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Moneyline News Hour

Dow Slips 2.96 to 10,628.36; Nasdaq Falls 32.80 to 3,656.30; Earnings Warning Sends Priceline's Stock Tumbling

Aired September 27, 2000 - 6:30 p.m. ET


WILLOW BAY, CNN ANCHOR: Tonight on MONEYLINE, the Nasdaq tumbles for the fifth-straight session: all of its summertime gains now wiped out.

STUART VARNEY, CNN ANCHOR: One sector slammed today: the dot.coms. Priceline loses nearly half its value as investors name their own low, low price for the stock.

BAY: And how would a Bush White House handle tax cuts, Social Security, and what the candidate says is the biggest threat to American economic prosperity. Find out in a special one-on-one with George W. Bush.

ANNOUNCER: This is MONEYLINE. Reporting tonight from Los Angeles, Willow Bay, and from New York, Stuart Varney.

BAY: Good evening, everyone, and welcome to MONEYLINE. I'm Willow Bay.

VARNEY: And I'm Stuart Varney.

Our top story tonight: tech tremors on Wall Street. After yesterday's punishing sell-off for tech stocks and the blue chips, investors today were ready and waiting for a rebound. They're still waiting. The Dow barely budged on the day, but the Nasdaq slumped to a four-month low, effectively erasing all trace of its summertime comeback.

The index fell as much as 66 points at its low today before rebounding a bit. It lost nearly 33 points, ending at 3,656. Now, that is the lowest close since June 1st. And after tumbling more than 1 1/2 percent yesterday, the Dow suffered through a very choppy session, closing down just under three points.

Even less movement on the S&P: It was down less than one point.

Now, what triggered this tech anxiety today? Well, a sales warning from Priceline. Just last week, pitchman William Shatner admitted he didn't use the site to buy airline tickets. Apparently he's not alone: the company warning that quarterly revenue will disappoint.

Priceline shares plunged on the news, and just one look at a 52- week chart shows just how badly the stock has been beaten down. It's off nearly 90 percent from the high.

The warning hit Yahoo! hard as well today. That stock is now down 64 percent from its high -- Willow.

BAY: And those stocks were hardly alone in the Nasdaq loser circle today, the index retreating for the fifth-straight session.

John Metaxas has been following the action all day and he joins us now from the Nasdaq marketsite -- John.

JOHN METAXAS, CNN CORRESPONDENT: Willow, the market punishes those stocks that fail to meet expectations, but today that punishment extended to the entire technology complex. Every tech-related sector here was lower. Beginning with, a 42 percent decline, down nearly $8 a share after issuing that warning.

The other dot.coms caught in the downdraft: Yahoo! down nearly 12 percent, not only breaking $100 a share; for much of the day, below $90 a share.

What is also going on, according to the analysts, is many mutual fund managers are dumping shares of companies that have shown substantial losses in the quarter. They don't want to show them on the books at the end of the quarter on Friday.

Also caught in the tech downdraft, eBay: concerns about the implications for e-commerce in general. eBay down 10 percent on the day.

The big caps here at the Nasdaq were lackluster. Microsoft tried to rally yet again today off of that Supreme Court ruling yesterday, but it fell back down 3 percent on the day.

Cisco managed a nice gain, up nearly 4 percent on the day. But this remains a depressed stock, below its summertime trading rage, below its 200-day moving average for the longest period in years.

And Intel has been a stock searching for a bottom since its earnings warning last week. It finished lower Friday, Monday and Tuesday. It was up today, but down more than $2 from the highs of the session.

Two lesser-known companies, Parlex and New Horizons, warned about their earnings. Each stock punished 40 percent or more on the day.

With Intel last week warning, Priceline this week, the question on Wall Street is, Who's next? -- Willow.

BAY: John Metaxas at the Nasdaq marketsite. Thanks, John.

Well, the Nasdaq's now down more than 10 percent in 2000, but later on MONEYLINE, we'll talk with a stock-picking star who is up more than 40 percent with his tech portfolio this year: Robert Turner of the Turner Technology Fund.

The Nasdaq, of course, was the big disappointment today, but the Dow performance was not exactly uplifting either. The index enjoyed no rebound in the wake of its pounding Tuesday, the worst session for the Dow in months.

Well, let's go to Allan Chernoff at the New York Stock Exchange with a look at the blue chips dragging on the Dow and the other big movers on the Big Board -- Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Hi, Willow, the earnings warning that we've been talking about for the past week are now turning into an anxiety attack. Rumors were flying around the floor today that there may be more nasty surprises. That was behind the plunge in telecom equipment stocks: Lucent today falling to a new 52- week low.

Some companies felt the need to reassure investors. Motorola said, "We have not changed our guidance." The stock fell anyway, down 1 1/8. Hewlett-Packard CEO Carly Fiorina again confirmed her company is "on track for the quarter."

That gave a boost to the Dow, the stock up 4 1/2.

Another key factor today: portfolio reshuffling. With only two days left in the quarter, portfolio managers are bailing out of their losers, hoping not to show the details of their mistakes to clients. That selling pressure drove five Dow components to new 52-week lows: AT&T, Eastman Kodak plunging again, Alcoa, International Paper and Caterpillar as well.

There's been plenty of talk about September being the cruelest month for the market. So far, the Dow is off more than 5 percent for the month; the Nasdaq down more than 13 percent.

Is there relief ahead? Well, if history is any guide, there may be some hope for the Dow. September is the worst month, on average, for the industrials, down an average 8/10 of 1 percent, while October has been flat since 1981 on average again.

But guess what? It's October that is traditionally the worst month for the Nasdaq. On average, the composite loses 4/10 of 1 percent during October. The best hope going forward is to forget about that history lesson and listen to traders: Many say the market is severely oversold -- Willow.

BAY: Allan, we'll take any glimmer of hope we can get. Allan Chernoff at the Big Board, thanks -- Stuart.

VARNEY: Less than a week after President Clinton approved tapping into the Strategic Oil Reserves to try to counter soaring oil prices, OPEC is coming together for its first heads-of-state summit in 25 years. Today in Venezuela, the 11-member nations convened. Brent Sadler was there, and he joins us with the details -- Brent.

BRENT SADLER, CNN CORRESPONDENT: Thanks, Stuart. This historic OPEC summit, as you say, the first time one at this level, heads of state, has taken place since 25 years is now in mid-swing here in the Venezuelan capital. And speech-making is now going on by all 11 members of the oil cartel.

What's emerging here is that there is a recognition throughout all member states that oil prices are too high. While they favor prices being around the $22-28 barrel level, they'd be happy, they say, with smack on the knows at $25 a barrel. They do not recognize that there is a shortage of oil in the world market.

So we're not going to see any real declarations here about production levels per se. The OPEC leaders say that there is already going to be an increased production, amounts of oil in the market from October, a million dollars a day coming from the strategic stockpiles of the United States as well as another 800,000 barrels per day that was agreed earlier this month by OPEC members meeting in Vienna.

So they do recognize that prices are indeed high and they expect them to come down, still hovering today around about the $30 barrel mark. They expect it to come down, but they do not want it to come down below $22 a barrel. If that happens, they say, then OPEC might have to take action, reducing production levels in the near future.

But at the moment, they're adopting a wait-and-see attitude. At the end of the summit Thursday, expect there to be a so-called "Caracas Declaration," which will allude to high taxes in Europe, but no need for production levels to be increased, they say, at this stage -- Stuart.

VARNEY: That is Brent Sadler reporting from Caracas, Venezuela.

Now, let's give you the pricing picture as of today. In New York trading, light sweet crude gained ground, ending the day down -- ending the day -- actually, it was up -- down, I should say, down 32 cents at $31.19 a barrel -- Willow.

BAY: Stuart, another corporate alarm today, this one from DaimlerChrysler. The struggling German-American car company warned that the Chrysler division would report a quarterly loss of more than a half billion dollars. An aggressive incentive strategy and the cost of rolling out new vehicles are two factors hurting the Chrysler bottom line.

DaimlerChrysler stock actually gained on the day, with one analyst saying there was relief that it wasn't worse. It rose 94 cents to $45.94 a share.

Coming up on MONEYLINE, talks fell apart this summer only to be resurrected this fall: Word of a possible deal involving top Web hosters Exodus and Global Center. Plus, two masters of the media business: What are John Malone and Rupert Murdoch getting out of a very complex deal? And our special one-on-one with George W. Bush: his platform for keeping history's longest economic boom from going bust.


VARNEY: News of a deal tonight in the web hosting arena. Industry leaders Exodus Communications and Global Center, which is owned by Global Crossing, are reportedly close to a deal. It could be announced as early as tomorrow morning. Exodus is said to be buying Global Center for $6.5 billion in stock. Just two months ago, negotiations between the two companies broke down, in part over the price of a potential purchase.

Well, for a look at those stocks and how they're performing in after-hours trading, we head down to the CNNfn news room, where Amanda Lang is covering the late action -- Amanda?

AMANDA LANG, CNN CORRESPONDENT: Stuart, some mixed reaction. We have Exodus down 1 1/2 on Instinet trading at 51 3/4, while Global Crossing is up 1 1/8. It is trading on Instinet at 31.

The World Wrestling Federation is off to the tune of $7, trading at $12 3/4. This after it said that solar revenue will hurts its profit. And that is on the volume of 16,000 shares.

Microsoft said that it's going to take $350 million charge. This is for accumulated derivative losses, this is a new accounting rule. It's not yet clear, analyst say, what impact, if, any this will have on Microsoft's earns. At a volume of 350,000 shares, Microsoft is off just 5/8, trading at 60.

And Sony says that it is facing some production delays in its Playstation II video game, but that it still believes it's on target to ship for this fiscal year, which ends in May. It will ship millions of them over the Christmas season. Sony is open for trade after hours, but is not trading. Back to you, Stuart.

VARNEY: There is significant after-hours trading. There's some real price movers there. Amanda Lang, thanks very much -- Willow?

BAY: Stuart, while investors contend with a slew of corporate warnings today, they did get a dose of encouraging news on the economy in the latest report on durable goods. Orders for big ticket products gained nearly 3 percent last month, after a huge drop in July. Now that helps ease the fear that the economy is slowing too fast, with days to go before the next fed meeting on interest rates.

VARNEY: Fed policy makers rely on accurate information to make their decisions on rates: decisions that affect personal fortunes and corporate profits. That's one reason why news today of a statistical glitch at the Bureau of Labor statistics caused a mild uproar.

A software problem has forced the Bureau to revise upward the Consumer Price Index 1/10 of 1 percent from December of 1999 to August. And that did not go over well in the bond market. Treasuries slumped on the news. The ten-year note fell four ticks to yield at 5.81 percent, not quite a slump, perhaps. But the third-year bond, well, that lost nearly 3/4 of a point, the yield there coming in at 5.90 percent.

BAY: Well. Stuart, you heard it here first last week, and today they made it official. Rupert Murdoch's News Corporation and John Malone's Liberty Media today announced an asset swap that gives both companies what they really want: a better bargaining position for the next big deal. Casey Wian has more on this strategic media play.


CASEY WIAN, CNN CORRESPONDENT (voice-over): Rupert Murdoch and John Malone have done deals before, but this is the biggest so far. Murdoch's News Corp and its global pay television service, Sky Global Networks, will acquire Malone's stake in Gemstar-TV Guide. The deal makes News Corp Gemstar's largest shareholder with 43 percent.

On a conference call with analysts and reporters, Murdoch said he believes Gemstar's interactive program guide will become the first screen television viewers visit to access broadband services.

RUPERT MURDOCH, CHAIRMAN & CEO, NEWS CORP: I'm not just talking about the distant future. Already the guide plus IPGs have been built into 3 million television sets. Manufacturers license their technology, then broadcasters license the content, then advertisers pay for placement on the service. The scope for revenue growth is enormous.

WIAN: In exchange for the Gemstar stake, Liberty Media now becomes News Corp's largest outside shareholder, boosting its stake to 18 percent, up from 5. Malone continues to assert his independence from Liberty's figurehead parent company, AT&T.

JOHN MALONE, CHAIRMAN, LIBERTY MEDIA: From Liberty's perspective, we see this as kind of a triple play -- we get a substantially bigger economic stake in News Corp, which we've always regarded as having a great global strategy in a consolidating media high-tech world.

WIAN: Completing the triple play, Malone says, is a continued indirect investment in Gemstar and a half billion investment in the IPO of Murdoch's Sky Global, which is expected later this year.

CHRISTOPHER DIXON, PAINEWEBBER: I think the long-term plan is quite simple. It's the ability to create an extraordinary holding company: Liberty Media, that allows him to have a portfolio of assets that are at the absolute cutting edge of the convergence of the digital media.

WIAN: For Murdoch, Malone's investment may give him the financial clout to acquire DirectTV from GM-Hughes and give Sky Global a big U.S. presence.


WIAN: Asked if he is considering such an acquisition, Murdoch says it's too early to talk specifics, but if GM decides to sell, Murdoch says he certainly would be interested -- Willow.

BAY: Casey -- as would a lot of other media players. Casey Wian, thanks.

Checking the stocks: News Corp gained more than 2 1/2, while Liberty Media rose only fractionally. Gemstar-TV Guide took off, that up nearly 4 1/2 -- Stuart.

VARNEY: Up next, we check in with Wolf Blitzer for all the news outside the world of business.

Plus, a stock-picking star that's in the top of his class: meet the manager of one of the best performing tech funds this year, Robert Turner, he's next on MONEYLINE.


VARNEY: In tonight's MONEYLINE "Profile": John Malone, chairman of Liberty Media. He got a B.S. from Yale, he got his Ph.D. from Johns Hopkins University. And his career at Telecommunications Inc., he negotiated one deal every 12 days. He's also the largest individual shareholder of AT&T. That makes him wealthy. Here's what he has to say about his money: "I'd rather be a good guy than a bad guy, but I'd rather be a rich bad guy than a poor good guy." That's John Malone.


VARNEY: Turning to the top news stories, another Texas execution is scheduled for this evening. Wolf Blitzer joins us from the studios here in New York with the MONEYLINE "News Digest" -- Wolf.

WOLF BLITZER, CNN ANCHOR: Thank you, Stuart.

We begin tonight in Huntsville, Texas, where, in just a few minutes, death row inmate Ricky McGinn is scheduled to be executed by lethal injection.

CNN's Tony Clark joins us now from outside the prison -- Tony.

TONY CLARK, CNN CORRESPONDENT: Wolf, Ricky McGinn in his holding cell right now. He has had his last meal. Throughout the day, he visited with family members and talked to the chaplain. Prison officials tell us he is solemn and ready to get on with this.

Shortly after 7:00 Eastern time, the warden, Chip Willet (ph), will walk to his holding cell and escort McGinn to the death chamber. There, he will be strapped onto a gurney and an I.V. will be inserted into his arm. He has told the warden that he wants to make a short statement to his family.

And then, a little bit after 7:00 Eastern, a combination of drugs -- a lethal combination of drugs -- will be administered to him. His family members and family members of the victims, his stepdaughter, 12-year-old Stephanie Flanary, will be witnessing the execution. They all plan to speak after the execution takes place.

CNN plans to bring that to you live -- Wolf.

BLITZER: Thank you, Tony.

Now to news from Washington: President Clinton announced today the federal budget surplus for fiscal year 2000 is expected to be a record $230 billion. Clinton also said the government had paid down the national debt by $223 billion this year.

And in Belgrade: the largest rally yet by opposition supporters. Tens of thousands of people crowded the main square in a victory party for presidential candidate Vojislav Kostunica. Preliminary results show him beating President Slobodan Milosevic, but the president claims a run-off vote next month is necessary.

Those are some of the top stories. Join us for more on "THE WORLD TODAY. That's at 8:00 p.m. Eastern, 5:00 p.m. Pacific -- Stuart.

VARNEY: And that's Wolf Blitzer with the MONEYLINE "News Watch." Thanks very much, Wolf.

Now, in the MONEYLINE "Tech Watch," one of the five best performing tech funds this year, the Turner Technology Fund actively buys and sells stocks to take advantage of major price swings. Just yesterday, the fund doubled its investment in Cisco Systems. Its other top holdings include: Nortel Networks, I2 Technologies, Corning, and Juniper Networks.

The fund is up 37 percent this year. It has a total return of more than 260 percent since its inception in July of last year. And joining us now with more is the fund manager's, Robert Turner.

Robert, welcome to the program.


VARNEY: What is exactly is your investment style? It's not exactly buy and hold, is it?

TURNER: No, it is high-turnover style. But it is very much focused on buying those companies with improving earnings expectations and immediately selling those, as the earnings begin to deteriorate.

VARNEY: Does that high volume of buying and selling affect your administrative cost at all?

TURNER: The return is net of transaction costs. And we keep our transaction costs very low. But the key, we believe, is to pick the best stocks. And we'll go off and avoid those before they go down.

VARNEY: Now, why did you double your investment in Cisco very recently? I know it dropped below $60 a share, but it seems to me that the momentum players have left Cisco. And they may or may not come back. Why did you buy it?

TURNER: Cisco has gone down because of the concern about telecom spending. But Cisco only has a third of their business within telecom. And within that third, they're actually in the higher growth areas: routing, switching and optical. So we think it's just a misperception about what is going on with Cisco.

Cisco had a great recent quarter in July. And we feel the October quarter is going to be very, very strong also. VARNEY: Back above $60 very soon, do you think?


VARNEY: OK. AOL: Will it get some benefit if this merger with Time Warner, the parent of CNN, goes through?

TURNER: Very definite benefit. The stock has been in a sideways pattern here for well over a year. The combined entity will have a price-to-cash flow about the same as the projected growth rate, which is a very, very reasonable price for media companies at this point.

VARNEY: Corning: You own it. You own a lot of it, if I'm not mistaken.

TURNER: That's right.

VARNEY: And it's pretty much gone straight up recently. Look at that chart. Would you consider selling it now and take your money off the table?

TURNER: No. We like Corning. It is in the fastest-growing segment of the marketplace right now, which is the optical segment. Demand far outstrips the supply of what Corning can produce. The company made a fairly significant acquisition, which, longer term, will be quite positive.

VARNEY: OK. Robert Turner, congratulations.

TURNER: Thank you.

VARNEY: A fine performance. And thanks for being with us on MONEYLINE.

TURNER: Thank you.

VARNEY: OK, sir -- Willow.

BAY: Stuart, still to come on MONEYLINE, our conversation with Governor George W. Bush: his take on taxes, Social Security and rising oil prices.


VARNEY: Coming up in our next half hour: Today may have been the day to name your own price for a host of Net names. We'll have much on the warning from that sparked today's big sell- off.

BAY: And what will the mega-marriage between Time Warner and AOL mean for open access and instant messaging? The companies CEOs take their case to Capitol Hill. Plus, we'll head back down to the New York Stock Exchange for all the market action.



ANNOUNCER: The MONEYLINE NEWS HOUR continues. Here again, Willow Bay in Los Angeles and Stuart Varney in New York.

BAY: In tonight's headlines, the Nasdaq makes it five for five. The tech index slumps again, falling to its lowest levels since June. Blame it on disappointments: Priceline the latest to warn about its third-quarter sales.

And one-on-one with presidential candidate George W. Bush. We ask the Republican governor how he plans to slash taxes and deal with sky-high oil prices.

VARNEY: But first, tonight's top story: The September sell-off is taking on new meaning this week as investors continue to head for the exits. The catalyst today: yet another sales warning. And this one -- this time it came from the world of land. was pounded after the Internet retailer said third- quarter revenue will disappoint.

That warning weighed on other Web stocks and in turn pulled down the Nasdaq once again, the composite index falling nearly 33 points to end at 3,656. That is the Nasdaq's lowest close since June 1st.

The Dow industrials also not able to hold onto any gains today, the blue chip index down nearly three points. It closed out the session at 10,628, its third straight day in the red.

The S&P 500 also ended the day with a very slight loss. It closed at 1,426.

Now today's biggest losers, no surprise, those Internet issues.

Allan Chernoff joins us now with more from the New York Stock Exchange -- Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: That's right, Stuart. You could almost hear William Shatner ordering the Starship Enterprise into warp-speed retreat as Priceline stock was plummeting to Earth. But here on Wall Street, there is no overcoming the pull of gravity, and it pulled virtually all the Internets down today.


CHERNOFF (voice-over): Priceline's admission that revenues will fall short of forecasts ignited the latest sell-off in Internet stocks, whose business plans once were viewed as golden. No more. Internet blue chips were black and blue today: Yahoo!, eBay, Amazon, and CMGI all sharing the pain.

It was true for every sector of the Internet: content companies like CNet; advertisers, including DoubleClick; B2B players Ventro and Akamai; and consultants like Razorfish. Worries about revenue and profit growth have now moved well beyond economically cyclical stocks.

STEFAN ABRAMS, TRUST COMPANY OF THE WEST: There's no question that as economic growth moderates, as competition intensifies in many sectors, even in the new economy, in technology areas, that profit growth will moderate.

CHERNOFF: Telecom equipment makers were disconnected as Wall Street worried that telecommunications carriers may cut spending. Among the losers: Lucent, falling to a new 52-week low; ADC Telecommunications; JDS Uniphase; and Copper Mountain. So-called "old economy" stocks, like retailers, also continued sinking on profit worries, including Abercrombie & Fitch, AnnTaylor, The Gap stores -- at a new 52-week low -- and Limited.

ALGER BOYER, U.S. BANCORP PIPER JAFFRAY: The retail sector is going down because they have tough comparisons from last year. It was a good Christmas season and there's been a lot of commentary about how apparel -- how apparel sales have been down year over year.


CHERNOFF: The fact is profits are slowing down. Third-quarter earnings for the S&P 500 are forecast to gain 16.4 percent during the third quarter, well below last year's third-quarter gain. The same is true for the fourth quarter when Wall Street is expecting 15 1/2 percent profit growth. And on a sequential basis, earnings are slowing down as well, which is likely to continue for the rest of the year -- Stuart.

VARNEY: You got to the show the money. Allan Chernoff at the Big Board. Thanks, Allan -- Willow?

BAY: Last week, Priceline took a hit after pitchman William Shatner said he doesn't use the service to buy airline tickets. Today, as Allan mentioned, the stock was pounded when the name-your-price e-tailer stunned investors with a sales warning.

Bruce Francis now on exactly what went wrong.


BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Investors shouted, "Beam me up, Scotty," and evacuated planet Priceline as the name-your-price company said sales were lower than expected.


WILLIAM SHATNER, ACTOR: You coming along for the ride?


FRANCIS: The culprit: a $20-25 million shortfall in its airline ticket business, which accounts for the majority of Priceline's revenues. On a conference call, Priceline's chief executive said the shift was abrupt.

DANIEL SCHULMAN, CEO. PRICELINE.COM: We believed that we were on track to be in the range of analysts' revenue estimates until we experienced a reversal of some positive sales trends in the month of September.

FRANCIS: Priceline says the customers are offering to pay lower prices. And airlines aren't accepting those bids as often as expected. Analysts say that airlines can sell discount fares elsewhere without accepting lowball prices. Higher fuel prices and the resulting fare surcharges are also factors.

TOM COURTNEY, BANC OF AMERICA SECURITIES: It's clear in productivity that the company is getting out of their existing customer base -- it's not large enough, it's not strong enough to drive the revenue growth that the Street expects in the stock.

FRANCIS: Also expecting growth, three recent, well-publicized trophy investors in Priceline. Saudi Prince al-Waleed bin Talal invested twice recently. John Malone's Liberty Media also purchased shares at $25 in August. He was joined by Paul Allen's Vulcan Ventures. Both companies were early venture investors in Priceline as well.

Those high-profile investments did little to reverse Priceline's falling stock price. Shares are now off almost 90 percent from an all-time high hit in March. Some analysts say that there's too much about Priceline's business that's uncertain.

MICHAEL LEGG, JEFFERIES & COMPANY: So until we get a clearer picture on that and we see some earnings per share start to come into play, I think that this could be a relatively flat stock over the next couple of months.


FRANCIS: Priceline tells MONEYLINE that Allen, Malone and the Saudi prince will not receive their shares for another year, but those private placement deals offer no protection against a drop in that publicly traded stock price -- Willow

BAY: Bruce, as you noted, business is uncertain. But is the Priceline business model in fact broken?

FRANCIS: Well, you know, despite those drops in the forecast, Priceline will still post a healthy increase in its revenue for the current quarter. Still, there are a lot of questions about the trends that are exhibited here.

Priceline is going to have to prove it to Wall Street and investors at large that they can get on a fast track of megagrowth and really make this company permanently profitable. That's an open question right now.

BAY: OK, Bruce, thanks. Bruce Francis reporting -- Stuart.

VARNEY: Word tonight of a possible deal between two leading Web- hosting companies: Exodus Communications and Global Center, which is owned by Global Crossing. Just two months ago those companies called off the talks, in part because of price. But tonight they are reportedly close to settling on a figure. Exodus is said to be buying Global Center for $6 1/2 billion. And the deal could be announced as early as tomorrow.

In after-hours trading, Exodus down 2 1/4, Global Crossing up just over two points.

BAY: Up next on MONEYLINE, we'll go one-on-one with presidential candidate George W. Bush. Find out what he thinks could derail the longest economic boom in history. Stay tuned.


BAY: In tonight's "MONEYLINE Focus": one-on-one with George W. Bush. The Republican nominee for president hit California this week, pushing his education plan.

But last night I asked Governor Bush to focus on the economy: on his blueprint for economic growth. Tax cuts, Social Security, the budget surplus, all part of our conversation. But we began by talking about oil. I asked Governor Bush to imagine this scenario: it's February, a cold, tough winter and he's in the White House facing an oil crisis. What would he do?


GOV. GEORGE W. BUSH (R-TX) PRESIDENTIAL CANDIDATE: Well, first I hope, you know, I hope we're not in that situation; and if we are it indicates that there's been little or no planning during the last couple of years.

I guess what I'd do is make sure poor people got their heating bills paid. I would increase LIHEAP, LIHEAP is the Low Income Heating Energy Protection Program. Its a program that says, on the East Coast, for those who have heating oil problems, we'll help pay for it.

Secondly, I'd work with our friends overseas. I mean, one of the things that a president does is earn capital; and we have pretty good capital overseas with our friends. It hasn't been wisely used, evidently, because the OPEC nations, those friendly nations in OPEC are not cooperating to the extent which I hope they would.

The truth of the matter is, in order to bring down the price of crude oil and the price of heating oil or gasoline -- refined product -- we need the price of crude, internationally to drop.

BAY: And why is it that you believe you would have a greater influence over OPEC than...

BUSH: Than the current administration?

Well, they evidently don't have much influence over OPEC right now. Otherwise I would hope that OPEC would be responding. I think our foreign policy, a president's foreign policy needs to be consistent and strong. Needs to, you know, make it clear what the priorities are of the United States and, you know, history is going to judge.

But I would suspect history is going to say that, somewhere along the line, this group up in Washington has lost the capacity to convinve our OPEC friends to increase supplies.

BAY: Let's talk about your tax plan.

BUSH: Sure.

BAY: $1.3 trillion over 10 years -- a sizable tax cut. Fed Chairman Alan Greenspan is concerned that an additional stimulus to this economy would be harmful. As you well know, he's been fighting to slow growth with a series of rate hikes.

Are you challenging that thinking with this plan?

BUSH: No, not really. Listen, I appreciate chairman Greenspan.

He also said that he would rather, instead of increasing baselines of federal budgets, his first choice is debt repayment. His second choice is passing some of the money back to people who pay bills.

And let me explain my plan -- I appreciate you bringing it up. There's about $4.6 trillion of surplus projected, and your viewers have got to understand, that's after budgets grow. The surplus exists after the baselines of the budgets grow over a 10-year period of time.

Of that, I want half the money to go Social Security. I want some of the money, nearly a trilion to go for projects like prescription drugs for seniors. Money to strengthen the military to keep the peace. I've got some views about education around the world. I want to -- you know, I've got some money in there for the environment.

But there's still a quarter unspent, about $1.3 trillion. I think we ought to the send it back to the people who pay the bills, and let me tell you why.

Two reasons: one is an insurance policy against an economic downturn. But also because I believe that people should have their own money to spend.

There's a philosophical difference between me and my opponent. He'd rather the government spend that money on behalf of people, and I'd rather the people spent it on behalf of themselves.

If I got a second: I want to get rid of the death tax. I want to do something about the marriage penalty. I want to drop the top rate and the bottom rate from 15 percent to 10 percent and increase the child credit.

BAY: If those surplus numbers don't hold up, which is quite possible, what then? Is your tax plan still a good idea?

BUSH: Well, my tax plan phases in, but absolutely. If the economy were to grind -- got down to a halt, the best way to stimulate an economy is to give people their money back.

My opponent and I disagree on that. I was reading the other day where he said that he would raise taxes if we were headed toward a recession. I wouldn't. I would cut taxes, which I'm going to do and I would accelerate the tax cut. But we phase it in over a 4-year period of time.

BAY: Another element of your plan for Social Security.

BUSH: Yes.

BAY: You would allow some beneficiaries to invest that money in the bond and equity market.

BUSH: Right.

BAY: Why is that a good idea? Is it safe?

BUSH: Well, I think it would be safe, I do.

I think that, you know, there's going to have to be some constants and some guidelines -- we can't let people take some of their own payroll taxes and put in the lottery or a mutual fund for horse racing. I mean, it would have to be, there would have to be some guidelines for the investment vehicles that people could use.

But the safest of all safe -- of about 4 percent is twice what they get in the Social Security trust today; and the reason why we out to give younger workers the opportunity to invest some of their own money, if they choose, in the private markets, is we need to get a better rate of return on money in order for there to be Social Security benefits in the future.

BAY: Now, you mentioned rate of return. What happens if there's a market downturn? If the market declines 20 percent in a year?

Is there, under your plan, some sort of guarantee for that money?

BUSH: Well, as you know, if you look at the history of stocks and bonds over the course of a long period of time, the market has consistently gone up. I mean, there's never been a period of time where the market has actually remained lower than it was when it started 20 years earlier.

And I just will tell you, in order to make sure there's a Social Security system down the road, you know, instead of, kind of, deferring pain like my opponent wants to do -- it's going to cause a huge tax increase down the road.

I want to say, let's let younger workers, if they so choose -- this isn't a mandatory program, manage some of their own money; so that I can say to younger folks that the benefits, the combination of personal retirement accounts and that much -- their portion of the Social Security will be equal to or greater than that which is anticipated today.

BAY: Is there something -- a threat, lurking, perhaps -- in terms of this economy that we haven't paid enough attention to?

BUSH: Energy.

BAY: Energy.

BUSH: I think it is a threat and I think it's a real problem. And I think it's the fact that -- because we don't have an energy plan.

We ought to be doing a couple of things. We ought to be exploring ANWR in Alaska. We ought to open up those potential vast reserves, and I know we can do so in a environmentally friendly way.

We need to build more powerplants. Southern California has got an electricity issue because there's shortages of supply.

We need an increased refining capacity.

Let me say one thing, there's a lot of nice rhetoric going on about price and all that business. Our refineries are running at near full capacity. We need more refineries in the United States.


BAY: Despite Governor Bush's bullish economic outlook he has been using the "R" word lately. He says this country is facing an education recession in the public schools.

Last night he called it a "real bottleneck for economic growth in the future." Part of his plan: measure performance and hold schools accountable for their results.

Just a note, we have invited the Democratic presidential nominee, Vice President Al Gore, to join us here on MONEYLINE as well, Stuart, we hope he joins us, we'd like to hear from him again.

VARNEY: Hope he does; all right, Willow.

Here's what's next on MONEYLINE: They pulled off the biggest deal in corporate American history, but can Gerald Levin and Steve Case (ph) make it a done deal?

The debate over AOL-Time Warner hits Capitol Hill once again.


VARNEY: It was the first mega-deal of the year; the merger announcement of AOL and Time Warner, the parent of this network. Now, more than nine months later, the chief executives of both companies are still trying to convince Washington that it should be approved.

Today, Steve Case Gerald Levin were on Capitol Hill.

Greg Clarkin joins us from there now and joins us with the details -- Greg.

GREG CLARKIN, CNN CORRESPONDENT: And Stuart, the CEOs of both of these companies spent about four hours today answering questions from lawmakers, the entire time trying to offer assurances that this mega- merger would spur, not suffocate competition.


REP. CLIFF STEARNS (R), FLORIDA: In your opinion, no anti-trust laws are being violated.

GERALD LEVIN, CEO, TIME WARNER: That's certainly our opinion because, as we said right from the outset, there are no overlapping businesses between these two companies.

CLARKIN (off camera): That was Time Warner CEO Gerald Levin on Capitol Hill making his case for America Online's proposed acquisition of Time Warner.

Levin was joined by AOL CEO Steve Case; the pair assuring lawmakers their $122 billion deal wouldn't squeeze out the competition, and while there may be no overlapping businesses, there's plenty of hot-button issues. Take open access: the opening of cable lines owned by CNN parent Time Warner to offer Internet services besides AOL. Both Levin and Case say they welcome other services, but bristled at the idea of regulators mandating it as a condition of approval.

STEVE CASE, CEO, AOL: I think it would be better from a -- if your desire is to have open access on cable, to have a situation where AOL and Time Warner are doing that voluntarily because they believe it is in their business interest, which is the case.

CLARKIN: Then there's instant messaging: the fast-growing field dominated by AOL. Competitors say AOL refuses to make its service compatible with other services. AOL says it's working on opening up the system, possibly as early as next summer. But consumer groups have been vocal in their opposition of the deal, fearing an Internet and media powerhouse would limit consumer choice.

GENE KIMMELMAN, CONSUMERS UNION: A limitation in choice, choice that is defined by what AOL-Time Warner wants to offer on its systems, wants to partner with on its system where it will make the most money.


CLARKIN: Now, this hearing was before a House subcommittee, and featured just Levin and Case. As for opponents, they are expected to get their crack at a hearing next week. And as for regulators, it's reported that they may be close to a ruling by mid-October -- Stuart.

VARNEY: And that is Greg Clarkin in Washington. Thanks, Greg.

Let's check out how both those stocks fared today: Time Warner and AOL both down about 2 points, and clearly these -- two of these stocks, of course, are two of the 64 that now trade in decimals.

Also in Washington today: Hollywood in the hot seat. Just yesterday, eight Hollywood studios announced their own plan to put an end to the marketing of violent movies to children. Today, those studio chiefs were in town for a congressional grilling. The executives reiterated their commitment not to market movies to those under 17; but they also said there may be lapses, which may not be enough to remove the threat of legislation.


MEL HARRIS, PRESIDENT & COO, SONY: I cannot answer and say that we will not have marketing materials that will be exposed to people under the age of 17, that would be impossible for me to say.

SEN. KAY BAILEY HUTCHINSON (R), TEXAS: I am sending a signal across the bow that if you don't try to make this really work that you are going to see some kind of legislation, because parents are throwing up their hands in frustration.


VARNEY: The studio chiefs said they understand parents' concerns, but also noted that parents share some of the responsibility for protecting their children from these films.

MONEYLINE will be right back.


BAY: Air France and its insurers are suing Continental for its possible role in the Concorde crash in July. French investigators believe that a strip of metal from a Continental DC-10 fell on the runway at Paris' Charles de Gaulle Airport, and then punctured a tire on the Air France Concorde. Air France says that could have caused the accident that killed 113 people, and that airlines are legally responsible for any parts that fall off their planes. Continental says there is no conclusive evidence that it's involved in the Concorde accident, but it will continue to cooperate with French authorities.

Stuart and I will be back in a moment with "Ahead of the Curve."


VARNEY: And here is some of what could move the markets tomorrow: a possible deal between two leading Web-hosting companies: Exodus Communications and Global Center, which is owned by Global Crossing. Reports say Exodus could buy Global Center for $6 1/2 billion. The deal could be announced as early as tomorrow.

Also watch for the final revision for the second quarter GDP. Economists anticipate a rise of 5.4 percent, that's slightly higher than the previous estimate. Also tomorrow, jobless claims for last week, they're expected to come in at some 313,000. And Research in Motion due to report second quarter results, the expectation there is for a loss of 3 cents a share. And remember please, Bristol-Myers Squibb meets with the analysts in New York City.

To stay a step ahead of the markets, tune in to "AHEAD OF THE CURVE" every weekday morning at 5:00 a.m. Eastern Time.

We have breaking news. Let's go to Wolf Blitzer for CNN's coverage.



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