would bring the Greek banking system to its knees with terrible implications for the rest of the Euro Zone. But simply throwing more cash at Greece is not popular either, especially not with the Germans. John Defterios is with me now.

And, John, first of all, I just want to ask you about this bond auction today. It went particularly well, which doesn't seem to make much sense to me.

JOHN DEFTERIOS, CNN FINANCIAL CORRESPONDENT: Yes, well, you are not alone. There are so many crosscurrents in the market right now it is hard to find out where this EU boat is sailing right now. It is staying on course or not? It really depends on the day, which shows you the lack of certainty going forward. There was plenty of demand, in fact, the Greek finance ministry said a third of that demand came from international banks. So that is a positive sign. But we do have to take a step back. You had on one of your screens there, the interest rate on the 10-year bond is at 15.4 percent. This is double the rate in Spain and triple what, of course, that the Germans are paying right now. So the Greeks are not out of the woods just yet.

This all started, number one, with "Cathra Meni" (ph), which is a local newspaper in Greece. They didn't have confirmed sources on it but it was followed up by that Dow Jones report that you were talking about, that perhaps is another 60 billion euros in the works here.

The prevailing view, going back to your point, here is that the European Union doesn't want to see Greek debt just drifting away. They don't want to see them drifting away, because this is the first big experiment, which was a year old. So they don't want to see this fail. And I think it is also a case that we have this big meeting next week. So, everybody is trying to position themselves ahead of May 16 and 17, with an EcoFin (ph) meeting in Brussels.

So, they are trying to keep this all kind of sewn together, but it is not an easy path ahead. Its it restructuring, or another 60 billion euros of cash injection. I think they are trying to play a game to get through it.

FOSTER: Looking forward to that meeting, Germany obviously holds the purse strings when we talk about the Euro Zone to a large extent. So what are they making of all of this, because they are going to be deciders?

DEFTERIOS: Well, we heard what Angela Merkel thinks about it, the German chancellor, today. She met with other party members of the Christian Democrats. And this is very telling because all of a sudden we saw a shift in tone from some of the members of her party, but secondarily from her. If she briefed foreign journalist after that meeting. Let's take a look at the quote. She says, "I am the kind of person that draws conclusions when I've seen results and analyzed them." She went on to say, nothing is going to change that view that I have right now.

So you read between the lines, Max, here. The meeting is next week. She doesn't want to make a decision on Greece just yet. We have Portugal and Ireland to tackle, of course. What she is saying is that we can wait until June, after we see the progress with this audit that is taking place with the IMF and the European Central Bank. Then make a decision what we do with Greece. It is very important to keep in mind that German and French banks are tied up into Greek debt worth $100 million.

FOSTER: Yes.

DEFTERIOS: Maybe sort of restructuring means that those banks have to take a hit.

FOSTER: OK, John, thank you very much. We'll leave it there. Thank you very much for that. We're going to watch this very closely, particularly next week.

DEFTERIOS: Yes.

FOSTER: Now Ken Wattret is chief Euro Zone economist at the BNP Paribas and I asked him what the key issues are now, for him, when he thinks of Greece?

(BEGIN VIDEOTAPE)

KEN WATTRET, CHIEF EURO ZONE ECONOMIST, BNP PARIBAS: Well, there are two key issues. The first issue is the progress Greek makes on bringing down its budget deficit and trying to deliver a more sustainable fiscal policy over the longer run. The second issue, which I think is the priority for markets right now, is the funding gap for Greece in 2012. It was assumed in the original plan agreed last year that by this time the level of interest rates on Greek sovereign debt would have been sufficiently low as to allow the Greek government to fund itself, in the primary market. However, it now looks as if that is not going to be possible. And so, Greece needs additional financial assistance. And there are various ways of doing that, but as of yet it is unclear at government level in the euro area as to which way we will go. Until that situation is more clear in the market's mind we're going to continue to see this uncertainty and nervousness about the other path going to be taken.

FOSTER: Are you making any sort of calculations about what Greece is going to cost the Euro Zone in addition to what it has already cost?

WATTRET: Well, I think there are two things. The first thing is we know the cost of the loan program for the first three years, which is 110 billion euros-which is huge-which is already in motion, I mean, that has been taken onboard but the euro area governments and the IMF who are involved in this process. The complication is that there is an additional funding need on top of that now for 2012. And we know that, broadly speaking, is in the region of 40 billion euros, which is a very large sum of money. We're talking about a figure which is a very big chunk of Greece's annual GDP. And of course, that funding gap needs to be plugged. What we don't know is how it will be done. My best guess is that either there will be a change in the loan structure of the assistance for Greece, or alternatively the EFSF, the European Financial Stability Facility, could be used to buy government bonds allowing the Greek government to issue debt next year.

FOSTER: The best-case scenario is that somehow they'll muddle through with this. They're not going to come up with some fantastic new strategy are they? You just need to get through the next year or so?

WATTRET: I would say that is a fair judgment. The best-case scenario is probably muddling through. I mean what I would hope to see is a much more vocal commitment from euro area governments that they stand behind Greece and the other countries in difficulty and that they'll do whatever is necessary to stabilize the financial system and give some confidence back to markets. That can probably be done relatively quickly with Greece by providing additional financial assistance, in whatever form, for 2012, however, beyond that you still have the underlying problems still there. Which is these countries have very high budget deficits. Their economic conditions are very tough and it is going to be politically and socially very difficult to put their deficits and debt on a sustainable footing.

(END VIDEOTAPE)

FOSTER: Ken Wattret, there.

Well, tomorrow on this program, what is the European Commission's stance on restructuring the bailout for Greece? And under what terms will it take place? Ollie Rehn, the EU's economic and monetary affairs commissioner talks to us about that, here, on QUEST MEANS BUSINESS.

Now imagine dreaming up new flavors of beer all day. Sound like a dream job? Well, for Brooklyn Brewery Chief it could make or break his business. We'll be checking in with "The Boss", next.

(COMMERCIAL BREAK)

FOSTER: When you are "The Boss" it is your responsibility to make sure your product is up to standard. But doing that isn't always about micromanagement. In tonight's episode of "The Boss" Sara Curran has tough choices to make about her company's future. While Steve Hindy, in New York, is trying to give his trusted right-hand man the room to work his magic. It's time for "The Boss".

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Previously on "The Boss", Sarah Curran found it hard to accept praise in a special sit-down interview with Richard Quest.

RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS: Why can't you take credit for what you have achieved?

SARAH CURRAN, CEO, MY-WARDROBE.COM: I don't-I do take-well, I don't know.

UNIDENTIFIED MALE: And in Brooklyn, New York City Mayor Michael Bloomberg joined our "Boss" Steve Hindy, for the launch of Brooklyn Brewery's new brew house.

STEVE HINDY, CEO, BROOKLYN BREWERY: The city worked with us for about five years trying to find space for our expansion.

UNIDENTIFIED MALE: If you are going to run a world-class brewery, you need to meet often with the person who has his finger on pulse of your operations. And that is the brew master.

GARRETT OLIVER, BREW MASTER, BROOKLYN BREWERY: Have a good time in San Francisco?

HINDY: Yeah.

UNIDENTIFIED MALE: Today Steve Hindy is doing just that.

OLIVER: You're the boss, you sit in this chair.

(LAUGHTER)

HINDY: Yes, I know.

UNIDENTIFIED MALE: He's meeting star employee Garrett Oliver, the authority on all things beer related. On the cards, a new and improved beer cask that will ease their workflow.

OLIVER: And what I want to do is actually get a tank, which will be specifically for casking and for doing all of our little bottle projects.

UNIDENTIFIED MALE: Garrett has been Brooklyn Brewery's brew master for more than 15 years. He's the alchemist. The one who oversees the production of new beers.

OLIVER: Welcome to my home.

(LAUGHTER)

UNIDENTIFIED MALE: The last few weeks he's been designing a beer for a popular New York City restaurant, the Shake Shack. Now, it is his boss' turn to taste test it.

HINDY: Boy that smells good.

OLIVER: Hmmm.

(LAUGHTER)

HINDY: Very interesting.

OLIVER: Yes, that will make a-

HINDY: That will be cool.

OLIVER: All we need is the burger.

HINDY: Yes, yes.

UNIDENTIFIED MALE: To fit in with their new client Steve asked Garrett to think about the taste of the Shake Shack burger, and from there design the new beer.

HINDY: Nice.

OLIVER: Yes, we're looking at some caramelized malt that gives you a little bit more color. And that kind of grabs onto the flavors of the burger, the char, on the surface, the sweetness of the bun.

UNIDENTIFIED MALE: As "The Boss", Steve has no problem stepping aside. In fact, when it comes to developing new tastes, his brew master has virtually free rein.

HINDY: It is really Garrett and his team who work these things out. You know, I get to come in and taste it at the end.

UNIDENTIFIED MALE: For Steve this is the essence of successful management. Surrounding your self with the best people, articulating your vision, and letting them do their work.

HINDY: Wow.

OLIVER: Breakfast of champions.

HINDY: Very smooth.

OLIVER: Yes.

HINDY: It is really not a one-man kind of job. Really, to be a successful entrepreneur I think you have to be able to get other people excited about what you are doing and then get them to believe in it as much as you believe in it and work toward that goal of building a great company.

UNIDENTIFIED MALE: Miss Aulde (ph), Mulberry, Vivian Westwood, just some of the many labels in the My-Wardrobe range. Getting them on board, however has not been easy.

CURRAN: In the early days at My-Wardrobe I would be knocking at everyone's door. And now, it is kind of nice that that has started to change. And people are starting to knock on our door.

UNIDENTIFIED MALE: Getting here has taken years of hard work. When My-Wardrobe first launched. Sarah had over 40 brands on her site. Today it is more than 180. For Sarah, this has been above all, about building relationships.

CURRAN: The most recent brand that we brought on board, for (UNINTELLIGIBLE) to 11, it has taken me five years to convince them to come on aboard. And so, they are very protective of, super protective of on line, anyway. It is all about brand adjacency. They want to be sitting with like minded brands.

UNIDENTIFIED MALE: Today, Sara Curran is taking part in a photo shoot for her Web Site. She is championing leading and upcoming designers, such as Helmut Lang (ph) and Camellia Scotguard (ph). For Sarah, getting the balance right means knowing your customer, and knowing your limits.

CURRAN: I'm not looking to bring on a fashion forward, really, edgy direction or fashion brand, because that is actually not what the My- Wardrobe woman or man comes to My-Wardrobe for.

UNIDENTIFIED MALE: The fashion weeks, throughout the year, provide Sarah with inspiration, be it the next key item, or the next big designer. The rest, she says, is gut instinct.

CURRAN: Once you get it right the volumes that you can sell are insane. But then sometimes to take that punt, to kind of take that risk, do I back it by 150 units? No, we've been burnt sometimes, but then equally we have had phenomenal success in others.

UNIDENTIFIED MALE: Next week, on "The Boss". A new face, and a new mission. Sarah Curran introduces us to My-Wardrobe's new addition. And in Hong Kong Michael Wu tackles his number one challenge, rising food prices.

(END VIDEOTAPE)

FOSTER: Well, we are going to take a closer look at Microsoft's biggest-ever acquisition next, $8.5 billion is a hefty price to pay. We'll look at the reaction, on Wall Street.

Coming up in just 30 minutes from now, as well, what might Al Qaeda do now following the U.S. operation that killed Osama Bin Laden. Well, "PIERS MORGAN TONIGHT" looks at the new intelligence from that raid. Former U.S. Defense Secretary Donald Rumsfeld says the White House should keep those discoveries, under wraps.

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, FMR. U.S. SECRETARY OF DEFENSE: If I were in the pentagon, I'd be concerned about the White House talking so much about the intelligence take. The goal is to get the intelligence and to look at it, figure out what you can use and then use it as rapidly as possible. Instead, the White House made a number of comments about it. Talking abut how valuable it was. And even some of the specifics of what is there, which I think no one in the Pentagon would have done. They would have recognize that our lives can be lost by too much discussion about things like that.

(END VIDEO CLIP)

FOSTER: Well, Rumsfeld and former New York Mayor Rudy Giuliani, a part of a big line up on "PIERS MORGAN" tonight. That is right after QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

FOSTER: Welcome back.

I'm Max Foster.

QUEST MEANS BUSINESS continues in just a moment.

First though, here's a check of the headlines.

The European Union has hit 13 top Syrian officials with sanctions in connection with the crackdown on protesters. That includes the Syrian president's younger brother. The EU calls him the principal overseer of the crackdown. Officials are subject to an arms embargo and travel ban. Assets they hold in Europe are being frozen.

Pakistan's interior minister says Islamabad will allow the U.S. to question the -- the widows of Osama bin Laden. The three women were taken into custody after U.S. Special Forces killed bin Laden last week. Pakistani officials have not said when or where the interviews will take place.

Europe's Court of Human Rights has ruled that newspapers do not have to warn people before they publish details about their private lives. The ruling went against ex-Formula 1 racing boss, Max Mosley. He brought the case after a British tabloid ran a story about his sex life.

And our top story on QUEST MEANS BUSINESS this hour, Microsoft has agreed to buy Skype for $8.5 billion. That figure includes the price of taking on Skype's debt. Skype's current CEO will continue to run the company, as a new business unit, though, within Microsoft. Microsoft's CEO, Steve Ballmer, spoke about the purchase in San Francisco earlier today.

"Fortune's" Michael Copeland was there.

He joins us now live.

Certainly, Michael, everyone seems to agree that this was a very good deal for Microsoft, despite the price.

What was the -- what was the atmosphere like there?

MICHAEL COPELAND, SENIOR WRITER, "FORTUNE" MAGAZINE: Well, yes, I agree, it is a good idea for Microsoft. For $8.5 billion, they bought themselves a verb. Skype is -- is a big part of the Internet and -- and the way we are communicating now and in the future. And -- and Microsoft needed to get a big piece of that. And by buying Skype, they've done that.

FOSTER: And in terms of what Steve Ballmer was saying, how he was selling this deal to -- to everyone, is he saying that this is now a crucial part of our new strategy?

Or is this a company that's going to fit in with everything they've got already?

COPELAND: Well, I -- it -- I think it's a bit of both. I mean, certainly, if you're a Microsoft user, you're going to start to see Skype popping up all over the place, you know, in Office, in -- in their business offerings, called Link, in Outlook.

But going forward, what -- what Microsoft really needs Skype to do is help them turbo charge their mobile offerings -- Windows 7 Mobile. And, you know, Skype will help them compete against Apple and its FaceTime and - - and Android and -- and Google Chat offerings.

So, you know, it's a -- it's a good fit right now for the present. And then going forward, especially in the mobile world, Microsoft is a good -- will be able to leverage Skype pretty well.

FOSTER: Skype is largely free.

Will it continue to be free?

COPELAND: Yes, it didn't sound to me like there was going to be any change in current plans, right?

So if you're a Skype user now, what -- how you use Skype, how you pay for Skype won't change. I think -- my impression is when it moves into the business arena, that's where we might see some pricing changes and also maybe some higher end offerings from Skype and Microsoft.

FOSTER: OK, Michael.

Thank you very much, indeed, for -- for joining us there from outside the press conference today.

Well, let's take a look at how investors are -- are reacting to news of Microsoft's deal.

Felicia Taylor is at the New York Stock Exchange with more on that -- Felicia, it's a lot of money, isn't it?

They must be poring over the -- the numbers, surely.

FELICIA TAYLOR, CNN CORRESPONDENT: Well, you know, it's -- it's funny, because analysts are saying that, actually, this is a pretty good deal even with this kind of a price tag. And if you take a look at the tech sector already, in the first quarter, they've had a really good run. They're up about, you know, 25 percent, certainly in the double digits for most of the tech companies in terms of cross profits.

And a lot of these companies are sitting on literally billions of dollars of cash. Microsoft is just using that cash in a way to further its business. Other companies might use it to make a -- a raise in dividends or -- or other kinds of acquisitions. But this is the largest acquisition in Microsoft's history and the deal marks a significant change in safety for Microsoft.

So that's got people questioning whether or not it rains -- it -- it will actually buy other companies and -- and sort of change its M&A strategy. Keep in mind, Microsoft hasn't bought another company since about 2006, so we've got a good five years there.

Skype is going to become a new unit, as you said, within Microsoft. And the hope is, is that Skype will not change whatsoever. Rumors started last week that the company was in talks with Microsoft and Facebook. And that came after the -- the discussions about an IPO.

So far, analysts say this is a sound deal with clear revenue opportunities for Microsoft. So it's a good deal.

The stock is down about 1.25 percent right now. But that's not surprising. I mean, let's face it, they're shelling out $8.5 billion. So people take a look at that and go, wow, it's a little bit expensive. They're going to use their offshore cash balance to cover it. So hopefully, they will benefit from this in the long run. And, you know, so the stock is down about 9 percent this year. Hopefully, it will benefit down the road from this acquisition -- Max.

FOSTER: There seems to be a lot of money swilling around at the moment, Felicia.

Am I wrong?

There's been so much talk about mergers and acquisitions again.

Are we entering a new phase of all of that, do you think?

TAYLOR: Yes. This is super interesting, especially considering we have just come off of, you know, a great financial crisis. And great by meaning large, not, you know, stupendous in any way.

But it means that companies are now willing to spend money and take rest -- risks again in the marketplace.

M&A had basically come to a halt, naturally, during the recession. No surprise there. But we've seen a resurgence of companies that are more confident right now.

Here's who also benefits. These kind of tech entrepreneur deals spawned literally sort of a new generation of billionaires. You can bet that the founders of Skype just got a very healthy raise. That's Niklas Zenn -- Niklas Zennstrom and Janus Friis -- they're both Swedish -- that started Skype. They called this a liquidity event. It kind of represents a one time windfall of cash that literally rains down on company founders and shareholders. We saw a lot of this during the dot-com bubble and the real estate boom in the '90s.

So it is a change in -- in perception, a change in reality of Wall Street?

Still to be seen. But, truly, we've seen a lot of M&A activity in the first quarter of this year so far -- Max.

FOSTER: Felicia, thank you so much.

Fascinating stuff.

She's going to watch that -- that trend develop, I'm sure.

Now, Google is hoping to mix up the world of online entertainment, meanwhile. At its IO developers conference in San Francisco, it's just unveiled a new cloud music system and movie download service.

CNNMoney's Dave Goldman joins us now live from San Francisco.

Their -- their thunder was stolen a bit today by Microsoft, wasn't it?

But nevertheless, interesting for another big tech company.

DAVID GOLDMAN, WRITER, CNNMONEY.COM: Yes, it's very interesting. Google is now competing with Apple in the media business. And -- and it's pretty significant considering that Google wants to compete with Apple across TV, with Google TV. And it's got Android devices just like Apple has the iPhone. This is going to work across all of those devices.

But it's going to do something different, too. It -- it's going to work on your -- your PC, is going to work on Android devices. And it's going to have all of the features that -- that iTunes has in the cloud, which means that you'll be able to access all of your music anywhere that you go.

So it's not just confined to your iPad anymore. You can access it if you're in an airport, if you're at work anywhere, all of your music, really, at your fingertips.

FOSTER: Is this a shift in strategy for the company?

GOLDMAN: (INAUDIBLE).

FOSTER: Yes?

GOLDMAN: Yes. Yes. I -- I think that, you know, Google, in the past, has been a company that's sort of thrown things at the wall and said let's see if any of this sticks. This could be another example of that. But I really think that Google is trying to make a concerted effort to -- to -- to compete with the likes of Apple, you know, who -- who's probably its chief Smartphone and tablet competitor right now.

You know, another service that they announced is through -- it has movies that you can download and -- and rent those for about a day. And that's very, very similar to what Apple is doing with Apple TV and other services that -- that Apple has available.

So, really, this is something that Google is trying to compete with -- with Apple and -- and even Amazon, which has a cloud music service, as well.

FOSTER: OK. Dave Goldman, thank you very much, indeed, for joining us from San Francisco.

The battle is really heating up amongst those tech giants.

Well, coming up, Sino-US relations are on another level. The Bank of China takes a big stake in the Big Apple. We'll look at why New York's most luxurious apartments are so attractive to Eastern investors.

(COMMERCIAL BREAK)

FOSTER: We're having glorious weather here for some time now.

Let's find out what's going on on the other side of the pond with Guillermo.

He's at the CNN International Weather Center.

You're going to start with the U.S. -- Guillermo.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes. And -- and now that you say that the weather is really nice over there, I think it's going to be short-lived, unfortunately. But today is a great, great day in London.

More or less it's happening in the United States, as well. We see that the weather is really nice, but we're dealing with these horrible floods.

So I'm going to give you some statistics now. We've been showing you video from Memphis and how severe the situation is. Needless to say, Mississippi is really bad, as well.

Now, coming up on the 16th of May, we're going to see the crest time for the city of Greenville here.

And also, it's quite significant, like five meters above flood stage and then the other cities as we move south.

So it's going to take us all the way into June, when the water goes to the Gulf of Mexico.

But something else is happening at the same time that's it's important to bear in mind. The amount of water coming on the Mississippi River is such that it's preventing the tributaries from dumping all their water into the Mississippi. So it's like a traffic jam. That's why it's causing more problems on a more widespread area, because of the tributaries.

So we're talking about not only the Mississippi, but some other rivers, as well.

Now, where we have levees, we may be dealing with three new words that are going to all -- expressions that you're going to hear so -- from now on, so pay attention to these. We're talking about levee failure, right, the levees trying to prevent a flood on the other side. But we may see overtopping. And that's the word, when the water goes up and then it comes down and it levels off the flood on the other side that's supposed to be protected, probably a city.

The second one is where we have a breach, a proper breach, you know, when part of the -- the levee gives in and then we have that the water goes to the other side.

And lastly -- and this is a little bit more difficult to understand, because we don't see it. But there's a lot of movement when the water underneath and all the pressure causes boiling. So the pressure builds up here. The terrain underneath gives in and then the water seeps into the other side, causing the floods.

With the, of course, the -- the economic loss that that means. Remember, the -- the Mississippi River is huge. We have here many -- an -- an area that is so vast that we're talking about the size of Italy. And the government is doing whatever they can to prevent further damage -- back to you now.

FOSTER: Guillermo, thank you very much, indeed.

ARDUINO: You're welcome.

FOSTER: We'll watch that.

Now, General Motors has announced a $2 billion plan to rejuvenation the U.S. auto industry. GM CEO, Dan Akerson, says the country's largest car maker will pump money into factories across eight states, creating or saving more than 4,000 jobs.

Last week, GM announced its strongest quarterly profits in more than a decade.

It's not only American companies investing in the U.S. auto industry, either.

Poppy Harlow is in New York and she has more on another manufacturing success story -- this time, Poppy, with foreign origins.

POPPY HARLOW, CNN BUSINESS CORRESPONDENT: Yes, absolutely. We're talking about V.W., Volkswagen, the classic German automaker, setting up shop in a major way, Max, here in the United States. V.W. has invested a billion dollars in Chattanooga, Tennessee, their only U.S. plant. And it's interesting because, Max, the U.S. is really the only market where V.W. lags severely behind its competition. It has wanted to gain ground here in the United States for quite a long time. So it's really putting its money where it's mouth is.

But this has also revitalized Chattanooga's community, creating thousands and thousands of jobs. So we decided to head down to the new plant right as it opened and spend a day on the production lines to see exactly what this means, making more and more foreign cars right here in the US.

Take a look.

(BEGIN VIDEOTAPE)

BEN EDWARDS: This is our assembly line. It's line six.

HARLOW (voice-over): Like millions of Americans, Ben Edwards' job in the housing industry went south with the Great Recession. But thanks to a billion dollar investment by Volkswagen here in Chattanooga, Tennessee, he and more than 1,600 other locals have a new career.

EDWARDS: The amount of jobs it's going to bring in, the potential for growth of the future that -- that we have here, I think it's just an incredible opportunity.

HARLOW: In 2008, V.W. set foot here to build its new Passat, after choosing Chattanooga from nearly 400 other cities that bid for its only U.S. plant.

(on camera): You built this plant truly in the middle of the Great Recession. But in a way, you say that helped V.W...

FRANK FISCHER, CEO, VOLKSWAGEN CHATTANOOGA: Yes, it definitely helped V.W.. It's helped us to keep the investment costs, because the price is still lower and maybe even the prices for our parts and the capacity was available.

HARLOW (voice-over): V.W. got a more than half billion dollar tax incentive to build here and argues 11,000 jobs will be created as a result of the new plant.

(BEGIN VIDEO CLIP FROM JULY 2008, COURTESY WTVC)

BOB CORKER, U.S. SENATE REPUBLICAN: And I think that this community has no idea and cannot even imagine what that means for our city and for this state.

(END VIDEO CLIP)

UNIDENTIFIED MALE: It means revenue. It means jobs. I mean if I needed to get a job, I would be over at Volkswagen banging on the door.

UNIDENTIFIED FEMALE: Their success here, you know, is just going to bring other big businesses here.

HARLOW: Eighty-five thousand people applied for jobs with V.W. here, including Shareena Cochran (ph), a mother of three.

SHAREENA COCHRAN: The economy here went down for so long, but this boosted it up so much, I was even thinking of relocating before I got this job and...

HARLOW (on camera): Really?

COCHRAN: Yes. It -- it made me feel like I had something to be here for.

HARLOW (voice-over): This seat supplier set up shop right next to the new V.W. plant, employing 140 locals.

(on camera): And you guys came here to Chattanooga just because of V.W.?

UNIDENTIFIED MALE: That's right, good paying jobs, good benefits.

HARLOW: What do you have to say to those folks who say, look, the auto industry is dead in the U.S.?

BEN EDWARDS, TEAM LEADER, VOLKSWAGEN: For me, it's just awesome that we have this opportunity to say to people, you know, we are manufacturing in America.

(END VIDEO TAPE)

HARLOW: And we hear that all the time, Max, that nothing is made in America anymore. This certainly proves otherwise.

VW is not alone. You have Mercedes, BMW, Nissan, Hyundai, Toyota -- all these foreign automakers setting up major operations in the South. There are a lot of folks that say, Max, it's because mostly across the South, these are not union operations. So you read through the lines, oftentimes that costs the companies less.

So it's not Detroit, it's not the Motor City, but more and more cars are being made right here in America -- Max.

FOSTER: And Poppy, does it -- does it go beyond the car industry?

Does the attraction move onto other industries, as well, then?

HARLOW: It certainly has. I mean, you see major solar panel production, when you look at green energy and that push. A lot of that is happening in the South. Boeing, they're going to build their 787 Dreamliner right in South Carolina. A lot of technology, you see that, you see that in the Carolinas, as well, especially in North Carolina.

So there is this push for manufacturing jobs. And you're actually seeing them being created, Max, right in the South.

FOSTER: OK, Poppy, thank you very much, indeed, for that.

Well, for more of Poppy's reports, you can head to CNNMoney.com. And you'll see it's changed a bit, as well. Do check it out. Don't worry, all the information you need is still there, with just a new look. It's very snazzy.

QUEST MEANS BUSINESS continues in just a moment.

(COMMERCIAL BREAK)

FOSTER: Chinese exports smashed their own records last month, as the trade surplus in the world's second largest economy grows even wider. April's surplus increased by $9.75 billion, compared to April 2010. It now stands at $11.4 billion. Exports grew by 30 percent, to the record of just over $155 billion.

Earlier this year, the premium, Wen Jiabao, said China needs to rely less on exports to allow its economy to kick on.

Now, one area where Chinese investors are already branching into -- branching into is the foreign property. And the Bank of China is buying out hundreds of millions of dollars worth of prize real estate. And it doesn't get much more prestigious than the luxury apartments of Manhattan.

Felicia Taylor saw how the Chinese influence is spreading across New York.

(BEGIN VIDEOTAPE)

JOE MOINIAN, THE MOINIAN GROUP: I think blended price per square foot is the -- among the highest residential in the city.

TAYLOR (voice-over): Meet property developer, Joe Moinian. He has just taken a loan of around $300 million for his latest project in Manhattan from the Bank of China.

MOINIAN: The Bank of China, they look for great assets. They look for the institutional partnerships. It is for long-term and it gives our partnership a -- a great stage for us to feel and lease the entire retail and the office area, which we think could be done the next several months.

TAYLOR (on camera): Why were the Chinese the right partners at -- at this moment in time?

MOINIAN: Chinese, they -- I think they're picking very selectively different loans, different assets, different projects to invest in, because they think U.S. pricing of real estate has reached a low.

TAYLOR (voice-over): According to the Asia Society, Chinese direct investment in the United States is doubling each year and reached some $5 billion in 2010. And it's not only institutions investing. Downtown, we visit another property of Moinian's, which features a luxury apartment built into a W Hotel.

MOINIAN: The clients that we get, they're high income people from China that have invested or are willing to invest abroad. About 30 percent of the monies that are spent in buying homes right now with people from China is done overseas. And New York, of course, is one of the cities that they invest in. Downtown, to them, is the new Wall Street. Everything about Ground Zero being built. And you're sitting Manhattan.

TAYLOR: Why do the Chinese prefer to own a property...

MOINIAN: Right.

TAYLOR: -- as opposed to renting an apart -- a property?

MOINIAN: I think that's part of the culture in their homeland. Owning a prop -- a residence is the only way to go. So basically, if you're a student or you have family here, it's better than renting a unit for them. They just buy the unit. And they also -- I haven't met many that believe in mortgages and financing. So mostly they buy for cash.

TAYLOR: All cash?

MOINIAN: All cash. That's -- they generally, that's -- that's been our experience, yes.

TAYLOR: Another thing that I know the Chinese are -- are certainly aware of is -- is the idea of feng shui.

MOINIAN: Yes.

TAYLOR: And that's the placement of everything.

MOINIAN: Yes.

TAYLOR: And it has meaning.

MOINIAN: Yes.

TAYLOR: Why is the view important?

MOINIAN: The view is very important to them. As part of the original design, we brought a feng shui specialist to check our design. And we are very, very lucky that the building and the project is situated where we have south waters (ph), which means wealth, goodness to the occupants of the condominiums.

TAYLOR: So good wealth, south waters (ph) in the apartment?

MOINIAN: Yes.

TAYLOR: I think I'm moving.

(END VIDEO TAPE)

FOSTER: OK. You're watching QUEST MEANS BUSINESS.

After the break, we'll check the market numbers in Europe and on Wall Street for you.

(COMMERCIAL BREAK)

FOSTER: Now, many tech stocks are putting in a strong performance in New York. No surprise when you consider the big news on Microsoft. But it's not benefiting Microsoft, interestingly. Its shares are down more than 1 percent because of the cost of the deal, I presume. It's the biggest drag on the Dow. Cisco and Intel were amongst the biggest gainers. Disney also one of the biggest gainers. It's due to report after the bell.

Here in Europe, all the main markets made chunky (ph) gains, banks did, as well, as traders began to feel a little less concerned about Greece.

InterContinental Hotels is one of the biggest gainers in London, following its latest results.

BG Group lost more than 1.5 percent, as unrest in the Middle East hit production.

That is QUEST MEANS BUSINESS.

I'm Max Foster in London.

"PIERS MORGAN TONIGHT" is just ahead, after a check of the headlines for you.

Thank you for watching.

END