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QUEST MEANS BUSINESS
Southwest/AirTran Merger; Future Cities: Cairo
Aired September 27, 2010 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Hurray for M&A, deal making is back. Southwest snaps up AirTran, its chief exec tells us they are ready to expand.
And in this week's "Future Cities", Cairo gets the grip with its huge population.
I'm Richard Quest. A new week begins and, yes, I mean business.
Tonight a bevy of multibillion dollar deals, mergers and acquisitions are topping the news. Its all about getting a piece of the world's newest markets while you can, and at a price that seems cheap.
The old animal spirits are reawakening and finding plenty to sink their teeth into, according to Reuters.com, this year, $1.6 trillion worth of deals, that is up a fifth, or 20 percent, on last year. A sign that investors are eager to get their claws into emerging markets. And just today there were at least four or five major transactions. Some hostile, some agreed, that were announced.
If you join me over in the library you'll see what I mean. How about Unilever? Unilever, which has announced it is buying Alberto Culver, in a $3.7 billion deal. It is an interesting one, this. Alberta Culver, makes VO-5, VO, the shampoo. It also makes Dove, a variety of other products. And this particular deal will be of interest because it gives Unilever a foothold into the new middle classes in China, and in India.
There was also a deal that came along, Bright Food Group. Bright Food reportedly considering an offer for United Biscuits. Now, that would give the Chinese with the hobnob habit, United Biscuits makes some of the, at least European and U.S., favorite cookies, biscuits, call them what you will.
Bright Food is looking to expand on its home turf. It will bring, perhaps, if you just look at the facts, the sheer size and scale of United Biscuits would give it a seriously big hold in the market.
And then you have Wal-Mart; now Wal-Mart, arguably the largest retailer in the world. It is of vicious size and ferocity the way it transacts. And now it has not only moved into Europe, but moved down into Africa as well. Gateway to Africa it is bidding $2.4 billion for Massmart in South Africa. This would allow it to have 290 stores in 13 African countries. If this deal goes ahead and it completes, it is an ideal springboard for Wal-Mart, into Africa. Wal-Mart a major, of course, retailer in the United States and in Europe.
You are getting the picture, aren't you? M&A Activity is just about everywhere at the moment. For an insight into this, Jeffrey Kaplan is the global head of mergers and acquisitions at Bank of America, Merrill Lynch. From New York, earlier, I asked him, what was so special about deals done today?
JEFF KAPLAN, BANK OF AMERICA, MERRILL LYNCH: Richard, today was actually a remarkable day for M&A. We've had five deals announced in excess of $1 billion, across borders, across sectors, that I think are a good representation of the M&A activity that we've seen since August, and really since the beginning of the year. Which we think is a barometer for continued activity going forward, both fourth quarter as well as into early next year. We're quite upbeat about prospective M&A activity, both corporate and private equity.
QUEST: You see the interesting thing is, as you say, it is across borders. It is across sectors. It is large and small. It is niche, it is strategic. And which tells us that this is more than just a bubble bursting in the M-or start to form in the M&A activity, isn't it? There are reasons for doing this.
KAPLAN: Yes. We think it is more than a bubble. We think it is very strategic. We think it is number one, cross border. We see that it is across sector. We have seen that it is both hostile and friendly. And hostile is always the most confident expression of M&A activity. We have seen it as both strategic as well as private equity. So we think it is broad based and that gives us the confidence, as you suggested, it is more than a bubble. But the beginnings of an M&A recovery that we think are emblematic of an overall economic recovery.
QUEST: It all raises the question: Why now?
KAPLAN: The question, why now? is a good one. And we think we have seen evidence in the markets for this activity beginning to foment really over the past number of months. We have very strong financing markets. Debt rates are low. We have compelling equity valuations. So when you look at relative values, I think corporate acquirers are seeing the value and the opportunity in deals. We cash on balance sheets, Richard, maybe two to three trillion within the S&P 500 in terms of cash, particularly tech companies, with the ability to pursue M&A or share repurchases.
And again we see a global climate where an Asia-Pacific company, like Bright Foods, will seek a U.K. company, like United Biscuits, because we have a world that is shrinking. And natural resources that are becoming more coveted when you look at natural resources E&P (ph), so that there is really a lot of CEO and board confidence that the elements in the markets are supporting good transaction activity.
QUEST: Is it-are they being funded by-from what I can see, a lot of these deals. The smaller ones are being funded straight out of cash. In many cases the cash is on the balance sheet. The larger ones are-tend to be stock transactions don't they? Rather than debt transactions?
KAPLAN: You know what, Richard, in this market we've seen that the larger deals are cash transactions as well. I would cite BHP Billiton pursuing Potash, which is the largest of deals on the market, $40 plus, billion, proposed as an all-cash deal. Sanofi/Genzyme, not fully formed, but being proposed as potentially an all-cash deal. And again, we see depth of financing markets at very low interest rates that gives acquirers the confidence that debt or cash on hand is the lowest cost of capital.
QUEST: On your desk, back in your office, have you got lots of deals that you are now just waiting to launch?
KAPLAN: We have, Richard, a lot of dialogue with corporate acquirers that are thinking about strategic acquisitions right now. I think it is as busy as we've seen in the past 18 months. So we are quite upbeat about the pipeline. And as well, Richard, we are seeing private equity activity reemerge, also depth of market in leverage loans and high-yields. So add private equity to the mix of global, cross-border strategic deals and we think we're going to be very busy for the coming months.
QUEST: Jeffery Kaplan, joining me from New York, head of M&A, Bank of America, Merrill Lynch.
The other deal, of course, everyone was talking about, Southwest Airlines, in the U.S., was buying a fellow low-cost carrier, AirTran. The deal gives Southwest space at airports in Atlanta, New York, Boston, it will open up new routes for the airline to Mexico and the Caribbean. They are two low-cost carriers that are consolidating.
Poppy Harlow joins me now from CNNMoney.com, in New York.
This deal, Southwest is the granddaddy of low-cost. Does it make sense? What are they saying about why to buy not grow?
POPPY HARLOW, CNNMONEY.COM: It is an interesting deal. It is a nearly $35. billion deal, half of that about cash, half stock. It makes absolute sense when you listen to the analysts. I was on the call this morning for about an hour after the news came out. And you almost have no overlap, Richard, in the United States between Southwest Airlines, which is largely based in California, Arizona, etc cetera, and AirTran.
So you have a merger of two competitors that really were not on the same routes before. So from that standpoint it makes a lot of sense. What is fascinating about this is that Southwest Airlines has been itching- itching for international exposure, to try to fly, eventually overseas to Europe, to Asia. This merger with AirTran gives them the beginning of that ability. To possibly truly become a global low-cost airline. I spoke with the CEO of Southwest Airlines, Gary Kelly, this afternoon. Let's take a listen to part of our conversation.
HARLOW: Why, Gary, was AirTran the right target here, because the previous deal with Frontier Airlines ended up falling through. Now is a time when you see a lot of U.S. companies sitting with literally $1.7 trillion of cash on the sidelines, not putting that to work. So, why AirTran and it seems like a bet on the economy turning around, that you are willing to put that money to work right now.
GARY KELLY, CEO, SOUTHWEST AIRLINES: Well, it is a bet, at least, that the economy won't get significantly worse. But I think just combining our two route networks creates enough revenue opportunities that it overcomes the concern that one might have about the economy over the next several years.
So, it is not a big bet on the economy at all. It is more the opportunity to take two independent route networks with virtually no overlap. We compete very little with each other. It adds new markets, so we see the synergies being $400 million at a minimum a year. In addition to their earnings, which is roughly a couple of $100 million a year.
HARLOW: It is interesting for, I'd say a year, plus, now Gary, every time we talk, every quarter, we talk about international expansion for Southwest, and when will we see that? Well, now we will see that with this AirTran tie up. What kind of expansion, internationally, are you foreseeing for Southwest down the road?
KELLY: You know, what we really laid out here is for the next two and a half years or so, we'll be focused on developing our domestic opportunities that AirTran brings us. And that will keep us very busy. In fact, I'm sure we won't have all that completed in 30 months.
By that time, two to three years out, we should be ready, ourselves for international service. We made the commitment and we have revealed that today. That we are committed to near international service, that means we have to be committed to replacing our reservation system technology so that it will enable international itineraries. So that comes a long with today's announcement that have made those decisions. So it will be several years before you'll see Southwest airplanes in international markets, but it is going to happen.
HARLOW: Can you speak to us about what international markets are appealing to you, even though it is a few years down the road? I mean, will we see Southwest in Frankfurt, in London, in Hong Kong? Would you like that, Gary?
KELLY: You know it is premature and I think a lot of that depends on technology and the aircraft technology in this particular case. What is most logical for us to focus on would be near international markets. Mexico, Latin America, Caribbean, Canada, potentially South America. Hawaii is not international, but nonetheless it-operationally, it is very different from what we do domestically. So, that will keep us busy for years, just developing those systems. We need the 737/800, which we are currently evaluating, to be able to take advantage of all of those near- term opportunities. But if we are talking about Europe, or Asia, or anything like that, we don't really have the equipment for that. That is down the road.
HARLOW: That is down the road. They don't have the equipment but, Richard, clearly you can the desire for Southwest to be a truly global airline. I will say it will be interesting to watch and see if we see a strong partnership between Southwest and AirTran, when they combine with the foreign carrier, such as we see in this country, with JetBlue and Lufthansa, Richard.
QUEST: The only question, of course, is as it does this, Poppy, and it starts to mix the fleet up, because AirTran does have 717s, and all sorts of other issues.
QUEST: The sharp focus on cost reduction and low-cost becomes diluted.
HARLOW: That is a great point. As they have more of the marketplace in say, Baltimore, for example, will they raise those prices? The other point, pilots and generally the staff of Southwest Airlines makes considerably more than the staff of any of the other U.S. airlines. So, the question that I didn't have time to ask him, but that I really wanted to is, will they have to raise the salaries for those AirTran employees.
And if so, what is that going to do to ticket price? Because the reason Southwest Airlines doe so well in this country, they hedge well, when it comes to oil prices. They also are able to keep their costs very low for the tickets and they keep people coming back. They, of course, have bags fly free, for example. So the question is, if they can't keep their ticket prices low with this merger, then what happens, Richard?
QUEST: We'll talk more about it. Poppy Harlow, joining me from CNNMoney.com, in New York.
All that deal making can't seem to spark a rally won Wall Street. After touching a four month high on Friday, they are back in the red. We'll be at the New York Stock Exchange first ding of the week.
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QUEST: So many good sessions on Wall Street all seem to have petered out at the moment.
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QUEST: Dow Jones industrials down a touch. Alison Kosik is in New York, joins me now.
Oh, just off 5 points. In any normal circumstances you and I wouldn't get terribly excited by 5 points down-but, having had such strong rallies on a good September, this is a bit telling.
ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Well, you know, it is really not a big surprise, Richard, that we are seeing stocks pull back just a little bit. I mean, look at how the Dow's run up has been lately. I mean, especially, you know, over the past month, when September is one of the worst months for Wall Street. So overall, it is a pretty good day.
You know we are watching some standouts right now. One of them is AirTran, which you were talking about with Poppy. Right now those shares are soaring, 61 percent. It is because of these mergers. You know, Wall Street loves mergers, but analysts say, you know, we can't exactly expect the market to jump 2 percent everyday. You know, the market needs some time to digest all of this information, the reason why we are seeing this pull back. But you know, investors have been in a pretty upbeat mood lately, Richard.
You know, the market surged on Friday. And unless something goes awry between now and the end of the week, the major averages, could end September with their biggest monthly gains in more than a year. And the best September, in general, since 1939. We'll have to see if all of this holds up as the economic calendar gets a little busier, Richard. We are going to get readings on GDP, consumer confidence, and manufacturing late on in the week, Richard.
QUEST: Everybody was talking today about the super boom that was being predicted by the stock traders almanac, which according to my screen here, you know, the market could go to 38,000 in just eight years. What is this theory predicated upon? And is anyone giving it credence?
KOSIK: I don't know how much, really, people are giving it credence. I mean it could very well be likely. I mean, you know, you think about it, these are some hard to comprehend numbers here, especially as you know, coming out of a recession. You know, this came from the editor-in-chief of "Stock Traders' Almanac". It is this book that I'm holing up here. I have the 43rd edition. And the editor is predicting that the Dow is going to surge to 38,820 in eight an eight-year super boom, beginning in 2017.
His name is Jeffrey Hersh. He said in a press release that was sent out with the 44th edition of the book, that previous booms and bull markets were driven by peace and inflation from war and crisis spending, and new technologies. And he is predicting that the withdrawal of U.S. troops from Iraq and Afghanistan, and inflation caused by the wars, plus spending to end the financial crisis will all help to push the blue chips higher to this huge level. He also said that advances in energy technology, or bio technology, that they may also help spur the really between the years 2017 and 2025.
You know the book is very well known for predicting market patterns. We have a long wait ahead of us, but it is going to be interesting to see how it all turns out. I know that I turn to the "Stock Traders' Almanac", Richard, quite frequently. It is usually right on the money, Richard.
QUEST: Alison, well, you've answered my next question, maybe. Alison, briefly, yes or now, if you had a dollar on your desk, would you put it on this particular theory?
KOSIK: No. I wouldn't.
KOSIK: It's a little too outrageous, Richard, sorry.
QUEST: Yes, yes, yes. Hey, big spender-Alison Kosik, many thanks indeed, in New York.
Look, whether the Dow goes to 38,000 or not, and regardless of what may be happening in the M&A activity, economists may believe the recession is over, try telling that to the public. Staggering 74 percent of Americans still think they are in a recession. Even though the NBER, the official barometer people, say that the recession ended in June. If you want to know more about this particular, fascinating fact, I've posted an article on our FaceBook page. You could also join us there. It breaks down the numbers and gives you the insight. It is at Facebook.com/CNNQuest. There, you can read that bit for yourself. Join us on the team and see what we're talking about.
Europe's stock markets extended losses seen on Friday, dragged down by Wall Street's weaker start. It was just a minor hiccup of the day. The numbers on the investors sidelines as we head toward the end of the month and the quarter. Pharmaceuticals among today's biggest losses. Astra, dropped 1.6 percent on the news that a prostate cancer treatment failed to improve survival rates. I guess that's pretty serious for everyone concerned, particularly those who were taking it.
Swiss biotech company Astellion (ph), dropped 8 percent after disappointing results from one of its experimental drugs. You can see where this is going. Unilever, 1.3 percent higher, buying up Alberto Culver, acquisition.
In a moment, the desert, that is where the smart money is in Cairo. Tonight's edition of "Future Cities" will explain how Egypt's congested capitol is transforming the surrounding sands of city life (ph).
QUEST: When it comes to modern Cairo there is only one word that really makes the grade. It is construction. Egypt's congested capital is in the midst of a building boom despite the global downturn. This makes it clear exactly what is happening in the capital. Cairo has got 20 million people to house, 20 million inhabitants that need somewhere to live. It is double the population that it had in the 1960s.
In fact, for so long, Cairo has been the magnet for people of the region and the country. If you go back even to medieval times, in 1340, look at that in 2010 it is 20 million, in the 1960s 10 million, in 1340 there was still half a million inhabitants in Cairo. It was the largest city west of China.
Cairo is also keen on innovation. It is putting up what it calls satellite cities, to tame the urban expansion. As I recently found out, these independent developments are transforming one of the plant's most densely populated cities.
QUEST (voice over): Leave Cairo in just about any direction and you'll find mile after mile of building sites.
(On camera): It is the size and scale of these developments that is mind boggling. For 360 degrees, everywhere you look there is construction. This is the rise of Cairo's satellite cities. There are about nine in total. All strategically placed to entice people away from Egypt's congested capital.
ABASS EL ZAFARANY, ENVIRONMENTAL PLANNING, CAIRO UNIV.: Cairo is overloaded now and we need to look to another capital. Egypt has changed its capital 17 times before in 11 locations. Others say no, Cairo is the capital of Egypt, it will remain the capital of Egypt. It is the capital of the Middle East. And we have to make it grow bigger and grow better.
QUEST (voice over): For now, greater Cairo is choosing bigger; 20 million people crammed into a narrow strip of the Nile Valley. Growing exponentially since the 1960s, this melting pot of a city has little choice but to expand any which way it can.
JENNIFER BREMER, AMERICAN UNIV. IN CAIRO: Most of the new housing in Cairo, built in the past 20 years, about 80 percent of it is actually the informal housing. It is huge expanses of miles and miles you can drive and pass, you know, 10-story brick buildings that are built illegally.
QUEST: Now, satellite cities are seen as one of the key solutions to putting an end to Cairo's wayward sprawl. Changing the axis of Cairo is a deliberate policy, to break out of the Nile Valley. To open up new horizons in which to expand.
ZAFARANY: Egyptians live in a very small area, about 4 percent of the land. We are stuck to the River Nile, the Delta, and the Nile Valley, and Cairo, which is the climax of that concentration of people. In 40 years from now we will need another Egypt just to sustain the same level of crowding (ph), that we are living here now. We have to go to desert.
QUEST: This journey into the desert began in the 1970s, when the government began building the first generation of satellite cities around Cairo, names like 15th of May, 10th of Ramadan, Sadat City, and 6th of October. The population of 6th of October, has reached about 1 million people. That figure is expected to escalate to nearly 3 million by 2020.
ZAFARANY: Actually, 6th of October is moving towards Cairo, it is growing towards Cairo, and Cairo is growing towards 6th of October. So they will meet sometime. Now there is a distance, a gap, of around 10 kilometers. It is narrowing rapidly.
QUEST (on camera): The 6th of October is not alone. On the other side of the city New Cairo is being developed. Another giant satellite city, with miles and miles of residential and commercial buildings, currently being constructed.
(Voice over): At her mother's apartment, the Nehal (ph) Rehab Neighborhood of New Cairo, Dina Samir tells me why she, too, is planning to move here.
DINA SAMIR, RESIDENT OF CAIRO: First of all, the greenery. Any place in Cairo is very polluted and doesn't have any greenery. Also, it offers bigger places. So, now I can afford a bigger apartment, or a villa. In the same price, if I'm going to get a villa here it is going to be the price of a smaller flat in old Cairo.
QUEST (on camera): Won't you miss Cairo, the city?
SAMIR: That is of course something, because a lot of cultural activities over there. The opera is there. The many-it's the hub of cultural activities.
QUEST (voice over): Dina works at the American University of Cairo, which also relocated to the satellite city of New Cairo in 2008, after nine decades downtown.
RICHARD TUTWILER, AMERICAN UNIV. IN CAIRO: The idea is that by putting an anchor like a major international institution, American University in Cairo, right there in the center of things, that will attract businesses. It will attract housing estates. It will attract even government ministries and government (UNINTELLIGIBLE) to relocate. And you can see, as you drive back towards the ring road, that things are starting to fill in quite quickly.
QUEST: For all the trailblazers of Cairo's satellite cities, water still remains the critical issue.
TUTWILER: These satellite cities are above the valley floor, because the desert is actually a plateau, and that means we have to lift water out of the Nile and up into the desert. Have to be very careful that we husband our water supplies as much as possible and to recycle water as much as possible. So on this campus, in the coming 12 months, we intend to use recycled waste water, treated waste water to do all of our irrigation. And that will save over half of our water supply.
QUEST: Even with the satellite cities, Cairo's population is set to double in the next 40 years. So it remains a serious question, whether the satellites will actually change the quality of life in the capital.
ZAFARANY: What is happening now with Cairo is an enormous step, but it is not sufficient. It is a good start. It is a good start for growing into the desert, for expanding Cairo, and expanding Egypt.
TUTWILER: I'm optimistic that the satellite cities will work. I'm not so optimistic that the crowding in Cairo itself is going to be relieved and I am not sure that the satellite cities are going to draw out a lot of people from Cairo, particularly poorer people, because it does cost more to live out here.
QUEST: The fact is it should be many years before Cairo's satellites are properly judged. Because cities are measured over centuries. And, anyway, Cairo's satellite cities, well, they're still growing out into the desert.
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QUEST: The future cities of Cairo's satellites.
In a moment, China wants to do more business with Greece. Not everyone is happy about it. We'll be in Greece to find out why.
QUEST MEANS BUSINESS.
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN. And on this network, the news always comes first.
North Korea's state news agency is being quoted by Reuters saying Kim Jong-Il's youngest son has been given the rank of general. It's the first official mention of Kim Jong Un, who is considered the most likely successor as North Korea's leader. The Reuters report says Kim's sister was made a general. Kim Jong-Il's health is believed to be deteriorating.
The Palestinian Authority president, Mahmoud Abbas, is calling on Israel to stop building settlements in the West Bank while Middle East peace negotiations are underway. Mr. Abbas spoke in Paris on Monday, where he met the French president, Nicolas Sarkozy. A temporary Israeli ban on settlement buildings expired on Sunday. New construction has already begun in some areas.
The former Serbian leader, Radovan Karadzic, was back in court today, as his war crimes trial resumed. Karadzic is defending himself at the Hague against charges of genocide, war crimes and crimes against humanity. He's accused of being responsible for a massacre in Bosnia that left thousands of Muslim men and boys dead.
The Venezuelan president's ruling party has lost its super majority in Sunday's parliamentary elections. It's the first time in five years that opposition parties will have a louder voice in national politics. Hugo Chavez's United Socialist Party still won the most seats, but it can no longer quickly pass many of his controversial measures.
And Pakistan is protesting the helicopter airstrikes launched by NATO over the weekend. It's called the incursions a clear violation and breach of the U.N. rules for foreign forces in Afghanistan. NATO says the airstrikes that killed 49 suspected militants were and act of self-defense after Taliban fighters from Pakistan opened fire on a base in Khost Province.
China's premier is gearing up for a big trip to Europe next week. The E.U. is one of China's biggest trading partners. And one of Wen Jiabao's most important destinations will be Greece. Beijing appears to be filling a void, stepping into the country when outside when outside investment is most needed, as Elinda Labropoulou now reports from Piraeus.
ELINDA LABROPOULOU, CNN CORRESPONDENT (voice-over): These are the images many people have of Greece. But to the Chinese, Greece is not simply a tourist destination. It is a business opportunity. At a time that most investors are fleeing the cash-strapped country, the Chinese are making huge investments. Greece's main port of Piraeus has been taken over by Chinese shipping giant, Cosco. Under a 35 year plan, they will invest $3.5 billion, building a massive container handling facility at the port and further investment deals are underway.
But not everyone is happy. Dock worker Giorgos Gogos works for the Piraeus Port Authority Olb (ph), which remains state run. He says Cosco uses subcontractors to cut labor costs, creating a bad precedent.
GIORGOS GOGOS, DOCKWORKER: Piraeus Port Authority, (INAUDIBLE) organization, prices to have reductions of wages. This is not competition. This is going to eliminate the standard of living of people who work in the port generally.
LABROPOULOU: And trade unions in the country are uneasy about the long-term implications of allowing China so much power. Politicians, however, point to the opportunities for Greece. China is reportedly planning to develop a logistics center and build new railway lines, meaning it could ship goods made in China to the rest of Europe.
THEODOROS PANGALOS, GREEK DEPUTY PRIME MINISTER: This kind of combination of maritime railway and road transport is going to be, maybe, the biggest installation of that kind in Europe. It's very important. It's a real investment.
LABROPOULOU: China appears to be following its policy, already tested in Africa, of stepping into a country when outside investment is most needed. Critics say controversial investment decisions in Africa have allowed the Chinese to remove valuable raw materials with little benefit to the local economy. But analysts argue that not only can China turn a profit in Greece, it also has a chance to improve its reputation.
JENS BASTIAN, HELLENIC FOUNDATION FOR EUROPEAN & FOREIGN POLICY: The CNN are playing a business end approach. It's not about fairness. We are investing here because, over the long-term, we want to try and get something out of it, but also being seen when we invest in a country like this, that possibly we are welcome, also, in other countries. That's important for China. And that's a reputation issue which China is trying to establish and possibly also to correct a little bit.
LABROPOULOU (on camera): Increasing cooperation with China is more than just business degrees. It is a way of restoring its shaken credibility.
(voice-over): But Greek dock workers are already talking of labor law violations and foresee China's growing economic power in the country as a clear sign of tough times ahead.
Elinda Labropoulou, CNN, Piraeus, Greece.
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QUEST: Germany's Angela Merkel says Europe is gradually leaving the darkest days of the recession behind. She told our own Becky Anderson that Germany has overcome a big challenge. And Angela Merkel says she's quietly confident about the future.
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ANGELA MERKEL, GERMAN CHANCELLOR: I don't think that we'll have a double dip recession. I think we'll experience sustainable growth. In some areas, that may be a bit slow. It's not guaranteed that the growth we're experiencing now will continue over years, but I think, overall, we've acted smartly. G20 worked together well and I am definitely optimistic that we can get through it, if we regulate the markets prudently and when we find a correct exit strategy after this expensive stimulus program.
(END VIDEO CLIP)
QUEST: Angela Merkel talking to Becky Anderson.
And you can see the full interview on CONNECT THE WORLD about an hour and 20 minutes from now. That's 9:00 p.m. in London, 10:00 p.m. In Berlin.
They were meant to showcase India's arrival as a global economic powerhouse. The Commonwealth Games, instead, have become a major embarrassment. There are accusations of shoddy construction, dirt -- dirty housing and poor security.
How has it not only affected the games, but Brand India?
QUEST: India says the athletes' village for the Commonwealth Games will be cleaned up once and for all by Wednesday and 8,000 athletes will eventually stay in the village. Parts of it are still dirty and unhygienic, and that's despite that huge cleanup operation by an army of workers.
As New Delhi prepares to welcome its guests, some locals are packing their bags to leave.
Our correspondent, Mallika Kapur, has been finding out why.
MALLIKA KAPUR, CNN INTERNATIONAL CORRESPONDENT (voice-over): As athletes arrive in New Delhi, Delhiites are getting ready to flee. Anisha Malhotra and her family are going on holiday the day the Commonwealth Games start.
ANISHA MALHOTRA, NEW DELHI RESIDENT: It would be impossible to step out of your house unless you are going to see the games, which also will be difficult.
KAPUR: Schools, colleges and some offices will be closed.
MALHOTRA: Schools are shut because they said that they will be -- not be able to manage the traffic. So you know it's going to take kids hours to get back home, which is already bad because of the disruption and traffic.
KAPUR: While travel agents offering Commonwealth escape packages say bookings are up, some businesses in this central shopping district say business is down.
This area has been under renovation for around two years, making it difficult for customers to reach shops, says Atul Bhargava, who owns a shop in Delhi's Kanot Place (ph).
ATUL BHARGAVA, DELHI TRADERS ASSOCIATION: You know, it may take us a year or two to really recover this loss of business as such. But in times to come, what has been done, well, it will be a place to visit when you come to Delhi.
KAPUR: Those who have come to Delhi for the games haven't been too impressed -- certainly not with the preparations inside the Commonwealth Games Village. Visiting officials said the facilities are dirty and not up to scratch. Though some locals admit the criticism is fair, not everyone agrees.
UNIDENTIFIED MALE: I have been more and more (INAUDIBLE). I mean people criticize it so much and the normal people from outside, even people here in Delhi also criticize their own (INAUDIBLE).
KAPUR: Others say there's a lot at stake, including India's pride and its reputation as an emerging economic powerhouse.
UNIDENTIFIED MALE: It was not that long ago that India was, you know, showing the world what a progressive nation we are, a Third World -- an upcoming Third World country and, you know, we have power (INAUDIBLE) with the best and this is going to be -- it's going to be a good factor. And it's not going to go down well. One can only hope and pray -- the only way one can save face is if the games eventually do go off well.
KAPUR: The clock is ticking. People are working day and night to clean up the athletes' village, to silence critics who said it was uninhabitable.
(on camera): Many Delhiites compare the games to a big Indian wedding. Most of the preparations happened last minute, but somehow, in the end, it all comes together.
Mallika Kapur, CNN, New Delhi.
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The weather forecast -- Guillermo is with us at the World Weather Center.
I've been on me travels. Beautiful weather on the West Coast of the United States. Raining in parts of Eastern Europe.
Hopefully, you have got something better for us now.
GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes. I think that Germany and Poland are going to be in bad shape. When we look at the satellite here, we see that there is a lot going on here in the northern sections and even you spot here a low that is trailing across these sections -- you know, the Czech Republic, Slovakia, Hungary. So everything is happening in the north. Even it's bringing some cloudiness into Britain, as you see. And there's no nice spot that I see so far. But I have to focus, again, on the bad weather for Poland and Germany. You see, temperatures are going down gradually here.
The east is OK, 26 in Istanbul, the high for Tuesday; 25 in Bucharest; in Athens, also, pretty nice. But gradually, we see the change and where all the clouds are is where the temperatures are a little bit lower.
But, you know, we can't compare that with what's going on in Mexico and Central America, really bad, because we had landfall at the end of last week into Honduras and Nicaragua and it continues to rain a lot in here.
You see the next two days here, Richard?
We have the southern parts of Mexico with more rain and El Salvador, it seems, is going to be hammered there with a lot of humidity. And this has been an extraordinarily wet year or season for Central America and the southern parts of North America. So we will see, probably, some landslides there.
We had Matthew that made landfall in -- in Nicaragua and then it went through Central America into Mexico. The remnants brought a lot of rain. At the same time, we see the possibility of development there south of Cuba. And this system here is preventing, on the one hand, the low that is developing in -- from going into the Gulf of Mexico and -- and also the same with here, it's keeping it to the south, so it's causing more rain in the southern parts of Mexico.
As you see, plenty of cloudiness. So I think that this is a spot that is being affected big time, with a lot of rain. We see that we're going to see some more rain in the coastal parts of El Salvador here. We're talking about 15 centimeters. Fortunately, coastal Guatemala is going to see more of it. The coast, especially over the water.
The west of the U.S. fine in California, especially; much better, B.C. In Canada; and Washington State, because we had some severe storms there. And a lot of rain with that front that I was talking about here in the southern parts of the U.S., which is, in a way, welcomed, because we need a lot of water here in the south because we are stepping into a new drought and we don't want to get there, because we have enough experience with it.
And also, Australia and New Zealand, you know, the dead of night, but waking up very soon. And we see here that the temperatures are cold still, Richard, though these are the best months to go to Australia and New Zealand, because now it's warming up and we can actually walk through the beach, the Bondai Beach and all that. But it's taking its time -- back to you.
QUEST: You need to -- you don't need to get too in -- I don't need any invitation. I'm on me way. I'll just send you the bill for the ticket.
ARDUINO: Oh, yes.
QUEST: First class, of course.
All right, Guillermo at the World Weather Center.
ARDUINO: Thank you.
QUEST: Actually, I'm surprised he's still here and not on holiday.
It's already one of the most dynamic mobile markets in the world. Young marketers in Nigeria have discovered a variety of ways of making people more innovative. After the break, you'll hear more about it from my neighborhood.
QUEST: IList Nigeria, as all this week, we take a special look at the country. The innovative people and places around their world in that country. The global system of mobile communications was introduced to Nigeria only nine years ago. In such a short time, Nigeria has become Africa's biggest and fastest growing market.
As Christian Purefoy explains, young marketers, they need to find innovative ways to overcome the challenges of what seems like such everyday activity -- using a mobile.
CHRISTIAN PUREFOY, CNN CORRESPONDENT (voice-over): Chinedu Ijezie has what Nigerians call swagger. And he puts it all down to his three mobile phones.
CHINEDU IJEZIE, MOBILE PHONE MARKETER: My phone stays always with me. So if I'm using it on (INAUDIBLE),
PUREFOY: Here at Sakatenubu Market (ph) in Lagos, Chinedu sells every
$900 BlackBerrys to $30 Nokias.
IJEZIE: Thousands of people walk through here everyday. Half of them buys. And some come -- some are here to find out -- to make inquiries for the (INAUDIBLE).
PUREFOY (on camera): So business is good?
IJEZIE: Oh, yes. Business is good.
IJEZIE: If it was not good, I wouldn't be here.
PUREFOY (voice-over): With over 60 million mobile users, the International Communications Union describes Nigeria as one of the most dynamic mobile markets in the world. And it's not just about selling phones. In these small, dark rooms, young marketers are finding a variety of innovative ways to cater to the needs of Nigeria's mobile customers. If your phone is broken, Ibe Chukuwu is your man, working the repairs department with local know-how and global connections, with parts shipped in from China.
IBE CHUKUWU, MOBILE PHONE TECHNICIAN: I do just Blackberry, iPhones, Nokia. None of it is any difficult for to fix. These are the parts. When you can't get parts for them, you can't fix it. It makes a little bit of a problem.
PUREFOY: Is there a phone you can fix?
CHUKUWU: I can fix any phone if I have.
PUREFOY (voice-over): And next door, Laurence Ukuchukwu downloads and sells all the music, games and films you could need.
PUREFOY: Reassuring his customers that they don't need to have their own computer or access to the Internet.
LAURENCE UKUCHUKWU, MOBILE PHONE MARKETER: It's important to have music on your phone and videos and games, because one day, you will need it. And when -- when that day comes, if you don't see it, you will be somewhat depressed, as if all hope has been lost while you (INAUDIBLE).
PUREFOY (on camera): That sounds pretty serious.
PUREFOY (voice-over): And most importantly, a generator. In a country with only a few hours of electricity a day, to charge your phone battery or iPod. But doing business with your mobile in Nigeria is not all just about phoning people.
AKINSANMI OLUMIDE, CUSTOMER: You get to the place you were going to talk to somebody and you place the phone on the table, you are making a statement, look, I belong to this class. The (INAUDIBLE) the level you are on, I will talk to you. So it's a part of this.
PUREFOY: The secret of Nigeria's success, says Chinedu, is cooperation.
IJEZIE: Everybody needs each other to succeed, you know, (INAUDIBLE) doing in this complex, OK?
PUREFOY: So if you have a problem with your mobile phone, you know who to call.
Christian Purefoy, CNN, Lagos, Nigeria.
(END VIDEO TAPE)
QUEST: Fascinating stuff. YouTube performers are turning their videos into a booming business.
Julia Nunes is a YouTube sensation. Her videos have more than 37 million hits.
CNN photojournalist, Emanuel Kambakaditch (ph), was there when she put one together.
(BEGIN VIDEO CLIP)
JULIA NUNES, YOUTUBE SENSATION: There's been a lot of people that have gotten a lot of recognition on YouTube.
I am Julia Nunes.
I know that most of the things that have come to me, I am a ukulele player -- success wise, like, touring with Ben Fulds (ph) and -- and now Ben Kweller (ph), I got because they found me on YouTube.
NUNES: I think the first one that got a lot of views like that was "Into the Sunshine," which as a guitar song.
NUNES: And one of the first ones that I did harmonies and multi- tracking things on...
NUNES: -- I have no idea how -- maybe -- maybe over a million?
I think over a million by now.
NUNES: I got like a really cool little following of like 1,000 people up until "Into the Sunshine" got featured, which like kicked me up to 10,000.
NUNES: I'm somewhere in like 150,000 subscribers, growing steadily.
NUNES: And I don't like the term YouTube sensation, because it makes me feel like a laughing baby, a cat that fell down somewhere.
This is my whole setup.
NUNES: Now that I'm playing shows where everyone who's there bought a ticket specifically to see me and they're singing my songs back at me, I think that's when it becomes real.
NUNES: That's just a computer and a microphone.
NUNES: Because it's easy to look at numbers on a screen and be like, yes, I'm doing great.
NUNES: Until there's like a girl that's nervous to meet you, if you want an audience, then you can just go and find your own audience, because I did.
NUNES: Having people listen to you, what you have to say and the music you're making is probably one of the most gratifying things in the world.
(END VIDEO CLIP)
QUEST: I'm not sure she actually told us, though, the secret for how you actually rise above the clutter on YouTube.
That's the art. And I'll talk about the art of a Profitable Moment after the break.
QUEST: Tonight's Profitable Moment.
I was recently talking to a corporate lawyer who specializes in M&A. I asked in an emphatic way whether business was good. I didn't expect him to reply, "Never better. Booming. Fees rolling in." Well just today, at least four billion dollar deals were announced, cross- border, cross-sectors and cross-financing. And they share one thing in common besides that -- behind them is probably the idea that economic confidence is starting to build up. One reason for all this activity is that in many sectors, price-earning ratios are at historically low levels, meaning companies can be picked up on the cheap, at least compared to what they were in 2008.
Everything I'm hearing suggests it's a trend that will continue for the rest of the year. It's ions away from the real world of you and me. In the U.S., for instance, most people still believe the recession continues.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest.
Whatever you're up to in the hours ahead, I hope it's profitable.
I'll see you tomorrow.