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Quest Means Business

Unilever Rejects $140 Billion Offer from Kraft Heinz; Mexico to Trump -- Tariffs Are a Mistake; Emirates President Says Fares Reduced to Stupidity

Aired February 17, 2017 - 16:00   ET

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

[16:00:00] RICHARD QUEST, CNN ANCHOR: They're working hard to try to get the Dow Jones positive. It looked like it was going to eke out a small,

very small gain for the day, a three-day weekend about to kick off. Closing bell ringing on Wall Street. Yes! The Dow Jones industrial does

look like it has closed up, as trading comes to a close. A long weekend ahead. It is Friday, it's February, the 17th. Mixing ketchup and soap,

Heinz vows to bid for Unilever again after their initial offer was rejected. As president Trump warns American companies, don't move to

Mexico, Mexico's economy ministers warning Mr. Trump, don't impose tariffs. And Emirates president tells me tonight, when it comes to silly prices, he

has a plan to put things right. I'm Richard Quest, live on the floor of the New York stock exchange, where, of course, I mean business.

So, a simple question for you. Good evening from the floor of the stock exchange. What happens when you mix Heinz tomato ketchup with Hellmann's

Real Mayonnaise? Well, a very much approximation of that, in other words, the bid by Kraft, Heinz, for Unilever, the Dutch and British company that

quite simply has revolutionized and crackled the market over one of the biggest merger deals so far. These are the numbers. Kraft/Heinz made an

offer at $50 a share, valuing Unilever at around $140, $150 billion. So far, Unilever has rejected the initial offer worth $140. The deal would

bring together two companies that together manufacture everything from Kraft mac and cheese, ketchup and baked beans, Unilever's marmite, Ben &

Jerry's, Dove, and Vaseline.

An extraordinary range of companies. On the market, Unilever and Kraft shares both surge with Unilever which is primarily traded in London up 13

percent. Heinz Kraft shares were up 10 percent at the close. But if you look here, you can see, actually, Unilever's share price is under the $50 a

barrel -- hold on, $50 a share price. Which leads to the suggestion that the market is opening for more to come. Paul La Monica is with me. This

deal, I'm so excited by this, I've got ketchup by the barrel.

We went shopping today.

We went shopping. We'll see that later. Paul La Monica, tell me what you make of this deal. It came in at $50. It's a cash and share offer, and

it's been rejected already.

PAUL R. LA MONICA, CNN MONEY CORRESPONDENT: It's been rejected by Unilever, but I think investors are signaling that this deal could happen.

Kraft, Heinz, and Unilever. Both stocks soared on this news and hit all- time highs. And Kraft said this isn't going to be their final offer. They will come back with a sweetened bid, if you will, and see if that is

something that Unilever accepts.

QUEST: What is it the market is liking the look of in this deal? The share price suggests there's more room on the upside to go. But as we will

show later in the program, is there much overlap between the two on product?

LA MONICA: There doesn't seem to be that much overlap. A lot of it is complimentary. Unilever brings some more personal care products to the

Kraft Heinz portfolio that it la lacks right now. Maybe there will be some small overlap and possible anti-trust concerns that regulators will go

through. But I feel that the market really feels this is a complimentary deal to Kraft Heinz and it will burst their earnings growth, probably, as

well.

QUEST: When we look at the large numbers of products, are there still big players around? Once you put these two together, I suppose there's Procter

& Gamble, Smucker's, a few others.

LA MONICA: You still have General Mills, their stock went down, you mentioned Smuckers, Campbell's soup. Both of them actually reported fairly

weak sales this morning, as well. I think you might see, if this deal goes through. If Kraft Heinz does succeed in taking over Unilever, everyone

else in the food and personal care business, company sector is probably going to be in play.

QUEST: We'll talk about our shopping trip in a little while. Joining me now to talk about this particular deal is William Johnson, Bill Johnson,

the former chief executive of Heinz. He left when the company was bought out by Berkshire Hathaway and 3g back in 2015. Bill Johnson, good to see

you, sir. Good to hear you. Thank you for talking to us. This deal, tell me why, in your view, sir, it makes sense.

[16:05:00] BILL JOHNSON, FORMER CEO HEINZ: Well, it's a brilliant deal. First place, for the on the Kraft Heinz side, what you have is now an

opportunity to expand in the emerging markets, all the developing world, really improve their position outside the United States, leverage business

platforms that they don't have, create a powerful condiments and sauces business globally. It gives them strategic optionality in terms of the

categories they now penetrate. The retail synergies are significant. There'll be a powerhouse at retail. It's a great deal if you're Kraft and

Heinz.

QUEST: Right. Now, the price, which Unilever says seriously undervalues the very trophy assets that Unilever has, Heinz, of course, Kraft Heinz has

some, as well. But Unilever has some extraordinary brand names. Would you expect this -- I mean, this is an opening gambit at $50 a share.

JOHNSON: Well, I'm not sure what's going to happen. I know that the 3g people and Berkshire Hathaway behind Warren Buffett are very shrewd in how

they do these deals. This is typically the opening gambit. Having said that, regardless of whether the deal goes up, much in price, the

shareholder is going to be richly rewarded. When we sold Heinz to 3g, I thought we were as good as you could get in terms of cost control and in

terms of growth potential. And I've become a believer in the 3g model. And with 3g as the operators and Warren Buffett as the banker, whether the

deal goes up much or not, the shareholders are still going to benefit greatly. So, you know, I think it's a matter to have gamesmanship here.

I'm not sure where it goes from here. Is it worth a little more? Possibly. But nonetheless, shareholders are going to benefit

significantly.

QUEST: Now, I went shopping today. And the one thing I discovered was, there's not a huge amount of overlay. I mean, yes, in the margarines and

butter section and Philadelphia Cream Cheese, a little bit of overlay there. But if you look at household products, which Kraft Heinz doesn't

have, Unilever has plenty, you look at ice creams, that range of more general household products, is that what makes Unilever so attractive for

Heinz?

JOHNSON: Well, I think it's a couple of things. One, I think, again, back to the developing world, it gives Heinz Kraft a great presence in the

developing world. But also, gets them in the categories that gives them potential optionality going forward. They now have a platform from which

to do more household products. Their condiments and sauces businesses will be a great. The synergies will be significant. But most important,

they're complimentary to each other. It broadens their food base and gets them in the categories which they don't compete in.

QUEST: And a final question, sir, if this goes through, is this firing the starting gun for a consolidation in the industry that others will have to

follow on?

JOHNSON: Well, it should, Richard. And I've said this many times, it should, because the industry's a slow-growth industry, and what 3g has

proven, there's a way to enrich shareholders by consolidating. And I think you're going to see more of it, because I think it's essential and

necessary in the industry.

QUEST: Good to see you, sir! Thank you. We'll be hopefully able to call on you again as this moves forward, but we're very grateful you joined us

tonight to talk us through this deal. Thank you, sir.

JOHNSON: Glad to do it.

QUEST: Now, to the markets. Look, the market was down most of the session. In fact, all of the session, right the way until we got to the

close. A long weekend ahead, a lot of frivolity on the floor of the exchange today, as people are looking forward to it. But the Dow Jones

industrials up 4.25 points, volume just under 1 billion, 994 million shares. But a down day that was throughout. All three major indices are

at records. And Keith here is with me. Good to see you, sir. So, what happened that the market miserable during the course of the day and rallies

in this last 20 minutes or so?

KEITH BLISS, SENIOR VICE PRESIDENT, CUTTONE COMPANY: There's two things that really happened. Number one, the news broke that a

lot of the Republicans, the congressional Republicans are against the border patrol tax. That is one sticking point that would have made any

kind of tax policy changes going into 2018 as they negotiated that. If that goes away, we'll get tax levels from the corporate level in 2017.

QUEST: Let's talk about the bits of the market that -- the bits of Trump's policies the market loves and the bits they don't like. I've got a graph

here, as you can see. If we talk about -- the market absolutely loves tax reform, deregulation, infrastructure spending.

BLISS: Correct.

QUEST: That's been the boost of the market so far. But, these questions of trade overhaul, immigration limits, doesn't that -- at the moment, where

is the balance between these -- this love and hate?

[16:10:00] BLISS: Overwhelmingly on the pro-growth tendencies you just pointed out, trade policy, infrastructure spending with, and deregulation.

That's what the market's reading. And that's why the market is resilient to a lot of the shenanigans that are going on down in Washington, almost

the kabuki theater between Trump and seemingly everybody else. And that's why the market is just not going to go down. The bias is for it to go up.

QUEST: You say it's not going to go, but again, we're looking at the markets since inauguration day. And you do have this extraordinary rise

that took place in the early part of February. Is that sustainable or -- I suppose the first question, as far as sustainability, is the fragility, the

fragility of this market at the moment as against an uncertainty that might, whoosh, just simply send it all down?

BLISS: Well, anytime you have a market trading at the all-time highs or the all-time lows, it's more fragile than it would be in our midrange

historical history. But when you take a look at what's stacked up both on the fundamental and technical setup in the market, fundamental being good

earnings, what Trump is going to do, as well as what we see the rest of the globe doing, this is set up to keep going up.

QUEST: But I want you to look again at this. Look at how the market went down around the 24th of January, or so. That's a weakness.

BLISS: I wouldn't call it that. It wasn't that big of a blip. It didn't come down. Markets never go straight up or straight down. You'll have

days where people will consolidate conditions. You'll have days like yesterday and a little bit today. One of the reasons you saw the market

kind of move sideways or slightly down. The Dow was down all day because of united health care, by the way. The department of justice is putting a

lawsuit on them. That attributed almost the entire amount the Dow was down during the day. One of the reasons you're going the see, especially when

you trade the all-time highs, the market come in a little bit, you start to get valuation situations in certain sectors.

QUEST: Keith, we're now here during the day. We look forward to having you join us.

BLISS: It would be my pleasure.

QUEST: Great to see you, sir.

As we continue tonight, "QUEST MEANS BUSINESS" live from the floor of the exchange, we'll have the Mexico economy minister who's got a warning for

president Trump. It's very simple. If you introduce tariffs against Mexico, tit for tat, we'll do the same to you. This is the market, this is

how we close. It's Friday of a long weekend. Presidents day is on Monday.

(COMMERCIAL BREAK)

QUEST: Welcome back. "QUEST MEANS BUSINESS" live from the floor of the stock exchange in New York. President Trump has been visiting the Boeing

factory at North Charleston in South Carolina. The president saw the first of Boeing's new Dreamliner 787-10. It's a larger plane with a slightly

smaller range that Boeing has brought out. Otherwise, like British airways, over 140 souls so far.

[16:15:00] The president had also was talking about, says the military is looking at a big order for the f-18 Super Hornet. The question, of course,

is whether that would come at the expense of Lockheed Martin's f-35, where the president is trying to play one off against the other. Overall,

president Trump, who has done battle with Boeing over the cost of the new air force one. The president had a warning for those he continues to have

warning, I should say, for those companies looking to move jobs overseas.

(BEGIN VIDEO CLIP)

DONALD TRUMP, U.S. PRESIDENT: I don't want companies leaving our country. Making their product, selling it back, no tax, no nothing, firing everybody

in our country. We're not letting that happen anymore, folks. Believe me. There will be a very substantial penalty to be paid, when they fire their

people and move to another country. Make the product, and think that they're going to sell it back over what will soon be a very, very strong

border.

(END VIDEO CLIP)

QUEST: President Trump there, and the factory itself in South Carolina, look, the importance of this factory is it was the first major U.S.

manufacturing facility at planes for Boeing outside of Renton. Whether at the 737s, and everywhere they drew the big planes like the 777s. South

Carolina was arguably, some would say, union busting project. In fact, the union failed to unionize its South Carolina plant, which was announced just

a couple of days ago. There are also still questions from Boeing of whether they are going to open a plant in shanghai. And let's put the day

into prospect. Brynn Gingras joins me now from South Carolina. There were protests at the plant. We've got this non-union vote that did take place.

It was a really -- quite an excitable atmosphere at Boeing.

BRYNN GINGRAS; CNN NATIONAL CORRESPONDENT: Yes, definitely was, this entire week, Richard. And I can tell you that Dreamliner plane, it was

sitting outside of Boeing all week. We passed by it several times when we've been here in North Charleston. And that was on display for the

president, especially when he took to the microphone today in front of all of those Boeing employees, celebrating him, as he said he celebrated the

jobs that were created, as you just mentioned, with this particular plant here in North Charleston, for Boeing. And that was what he talked about.

Creating jobs here in America, bringing jobs back here to America. And that's what people were excited about, to hear from him. I can tell you,

the Trump supporters that we talked to, today. And there was other excitement, though, on the other side. There were certainly some anti-

Trump people who were just protesting his visiting with not necessarily talking about jobs or what he talked about today, but in general, just

protesting the fact that he was here in North Charleston, even booing his air force one jet as it flew over us today, Richard.

QUEST: Of course, Boeing is building the new air force one, assuming they get the price right. But one of the fascinating parts about this whole

Boeing story is that on the same -- first of all, the president has a nasty argument with them over air force one. Then he potentially says he might

buy the Super Hornets. Then you've got Boeing's factory in South Carolina, where they vote not to have a union. Boeing is very much a hot button

issue company.

GINGRAS: Oh, it certainly is. And we also know, even with that back and forth between the president and Boeing's CEO, they're still having

conversations. We know that was on the agenda today, was to have a conversation. We don't know specifically what, yet, with Boeing's CEO, but

we also know that Trump and Boeing's CEO have been talking at least a half a dozen times, ever since he became president last year. So, they

certainly feel like they have a seat at the table. And they're continuing their talks. And he didn't really mention anything, I believe -- I tried

to listen to the whole, you know, news conference in front of us today with president Trump, but I don't think he talked much about the union. But

that was such a big deal, as you just told all your viewers. Only 2 percent of people here in South Carolina are unionized. There was a strong

push from both sides. Boeing taking out advertisements, as well as the union, trying to convince people they should become a part of the union,

and that overwhelmingly failed here. It's unclear what we'll see in the future as far as a union is concerned here in South Carolina.

QUEST: Brynn, great stuff. For bringing us up to date on that part of the story. Let's stay in the question of trade, and particularly as it relates

to the U.S.' southern neighbor in Mexico. Mexico is now warning quite clearly that if Donald Trump introduced tariffs, it will be a tit for tat

response from the Mexican government. The economy minister said that the negotiations or the talks that are due to take place starting in May should

not be for a full reappraisal of NAFTA. Instead, it has to be a win, win, win situation for the countries, Canada, the United States, and yes,

Mexico.

(BEGIN VIDEOTAPE)

[16:20:00] ILDEFENSO GUAJARDO, MEXICAN ECONOMY MINISTER: Specifically, obviously, that is not the way to go. Because, it will hurt both

economies. If anything is done on one side, it has to be compensated with actions on the other side. So, we have to be very clear, how we want to

move this thing forward.

QUEST: All right, so I'll be more general in my question, then. If the United States takes any measures that make it detrimental or more expensive

for Mexico's exports, will you retaliate tit for tat, quid pro quo?

GUAJARDO: Definitely, we are trying to organize our discussions in a constructive matter. But if there is no room for improvement, and we have

to react to actions that damage the Mexican economy, obviously, you're right. It will be necessary to respond in some of these matters.

QUEST: Are you seeing, yet, any evidence in the Mexican economy of weakness as a result of the uncertainty surrounding the NAFTA?

GUAJARDO: Let me tell you that basically, the uncertainty that is surrounding U.S. policy is having implications in the world economy. Not

only in the Mexican economy, and fortunately for Mexico, in the last three weeks, the exchange rate, the foreign exchange markets had to stabilize a

little bit, even though the peso is still a bit under value. But I do think that investors around the world and the markets having taken this

element of surprise in a much more calm way, waiting until things become policy. You cannot react to those statements. You cannot react to just

rumors. You have to really react to what is really going on when things become policy.

QUEST: And with that in mind, you, obviously, are now building new trade links to Europe. You'll obviously be considering a post-Brexit deal with

the United Kingdom. Is it -- I mean, it's going to be almost impossible, though, to replace the benefits of a NAFTA, but you are clear, you've said,

minister, you would walk away rather than rather than have a deal less than you've got at the moment, correct?

GUAJARDO: That's the case. And let me explain you, why it is so important. Mexico today is a very vibrant democracy. And they have a

senate where my party does not hold minority. I cannot come home with an agreement that will not be a win, win, win situation for the U.S., Canada

and Mexico. Because I have a senate, it is a plural senate with many different political parties that has to ratify whatever deal I bring back

home.

QUEST: You know, I'm thinking about it, if you like, in the most extreme terms. And I understand, sir, you're hoping for the best. But if you're

hoping for the best, you must be planning for the worst. And that means a life without a NAFTA.

GUAJARDO: Let me explain something very clearly. It will not be a life without a NAFTA. Because the worst-case scenario is the U.S. triggering

article 2205 of NAFTA. Which means the U.S. leaves NAFTA. Canada and Mexico will remain in NAFTA. And let me tell you why this is very

important. Because the rules that are building NAFTA to protect and guarantee investors are extremely important to keep being attractive for

foreign investment, intellectual property, and other elements that are very important, like investors to say disputes. So, Mexico will not walk out of

NAFTA. Mexico will stay, and what I'm hearing from Canada, also Canada will stay. So, if the U.S. walks out on NAFTA, because its terms are not

the ones that are being respected, the fallback position, obviously, is always WTO. And we have to leave with the most favorable and keep on

trying to do trade with the U.S. in those terms.

QUEST: Final question, sir. Final question. And are you frustrated by the situation? Look, I covered NAFTA back in the `90s. You negotiated

NAFTA back in the `90s. Did you ever think you'd be in a situation like you are now? Not just with amending it, but actually having its very

existence questioned?

GUAJARDO: Well, let me tell you that what I'm hearing today from the U.S. and the administration is not the extreme possibility, to find the ways how

to make it better for the three countries. And I'm very hopeful that we'll be working in that direction. But, yes, I have talked with you, 23 years

ago, when I was part of the negotiating team win will have never ambitioned that 23 years later, we'd be questioning the very basics of free trade and

growth.

(END VIDEOTAPE)

[16:25:00] QUEST: The question of free trade and growth. It is absolutely divisive at the moment. On the one hand, Donald Trump is basically saying

that NAFTA is hurting U.S. workers, but on the other hand, there's the potential threat that also comes from automation. "CNN Money" has been

looking into this question, and has been talking to autoworkers in Michigan about what they fear is the greatest fear to their jobs.

(BEGIN VIDEOTAPE)

UNIDENTIFIED WORKER: NAFTA was one of the worst contracts ever negotiated for the American worker. Need to renegotiate NAFTA.

UNIDENTIFIED WORKER: NAFTA was the worst thing that ever happened to the state of Michigan.

MATT SEELY, CEO QUALITY BENDING AND THREADING: There was a point in time before NAFTA came in, where there was a machine shop like this literally on

every corner in the metro Detroit area. There were jobs everywhere, people were busy. They were working overtime. The city was thriving from the

standpoint that people were employed.

UNIDENTIFIED REPORTER: Manufacturing jobs in Michigan had shrunk by a third in recent years, from about 900,000 jobs in the year 2000 to fewer

than 600,000 now.

SEELY: Now you drive through the neighborhoods and see many empty buildings. There are many people who have fallen off the unemployment

rolls and weren't able to find jobs.

RICK QUINN, UNEMPLOYED AUTO WORKER: I didn't see a big unemployment problem because of automation, but I really do feel like the trade deals

were a killer to a lot of stuff.

UNIDENTIFIED REPORTER: According to one study, just 13 percent of manufacturing jobs losses were caused by trade, while the large majority

stem from factories adding automation. But other studies placed more blame on trade, which these autoworkers in Michigan agree with.

FRANK PITCHER, UNION AUTO WORKER: I don't fear the technology or the automation or the robotics. I welcome it.

SAL MOCERI, UNION AUTO WORKER: The robot, like I said, are not taking jobs away. Actually, we're assisting the robots.

KEN SULTES, UNION AUTO WORKER: As a matter of fact, there's actually education involved to learn how this robot works, to learn how to adjust

it, to learn how to make adjustments on it, who to call when. So, there's also education involved when automation, robotics -- brings us to a higher

level of working.

QUINN: They've replaced a lot of jobs that actually injured people, which in the long-term, cost the company money, when there's an injury to an

employee. So, when you have a robot there now doing that particular job, that's a good thing.

MOCERI: Automation is great. I want it to excel. I want more computers. I want more robots, because they're helping keep the jobs here in America.

(END VIDEOTAPE)

QUEST: The question of automation, NAFTA, and U.S. jobs. As QUEST MEANS BUSINESS continues tonight, we'll have the story of putting together Heinz

and Hellmann's. What do you end up with? You end up with a takeover bid, one of the world's largest food companies. It's Unilever, we'll talk about

it and show you the products after the break. QUEST MEANS BUSINESS at the NYSE.

[16:30:00] (COMMERCIAL BREAK)

QUEST: Hello. I'm Richard Quest, live at the New York stock exchange. There is more "QUEST MEANS BUSINESS" in just a moment. Tim Clark of

emirates tells us the ultralong haul flight is here to stay. We're also going to be live in Moscow to hear how views on president Trump are

changing. All that still to come. But this is CNN. And on this network, the news always comes first.

Donald Trump's controversial choice to head the environmental protection agency, the EPA, have been confirmed by the senate. Critics called Scott

Pruitt a climate change denier. As Oklahoma's attorney general, Pruitt launched multiple legal actions against the Obama administration's key

climate change laws.

The Pakistani military says more than a hundred suspected terrorists have been killed in security operations since last night. The crackdown follows

a suicide attack at a shrine on Thursday. At least 88 people were killed. Many of them children. 200 people are wounded.

Vice President Mike Pence is traveling to Munich for a security conference where he'll try the to ease European fears about stability of the United

States. Germany's defense minister is expressing some of those fears already, warning Washington not to hurt the cohesion of the European Union.

A 3-year-old has died and at least 15 people are wounded following an explosion in Turkey, according to state-run media. It happened in the

southeast part of the country. The governor there says the blast was caused by a car bomb.

Welcome back to QUEST MEANS BUSINESS, where we are live at the New York Stock Exchange. Now, I'm walking up the aisles of the exchange and of

course these aisles and these posts, stocks and shares are bought and sold. Many, of course, today was about Unilever, which is now under offer, having

rejected the offer from Heinz. But the real question and real point is, what is Heinz -- Kraft Heinz and Unilever together, what would they look

like? What are the products of these two behemoth food and household products companies? There was only one way to find out. I went shopping

with Paul La Monica. Now, Paul being an American, he was Kraft Heinz. Me being a European, well, I had to be Unilever. Who was going to push the

cart?

(BEGIN VIDEOTAPE)

LA MONICA: All right. You get to drive. You can push the cart.

QUEST: I'm Unilever. You're trying to take me over.

LA MONICA: I'm Kraft Heinz. Good old American food, backed by Warren Buffett. What are we going shopping for, Richard?

QUEST: We're going shopping to prove just how much I've got.

LA MONICA: Well, I've got more. I'm buying you, or at least I would like to you after all.

QUEST: Let's see when we see just what's in the basket.

LA MONICA: Yes. Let's start with my most famous product here. We've got the pride of Pittsburgh, Heinz Ketchup. What do you have that might go

well with this?

QUEST: Heinz Ketchup smechup, how about Hellmann's Real Mayonnaise and varieties, you can keep your ketchup.

LA MONICA: Merge the two of them, we get some nice Russian dressing for Vladimir Putin.

QUEST: Some avocados.

LA MONICA: I'm not really sure guacamole is on the menu.

QUEST: Oh, no. Borscht. I don't think either of us have borscht.

LA MONICA: Or the matzo balls, potato pancakes maybe.

QUEST: Not yet. You, Mr. Heinz, do not have any Dove soap. In fact, I don't think you have any soaps.

LA MONICA: We do not have any personal care products, but that is why we want you.

QUEST: Do you want to exfoliate or do you want to go fresh?

LA MONICA: Let's go fresh. I seem some Seventh Generation over there, as well. Another Unilever recent acquisition.

[16:35:00] QUEST: And now we come to the area where we are supreme, ice cream just stand, watch, and learn. Breyer's ice cream, you ain't got any.

Ben & Jerry's Chubby Hubby.

LA MONICA: Richard, you may have all the ice cream, but I have the Jell-O. Add alcohol, Jell-O shots for Friday. No bagel, Richard, is complete

without a schmear of Philadelphia Cream Cheese.

QUEST: I take your Philadelphia Cream Cheese and I raise you Country Crock and I can't believe it's not butter.

LA MONICA: On an English muffin, but not a bagel. Richard, why do we have to do everything the hard way. You know there's an elevator --

QUEST: You're the one who's trying to take me over. At Unilever, I have teas galore. Lipton's for the American taste, and PG Tips for the British.

LA MONICA: Need I remind you what the colonists did with your British tea up in Boston? I'll take Maxwell House Coffee, please. Black, no sugar.

Good to the last drop. When all is said and done, Richard, I have what every young kid wants, college kids crave. Kraft Macaroni and Cheese. In

all its fluorescent glory.

QUEST: All right, Kraft Heinz, I can see why you want me and my delicious assets, but at 50 bucks a share, it ain't gonna buy.

LA MONICA: This is a perfect marriage, Kraft Heinz does want Unilever, whether or not you raise our bid, that remains to be seen.

QUEST: You're going to have to pay more, more.

(END VIDEOTAPE)

QUEST: A shopping expedition with Paul La Monica. Goodness knows what we ended up with. I think I can forgive any company anything that makes

macaroni and cheese, which saw me through my university days, quite in the way of Kraft and Heinz. When we come back, big planes and emirates. Tim

Clark tells us that ultralong haul is here to stay. QUEST MEANS BUSINESS, we're at the stock exchange.

(COMMERCIAL BREAK)

QUEST: Welcome back to QUEST MEANS BUSINESS. the president of Emirates Airlines, Tim Clark, has warned of that he calls the crass stupidity of

falling prices or falling airfares on the back of cheaper oil. He says it will lead to a race to the bottom. Meanwhile, Emirates itself is having to

decide what its future fleet should look like. At the moment, Emirates only has two types of aircraft. The super jumbo, the whale of the sky, the

airbus a-380 and Boeing's 777 aircraft, in various variants, including the 200 and 300.

[16:40:00] Now as Tim told me, Emirates is deciding whether to buy some smaller planes, even though there's still room for the giant beasts.

TIM CLARK, CEO, EMIRATES AIRLINES: The amount of aircraft time we're allocating to routes over 14 hours, say the longer route get more and more

each year. And particularly now that we've got the 380 with the high takeoff weights, and the ability now to fly to places 17 hours away,

Oakland or Los Angeles or Houston, and the more we've done with that, particularly with the 380, the more it appears that they've become more

popular, let's say. And their economics, in terms of getting an aircraft the size of the 380 full to operate, to places like that really helps the

bottom line of the company.

QUEST: The Oakland route is a fascinating one between yourselves and Qatar, isn't it? They did it first and you jumped in and they've come back

in. Not that it really matters, but can that route really sustain the capacity?

CLARK: Can it sustain it? Well, all I can say is that if we're carrying over 450, 470 passengers each way today, and yes, they started recently, is

there enough for both? Time will tell. But clearly, there is a demand. And I can see that growing and developing. I can see more of the same.

QUEST: Let's talk about the airline at the moment. One reads half the articles about emirates, whether emirates seems to be the story de jure.

As yield is coming down, you don't have the fleet flexibility of other airlines, since you have two wide-bodied in the fleet. How difficult is it

for you at the moment?

CLARK: At the moment, the whole industry is facing problems, primarily driven by attractive yields, the amount of money we get per mile, and we

are notorious in our business of racing to the bottom wherever there is some advantage given to us. This is no exception. The last three or four

years as the oil prices have come off, we've reduced our fares to the point of crass stupidity, in my view. So, we are like many other carriers, are

facing the same kind of issue. Which is yield decline. And that has affected our bottom line. We will take -- we are taking multiple measures

now to deal with that. Both short, medium, and long-term, as we see a personal paradigm change in the way economy fares are structured and

marketed and we'll adjust to that. But in terms of fleet flexibility, I don't have a line of single aisles. We have stripped ourselves of the

older generation aircraft. We've introduced just two types, all virtually new now with the latest products. And we've reduced our cost level per

times result.

QUEST: But would you look to add a single aisle? I guess that's the core question. To give yourself the greater flexibility.

CLARK: Would we look at a single aisle, or would we look at another smaller twin, 87 or 350, all that's possible, more so when we eventually

move to the new airport and Dubai world central. Because with the number of stands we have with the one ways, we could introduce a number of smaller

aircraft.

QUEST: What are you going to do if the Airbus will not re-engine the 380?

CLARK: We will continue flying the 380 for as long as we can. It is an airplane that has incredible marketing pull. It's extremely popular with

our passengers, wherever we place it. I mentioned Auckland on the 380. Who would have ever thought that a 380 going into Auckland daily would pass

muster with trip economics, but it does. We will want to sustain that and keep it going as long as possible. If Airbus continues to produce, good

for them. If they are, as you say, at an inflection point with regard to what they do, with their product line, that's up to them. We'll have to

just deal with it.

QUEST: To paraphrase that famous quote, talk of my death is greatly exaggerated. When you read that Emirates is on the way down, you would

bristle and say what?

CLARK: Well, I -- you know, I haven't read that at the moment. In some respects, I'm turning another way. For once, people can see that Emirates

is subjected to trading conditions like everybody else.

[16:45:00] And that had we been hugely zooid subsidized and supported by their government, then we would be agnostic or impervious to what is going

on. So, the company has to make its way on that basis. Is it on its way down after 32 years of unbridled success in everything we've done? We are

now one of the largest brands in the world, in terms of airlines, probably the leading brand. We have a profitability record to most airlines would

kill for, to have that sustained. Not flakey, not patchy. Do I see emirates going down? Well, you know, I'm here, as far as I'm here, and the

team is here. Over their dead bodies, will that be allowed to happen.

QUEST: And you, sir?

CLARK: That's a pass on that one.

QUEST: You always say that to me?

CLARK: I know! Pass. You know, what can you say?

QUEST: Thank you very much. Tim Clark talking to me at the emirates headquarters in Dubai, which an extraordinary operation that they run

there. Now, let's turn our attention to something very different. Entrepreneurs who are finding a new approach and finding a different way of

getting us to all keep fit, as we consider India 20 under 40, it really is very simple. Keep fit and do it differently.

(BEGIN VIDEOTAPE) PAYAL KADAKIA, FOUNDER, CLASSPASS: You know, I think I've always been a creator and a builder throughout my life. Wherever I saw a pain point or

something that didn't exist, I was always one of those people who said, let me create and it put a lot of passion and drive towards it. I am 34 years

old and I am the founder of ClassPass. ClassPass is a monthly fitness membership program that lets you take classes at different studios and gyms

in your local area. So, you can go to a yoga class, a dance class, a spinning class, really anywhere and anytime you want to. My parents came

here from India in the `70s and they've been the best role models I could have ever had.

Always making sure that my sister and I had an education, making sure that we were OK. And I think that's just really stayed with me and it taught me

a sense of hope, and at the same time, a sense of perseverance. It was very hard to get that fly wheel started. And earlier on, I actually built

several products that didn't work, and I kept pivoting and it rating. And I think that was really a part of what got us here, I didn't get up on

being able to get someone to go to class. Innovation is the key to success. And whether you're a start-up or not, I think every company has

to keep innovating. I measure the success of class pass by how many lives and hours of people's lives that we've touched. We've done over 30 million

reservations, so to me, that's 30 million hours of people's lives that we've had our hand in. I really believe we're only at 10 to 15 percent of

that. So, there's so much more for us to do and so many lives for us to touch and hours of people's lives for us to have an impact in. So, there's

a big road ahead.

(END VIDEOTAPE)

QUEST: 20 under 40 in India.

When we continue in just a moment, we're going to be talking about Russia. The situation in Russia is really very simple. Arguably the lovefest that

Russia potentially had with Donald Trump may be about to come to an end. Ivan Watson is in Moscow and will be with us after the break. Good

evening. Its QUEST MEANS BUSINESS from the New York Stock Exchange.

[16:50:00] (COMMERCIAL BREAK)

QUEST: The mood in Moscow as it relates to Donald Trump may be changing from one of unbridled optimism to perhaps caution and some worry. Now, the

influential Russian senator, Alexei Pushkov tweeted today Donald Trump, Mattis, and Tillerson are not on the same page over Russia. Ivan Watson

joins me from Moscow. Firstly, thank you for staying up late tonight to bring us this story. I suppose, are we looking at a nuanced shift here,

Ivan? Or a wholesale reversal of thought and thinking actually, we may not be as good with Donald Trump as we thought?

IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, you know, the kremlin is still putting out the line that it would like to cooperate with

the Trump administration, to, as Trump and Vladimir Putin said to each other on the phone in their first call after Trump's inauguration, they

pledged to try to work to fix the ruptured ties between these two countries, these two governments. But we're starting to hear the first

hints of criticism from some important Russian officials towards some officials in the Trump administration, notably this week, the defense

minister here responded to a statement that the new U.S. defense secretary made, the defense minister here saying, you think you can deal with Russia

from a position of strength, you're not going to get very far.

And that tweet that you mentioned, and you know, the kremlin spokesman, Dmitry Peskov, was asked himself by reporters, are you disappointed by how

things are going with the Trump administration thus far? And he said, no, not disappointed, because we never looked at this through rose-colored

glasses. We're realistic about the prospects of improving this relationship. But I do think it's starting to set in here, Richard, that

with the firestorm, the political firestorm in Washington, with all the controversy around allegations of ties between the Trump campaign, before

the election and Russia, this will make it much more difficult to try to reach any kind of detente right now between these two governments.

QUEST: Wasn't that inevitable, though, Ivan? Bearing in mind the deep animus that has existed, but also, if you take, for example, someone like

Secretary Mattis, a man who has spent most of his career in some shape or form with NATO, dealing with the prospect of a Russian threat?

WATSON: Of course, and some of the narrative we've heard, there was this good man, Trump, that Russians liked, that was supported by the kremlin

media, and by many influential officials, but that he would be battling against a political establishment in the U.S. that had a strong, as people

here put it, Russo-phobic tones. So especially the secretary of defense Mattis, he's come out with very tough words for Russia, identifying it as a

key threat to the NATO military alliance, when he met with his fellow defense ministers in Brussels earlier this week. There does seem to be

hope that perhaps Trump can push through some of this, but there also seem to be some calibration going on in the kremlin-backed media here. Much

less coverage of Trump than what we've seen in past weeks. He's not on the front page of the newspapers, in the same way. And perhaps that's a way to

try to prepare the public to lower her expectations for this new government in the U.S.

QUEST: Ivan Watson, grateful on a Friday night that you have stayed up late to talk to us from the Russian capital. Thank, sir. A quick look at

the markets. The Dow Jones industrial is already at a record, as is the NASDAQ and S&P 500. It's the umpteenth record in a row. I've lost count

on my fingers and toes the. As to Europe, that's the European markets have seen what was happening in New York, in the early part of the day, so New

York was down, Europe was a mixed sort of bag, a real rag bag, if you like, and the FTSE, of course, not surprisingly, boosted by Unilever and the $50

a share rejected from Kraft Heinz. We will have a profitable moment after the break.

[16:55:00] (COMMERCIAL BREAK)

QUEST: Tonight's profitable moment. I want to take the theme that change is good. And we're talking about it, of course, as you have some very big

change, potentially, with Unilever and Heinz Kraft or Kraft Heinz, as they consider a takeover bid. So, Kraft Heinz makes an offer, Unilever rejects

it, but, of course, it's far from over. This is an M&A deal that's likely to be done. It's just a question of at what price. Change is good. And

it's in that mood that we say, change is good to my dear colleague, Saskya, who came and joined us in New York from London. And to whom we now say

good-bye. Look, if you've enjoyed the superb guests we've had, Saskya has booked most of them in many ways. The biggest names she reels in for us on

QUEST MEANS BUSINESS. Enchanted in Paris. That's QUEST MEANS BUSINESS for Friday night. I'm Richard Quest in New York. Whatever you're up to in the

hours ahead, I hope it's profitable.

END