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QUEST MEANS BUSINESS
Investors Relish Heinz Deal; American, US Airways Join Forces; US Airline Consolidation; Markets Updates; EU Recession Deepens; Gloomy Outlook; Arrests in European Horsemeat Scandal; New Health Concerns With Horsemeat; Make, Create, Innovate: Tires from Dandelions
Aired February 14, 2013 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
NINA DOS SANTOS, HOST: US Airways merges with American, and Warren Buffet buys Heinz. Tonight, the CEOs of all three companies speak on this very program.
Markets are red, investors are blue, Europe's GDP figures, though, make for a miserable Valentine's Day.
And within striking distance of land. The stricken Carnival Triumph cruise liner is almost home to Alabama.
Hello, I'm Nina Dos Santos, and this is QUEST MEANS BUSINESS.
Good evening. Airline consolidation this evening is going to be one of our top stories, but we're also going to be talking about the billionaire deal-maker, Warren Buffet, joining forces with Brazil's 3G Capital to buy Heinz, in the food industry's biggest-ever deal so far.
The all-cash buyout is actually worth something close to around about $28 billion, including debt. Heinz stock is soaring up almost around about 20 percent in today's session. Warren Buffet today confirmed the deal is, with his words, "I just want to say one thing: ketchup." Well that's, of course, a reworking of a line from the film, "The Graduate."
We also know that the CEO of Heinz will be talking to us -- right now. Let's see if we can get hold of Bill Johnson, there, live from Pittsburgh, Pennsylvania, which is where the company is based.
Great to have you on the show, there, Bill. $28 billion. This represents a 20 percent premium to Heinz stock price, which closed around about an all-time high the last time it traded. You must be pretty proud of yourself.
BILL JOHNSON, CEO, HEINZ: Well, I'm proud of our team. It's not about me. I'm proud of all the employees at Heinz who created this value. If you think about it, these deals typically get done when a company's in trouble.
Our deal is being done from an all-time high after 30 consecutive quarters of organic, top-line growth. It's a great tribute to the employees and the people that created the value for Heinz. I just happened to be there as part of that team.
DOS SANTOS: So, shareholders presumably have no reason to reject this. It's in cash, 50 percent to Warren Buffet, 50 percent to 3G, the Brazilian private equity company, and as I was saying, it's at a relatively comfortable premium, from a shareholder's point of view.
JOHNSON: It's a terrific premium, yes. It's 20 percent off the all- time high, and 30 percent off our average of this year and is actually 40 percent off our low this year. So, I think the shareholders ought to be pleased. It's a terrific deal, at $28 billion, the largest ever in the food industry. I just don't think there's a lot more that people could be more pleased about.
DOS SANTOS: What are you going to be doing after this? If this deal goes through, are you going to be staying on at the company?
JOHNSON: It hasn't been decided yet. As part of the deal, there were no discussions with management or with any employees of any sort. Now that the contract's signed, maybe we'll learn some things going forward. But that's yet to be determined.
I can tell you this: I'm too young to retire, my wife doesn't want me at home and I don't play golf, so I'll be doing something to keep busy.
DOS SANTOS: Obviously, Heinz as a brand really fits with the kind of portfolio that Warren Buffet has. He's very famous for being a conservative and traditional investor. He owns stakes in things like Proctor and Gamble, and also Coca-Cola, the big consumer goods success stories, and Heinz certainly fits into that portfolio, doesn't it?
JOHNSON: It does. Heinz is a great brand, started 144 years ago, and it's a brand that's ubiquitous and still growing. The amazing thing is we introduced ketchup 130-plus years ago, and it's still growing in the mid- single digits every year as we take it to new markets around the world.
And as the youth continue to move into the middle class and the demographics change, ketchup is becoming more and more a part of everyone's staple diet, so it's not a bad place to bet your future.
DOS SANTOS: So, how much growth is there in Heinz for people like Warren Buffet, assuming that, obviously, they're going to be taking a chunk in this company, they're going to be expecting hefty growth? Where's it going to come from? The emerging markets, presumably?
JOHNSON: Well, we do about two-thirds of our business now outside the United States, and more than 25 percent in the emerging world. And yes, I think they'll be expecting growth out of the emerging markets as we continue to enter new markets and continue to develop the businesses we're in right now through new penetration and new distribution.
But I think also, we can continue to grow the Heinz brand in existing markets. Remember, we have about a 30 or 40 share in many of our markets, in some markets, a little more.
So, there's still upside share potential, there are still opportunities to extend the brand into adjacent areas, there's opportunities to take it to new markets, there's opportunities to create more per capita consumption. And I could go on and on for hours about the upside opportunities for the Heinz brand and all of our businesses, as a matter of fact.
DOS SANTOS: Well, you're the sixth CEO, and you became the sixth CEO all the way back in 1998, so you must be intimately familiar with Heinz as a company. Heinz has made about 40 acquisitions so far, right?
If we get extra cash being pumped into the company because of this takeover, what is Heinz going to be looking at to try and buy -- to expand in those key markets you're talking about?
JOHNSON: Well, we'll continue to really focus our efforts on acquiring in condiments and sauces areas where we have very good margins and bring enormous capabilities, but also in baby food, where we are number two in the emerging world in food, and we are number three globally in baby food.
And in new markets, markets like the Philippines, Vietnam, Colombia, markets where we think there's substantial upside growth, where the middle class is emerging, and where Western diets are becoming more and more popular.
So again, one of the great things about our company is we've just scratched the surface of the longterm growth potential, and I think that's what Mr. Buffet and the 3G Capital people saw when they took a look at us relative to many of our peers and relative to other opportunities.
DOS SANTOS: I must ask you while we're on the show here, obviously you're probably aware that Europe has come out with some rather disappointing GDP figures, and Europe's really been a weak spot, but your products are still very important here in this regions. How worried are you about that side of your business, geographically speaking? Europe and demand for Heinz products?
JOHNSON: Well, I think generally, Europe has been a concern for quite a while. Having said that, our businesses have held up relatively well. They're not terribly expensive products, they're used in most meals.
And in many cases, as people trade down to cheaper cuts of meat and/or broader meals that may need more flavor enhancement, that's a real positive for Heinz Ketchup, and our shares have been growing dramatically across the European continent.
So, I'm always concerned about GDP and I'm always concerned about the economy, but basically, I'm more concerned about our per capital consumption and the trends and what we can do to drive more consumption in the areas where we do business, and so far, that has not been an issue with us.
DOS SANTOS: OK, Bill Johnson, there, from Heinz. Thanks ever so much for that. And by the way, obviously Warren Buffet has said that he would like Bill Johnson to stay on at the company, so we wish you the best of luck in the future role there at Heinz.
Well, tonight, two other chief executives want the world to know about what they see as their ideal match made in heaven, sealed, fittingly, I must say, on Valentine's Day. A marriage between US Airways and American Airlines' parent company, AMR, would create the world's biggest airline. That means plenty of shared assets in common between these companies.
These are the routes that the combined carrier will now run. It would have more than 1500 aircraft, around about 100,000 employees, and it will be worth around about $11 billion based on its current market value.
Well, airline consolidation in the United States has been a trend for many years. Let's have a look at the runway to the final four major carriers as they're likely to stand after all of this has happened.
Remember that a series of bankruptcies and mergers over the course of the last 12 years has managed to whittle down ten major US airlines all the way down into just about four mega carriers, and those mega carriers, as you can see to my right, dominate the market. We're talking about American Airlines, Continental, Delta, and of course, Southwest over there.
Let's have a look at how all this kind of mergers and acquisitions activity has been affecting the shares in some of those companies that are going to be merging. Shares in AMR, in fact, in today's trade are actually up around about 47 percent, that's a 69 cent rise.
And US Airway shares are actually down by more than 6 percent. We often see that, don't we, when we have one larger partner taking over another? There's concerns about how much they're paying for it and so on and so forth.
But as you can see, that hasn't really had a huge amount of effect on the Dow Jones Industrial Average, even despite news that Warren Buffet wants to buy Heinz, the Dow is virtually flat, below that key 14,000 mark, down around about just shy of 2 points at 13,980 for the moment.
Well, most of the major European markets also closed down in today's session, that's off the back of, of course, that weaker-than-expected GDP figure I was referring to in my interview with Bill Johnson before.
Let's go into these weaker-than-expected GDP numbers, which do show us that the eurozone's recession so far has deepened yet again. The region's economy shrank at the fastest rate in four years last quarter, collectively down around about 0.06 of one percent.
So, let's have a look at the countries that actually grew in the fourth quarter of the year. They're these ones, here, marked in green. The ones in red are the ones that saw their economies shrinking and, as you can see, there's an awful lot more red on the chart than there is, actually, green across it.
Results for France and Germany, the biggest economies in the eurozone, were worst than expected, and that really is what's worrying people, because of course, countries like these were supposed to be the locomotives of growth.
Cue Germany, here. It saw its economy contracting 0.6 of one percent. That was mainly due to a sharp decline in exports, which we already knew about, because the export figures over the last two or three weeks haven't been particularly good for that country.
The French economy shrank by 0.3 of one percent as exports and manufacturing output fell in that country. Remember that France's socialist government says that it will not hit its target for cutting the deficit so far this year.
And if we talk about one of the countries that performed the worst, but remember was also bailed out a couple of years ago, Portugal. Its economy shrank by 1.8 of one percent in the fourth quarter. That means that it shrunk for the ninth consecutive quarter in a row.
Again, it's a story of exports suffering in this economy. Growth here in Portugal has averaged just less than one percent per year over the past decade, and it just goes to highlight the issues with competitiveness that these kind of countries have, particular in peripheral Europe.
Well, the French advertising giant Publicis expects 2013 to be an even more difficult year than last year, and the firm says that this year -- last year, I should say, 2012 -- fell below its expectations.
Of course, it published these figures for 2012 today, and they showed that disappointing revenue from events, in particular, like the Olympic Games and the European football championships actually sagged a little bit on their figures.
Sales and profits still managed to grow, though organic revenue -- we're talking about a key measure of growth, a barometer in the advertising industry, which means we're talking about growth within the company aside from its takeovers, that was up by nearly 3 percent for the whole year. The CEO, Maurice Levy, told me that he's relying, now, on a digital push to boost numbers for 2013.
MAURICE LEVY, CEO, PUBLICIS: We had developed since many years a strategy to build a very strong position in digital as well as in emerging markets, which are called today the fast-growing markets. So, most of our growth is coming from these two segments.
DOS SANTOS: Obviously, Europe's come out with its latest GDP figures, and they don't make for pretty reading, particularly across the eurozone, where growth shrank by nearly two thirds of one percent. That's worse than expected. What's your outlook like as a European country -- company functioning in a European country that's in the eurozone?
LEVY: I called Europe the sick child of the world nowadays because there are so many issues that have be addressed, starting with budget deficit, public spending, that need to be addressed quite seriously. And this will probably lead to very little growth, if any.
I don't see European market growing in 2013. I believe that they will start to recover a little bit in 2014, and the good growth will come only in 2015.
So, we are betting much more on the US, the fast-growing market, and obviously what we call digital, which has become our largest activity nowadays.
DOS SANTOS: How worried are you about the recent strength of the euro, which could curtail the competitiveness of goods and services?
LEVY: I think that more important than the strength of the euro is the competitiveness, the real competitiveness, not the monetary one, of the European companies. And when you look at the current situation, we are loaded with a lot of costs, charges, taxes, which are making the competitiveness of this company much more difficult.
So, I think that the priority is not so much to deal with the currency exchange, but to deal with the real issues that are occurring for so many years, which are the social charges -- the social rules, as well as the taxes and the public spending. And we have to take this down if we want to solve our problem for the long term.
DOS SANTOS: In a moment here on QUEST MEANS BUSINESS, British police make three arrests on the European horsemeat scandal, and now there's another new consumer concern surrounding this story. We'll have plenty more in just a moment.
DOS SANTOS: Three men have been arrested by British police investigating the ongoing horsemeat scandal. They're being detained on suspicion of offenses under the fraud act. And separately, it's now emerged that a potentially harmful drug for humans may have entered the food chain through tainted horsemeat.
The UK Food Standards Agency tested 206 horse carcases, six were found to contain traces of the horse pain killer, bute. It's emerged the carcases went to France, where they may have entered the food chain. The US describes bute as a carcinogen. However, on the other hand, Britain's played down the risks to consumers.
French prosecutors are now investigating how horsemeat actually came to be sold as beef. It's a crime carrying a potential prison sentence of up to two years.
And in the Hague in the Netherlands, Britain's environment secretary met with Europol and also with the EU's judicial agency, as well, which is called Eurojust. He says, quote, "It's increasingly clear that this case reaches right across Europe."
I'm joined by Nic Robertson, who's in our London studio, and has been following the trials and tribulations of this over the last couple of days. It's getting quite nasty, isn't it, Nic? Criminal offenses here, and also we now have an idea of just the sheer scale of how much horsemeat we're talking about.
NIC ROBERTSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: We do. These are -- the three arrests today in Britain are the first three arrests, and they involve people who were involved at the abattoir in the meat packing plant that were under investigation in Britain earlier in the week.
But now we've heard from the French minister of commerce outlining how much horsemeat was passed off as beef: 750 tons over a several-month period. And he was very specific. The case has been passed to prosecutor.
But he said in the case of the company that was doing it, that they had -- they should have known that this was horsemeat from its smell, from its color, from the price they paid for it, from the customs code that was written on it, but they relabeled it as beef, he said.
DOS SANTOS: That's what most people would automatically think, wouldn't they? If a carcass arrives and it's clearly the carcass of a horse, you'd have some questions, right? And this is where the whole bute issue comes in, isn't it? This phenylbutazone painkiller given to horses, but it can have some really nasty effects if consumed by humans.
ROBERTSON: And now we know that almost undoubtedly it has. Two hundred and six horse carcases tested at a -- from an abattoir in Somerset two weeks ago, eight of them confirmed to have contained the bute. According to the health minister here, three of those entered the food chain in France.
Again, these are carcases from Britain that are being shipped to France and entering the food chain in another country. It just gives you an idea of the complexity. But we do understand from the government scientist here that you would have to eat around 500 burgers a day with this contaminated meat -- it's an unrealistic sort of figure -- to be affected by the quantities of bute that are contained.
However, if you have been using the substance bute in the past -- it was once legal, has been withdrawn -- then you might be exposed to serious complications.
DOS SANTOS: Yes, and obviously it raises all sorts of concerns about other types of -- the safety of other types of food as well if we find out that these things are in the food chain. Thanks so much for that. That is Nic Robertson here in our London studio following that story.
We'll have more QUEST MEANS BUSINESS in just a moment. Don't go away.
DOS SANTOS: You're watching QUEST MEANS BUSINESS, welcome back. Here's a question for you: how do you turn these into these?
(PICTURE OF DANDELION AND TIRES)
DOS SANTOS: Well, in this week's Make, Create, Innovate, we take a look at how plant life is breathing new life into manufacturing, as Nick Glass now reports.
NICK GLASS, CNN INTERNATIONAL CORRESONDENT: As we all know, our little planet is getting ever more overcrowded. Globally, we're struggling to feed ourselves, to find fuel and natural resources to keep us going. But agricultural biotechnology is offering us some surprising seeds of hope.
GLASS (voice-over): So common, so readily trodden under foot, but experiments are being carried out on the humble dandelion in a special greenhouse in the Netherlands.
ARJEN VAN TUNEN, CEO, KEYGENE: Well, this is the so-called Russian dandelion, and this very small plant produces a very nice latex in the roots. There's only one issue: that the roots are quite small. So, what we are trying to do is develop this small, tiny plant into a crop.
It's a very small, let's say, root of the common dandelion.
GLASS (on camera): It's elastic.
VAN TUNEN: It's elastic.
GLASS (voice-over): Natural rubber is a prized commodity, with demand set to outstrip supply by 20 percent by 2020. And in an industry worth more than $100 billion a year, the dandelion could develop into a second natural source. This is one of the projects of Arjen van Tunen and his company KeyGene in the Netherlands.
VAN TUNEN: We're trying to improve the size of the roots of the species by crossing it with a bigger relative.
GLASS: In a highly-automated environment, the company carries out research for plant breeders and seed companies to improve yield, quality, and sustainability. A specially-built greenhouse becomes a photography studio, where plants are scanned at every angle. The genetic material, or DNA, of plants with desirable characteristics is isolated and sequenced.
GLASS (on camera): How is this different from genetic manipulation?
VAN TUNEN: Well, we don't introduce a gene from a -- different species into our crops. We always take advantage of the DNA which is already in that species itself.
GLASS (voice-over): KeyGene argues its approach is a quicker and cheaper way of improving crops.
VAN TUNEN: Normal breeding, crossing and selecting from idea to seed sales, it takes you 10 years. With GM, it takes you between 10 and 14 years. With our molecular breeding approaches, it takes you around 7 years.
GLASS: And with the world's population expected to rise from 7 billion to more than 9 billion by 2050, increasing seed yields is vital.
But what of the dandelion project? KeyGene is collaborating with multinational tire manufacturers Apollo Vredestein. Other tire-makers, Bridgestone in America, Continental in Germany, are also carrying out research in this field. But here, they already have something to show us.
PETER SNEL, APOLLO VREDESTEIN: This is one of those. It's -- so you can really say this is a very special tire, because it's one of the two tires in the world that are built out of dandelion tire.
GLASS (on camera): So, how far away are we from having dandelion tires on the road?
SNEL: We are confident that we can do that as soon as the material is available in enough volume to be put into the tire.
GLASS: Is it economically viable?
SNEL: Oh, sure. It has a business value. The raw materials are a big part of the cost price of tires, so having raw material that is economically feasible and sustainable, that will be a requirement of the future. So, we believe that investments in this kind of technology will pay back.
GLASS (voice-over): One tire requires 1500 dandelion plants.
GLASS (on camera): If the yield can be maximized and companies like KeyGene can make fatter roots, then we may have this visionary new crop on our roads within five to ten years.
DOS SANTOS: After the break, Nike pulls this ad after its star, Oscar Pistorius, is charged with murder.
NINA DOS SANTOS, CNN HOST: Hello and welcome back, I'm Nina dos Santos. These are the headlines on CNN.
(BEGIN VIDEO CLIP)
DOS SANTOS (voice-over): Police in South Africa have charged the Olympic runner, Oscar Pistorius, with the murder of his girlfriend. Reeve Steenkamp was found shot dead in Pistorius' Pretoria home. Pistorius, a Paralympian, gained fame by running in the Olympic Games on his prosthetic carbon fiber legs. Pistorius is due to appear in court on Friday.
The Carnival Triumph is still several hours away from reaching port in the U.S. state of Alabama. More than 4,000 people are on board, eager to disembark. They've been coping with harsh temperatures and leaking sewage since a fire disabled the ship on Sunday.
Three men have been arrested in meat plants in the U.K. in connection with Europe's growing horsemeat scandal. They are being detained on suspicion of offenses under the fraud act and separately (inaudible) inspectors have also said that horsemeat which tested positive for a potentially harmful drug may have entered the food chain.
(END VIDEO CLIP)
DOS SANTOS: Let's return now to that story surrounding Oscar Pistorius, because Nike has pulled one of their ads starring Pistorius himself. As we reported just before the South African sprinter is currently in custody awaiting a court appearance on Friday. Felicia Taylor has been following the Nike part of the story from New York.
So, Felicia, this couldn't have been more unfortunate. Last year, because of the wording of this ad in particular.
FELICIA TAYLOR, CNN CORRESPONDENT: Well, exactly, I mean, but obviously, this is a horrible incident. It's caught everybody by surprise, including some of the companies that have struck sponsorship deals with Pistorius. The ad that we're talking about is one featuring Pistorius, entitled, "I Am the Bullet in the Chamber," and it has now been pulled from the Nike website.
Nike released a statement later in the day, saying, quote, "Nike extends its deepest sympathy and condolences to all families concerned following this tragic incident. It is a police matter and Nike will not comment further at this time."
Now Oscar Pistorius isn't the first Nike sports figure to be caught up in a scandal. The most recent: Lance Armstrong. Despite investing tens of millions of dollars in the cyclist and his Livestrong Foundation, Nike cut its ties back in October after Armstrong was banned from the sport by the U.S. Anti-Doping Agency.
The recent molestation scandal at Penn State University prompted Nike to then remove football coach Joe Paterno's name from its child care center. And Nike dropped NFL quarterback Michael Vick after his plea agreement on dog fighting charges but then resigned Vick following his release from prison.
The sports giant has also stood by other embattled athletes. Despite his 2009 sex scandal, Nike still has a lucrative endorsement deal with golfer Tiger Woods. And Nike kept its deal with NBA star Kobe Bryant when he faced sexual assault charges back in 2003. That case was eventually dropped at the request of Bryant's accuser, Nina.
DOS SANTOS: Well, Felicia, Pistorius has deals with other companies as well, and presumably they're evaluating their future with the star?
TAYLOR: Well, exactly. I mean, and he's got some pretty lucrative endorsements. They're worth about $3 million a year. They include Oakley Sporting Gear, Ossur Orthopedics, which actually makes his running blades, BT Telecom and Thierry Mugler, whose ad you see here because it's a fragrance that he endorses, called A*Men.
Now as you said, right now, none of these companies have actually dropped Pistorius. But, you know, anything can change after more details come out about this case, Nina.
DOS SANTOS: Felicia Taylor, thanks so much for bringing us that side of this difficult and upsetting story from New York. We'll have plenty more here on QUEST MEANS BUSINESS when the show continues with a break.
DOS SANTOS: Guess what? If you haven't noticed out there, it's Valentine's Day. And that's means pretty big business. Americans, for example, plan to spend more than $18 billion on their sweethearts today.
And men tend to spend twice as much on average as women. Then, of course, you've got to mind your manners when you take your date out, don't you? Richard sat down with the chief of Moonpig, an online personalized greetings card company, and he started by asking him about the dos and don'ts of sending that crucial Valentine's message.
IAIN MARTIN, MANAGING DIRECTOR, MOONPIG: The dos and don'ts of Valentine's Day, well, be very careful with your spelling because nobody really wants to receive a card to Dear Sweatheart.
If you are one of those people who's going to send more than one card, then make sure you get the addresses the right way 'round, because that does occasionally happen, which is -- we do our best to try and help when that does happen, but it's a problem.
And then I think the other thing is the sympathy valentine. Nobody wants to receive a sympathy valentine from their parents.
RICHARD QUEST, CNN HOST: To some extent what you're doing is this perfect marriage between modern technology, the Internet emails, if you like, and snail mail.
MARTIN: It is. It's taking a traditional product that's loved by the British public, and updating it for the 21st century. So we bring the digital printing and the Internet to the product. And it's a better product at the end of the day.
QUEST: Who's your competitor, the High Street or the e-card, or both?
MARTIN: Well, in the U.K., the card market, the single card market is worth 1.3 billion pounds. And at the moment, online, only 4 percent of that market is online. So we see a huge amount of potential for growing the online market. And that really outweighs any other sort of competition that we've got.
QUEST: And if we look at markets -- this fascinating, isn't it, because not all markets are equal. And you are finding certain markets to be -- I mean, it's an Anglo-Saxon thing.
MARTIN: It is an Anglo-Saxon thing, so card sending generally is -- in the U.K., we send more cards than anywhere else in the world. And then there's Australia and the U.S., who also send a lot of cards.
But it's Europe; the number of cards sent per person is actually very small, relative to the U.K. So our focus has been on growing the U.K. market. There's still a long way to go there. And there are some barriers to entering the European market with regards to language and humor and design, et cetera. So our focus is really on the U.K.
QUEST: This one is good. There's just something deliciously English about that.
(END VIDEO CLIP)
DOS SANTOS: The crippled Carnival cruise ship Triumph is now just a few hours away from reaching the Alabama coastline. Do remember that there's more than 4,000 people on board, obviously, eager to disembark here. They've been coping with harsh temperatures during their time there and also very, very unfortunate and unsanitary conditions, such as leaking sewage.
All of this happened since the fire on board the ship on Sunday disabled its engines and it lost power steering. It has been drifting since and it's had to be pulled back into a port in Mobile, Alabama, to try and obviously get these people off board.
What we heard this time yesterday was our correspondent, David Mattingly, just explaining the intricacies of this operation because obviously we're talking about an extremely large vessel with thousands of people on board. For safety reasons they couldn't disembark them in the open seas and so they're having to, as you can see there, tug them back into port.
Let's join our sister network, CNN U.S.A., as they continue to follow this story.
UNIDENTIFIED MALE: The cruise was supposed to head to Cozumel and then head home Monday instead. What's the day? Today is Thursday here. I want to bring in Kimberly Ware (ph). She is on board this cruise with her boyfriend. Kimberly, can you hear me?
DOS SANTOS: OK, so that's our sister network, CNN U.S.A., bringing us the latest there from eyewitnesses.
And passengers aboard that stricken Carnival Triumph cruise ship, remember that there's 4,229 passengers, of which 3,143 are passengers and other over 1,000 crew members there, who've been stuck on this ship since Sunday in very unsanitary conditions after a fire in the engine room left it stricken and drifting in the ocean.
And that's it for QUEST MEANS BUSINESS. Thanks for joining me. Happy Valentine's Day to you out there. I'm Nina dos Santos in London. MARKETPLACE EUROPE continues here on CNN.
QUEST: From Europe's financial capital, this is MARKETPLACE EUROPE. I'm Richard Quest. It is cultural. It is Christian and crucially it's commercially important. It is Valentine's Day, a heart-sized opportunity for companies struggling for growth, coming up on this program.
(BEGIN VIDEO CLIP)
QUEST (voice-over): Keeping the cargo fragrant and fresh, how Europe's biggest airline is delivering a romance.
And why the CEO of Spain's leading utility company hasn't got much love to European governments.
IGNACIO SANCHEZ GALAN, CHIEF EXECUTIVE OFFICER, IBERDROLA: Our energy is not as competitive as the American one. Among others, because our bill, the building, the oil we are paying are approximately 50 percent of taxes.
(END VIDEO CLIP)
QUEST: The German airline Lufthansa celebrates Valentine's Day by welcoming on board perishable and precious passengers, the flowers that they're moving from Africa to Europe. These require much love and attention.
Slightly less romantically, they also have to conform to strict customs standards and European regulation. So Isa Soares has been to Frankfurt to see the blooms that will gladden your sweetheart.
(BEGIN VIDEO CLIP)
ISA SOARES, CNN CORRESPONDENT (voice-over): This landing marks a key stop, a link in the logistical chain that began 10 hours ago, 4,000 miles away in Nairobi, Kenya. Inside are two pilots and 65 tons of Kenyan roses, demanding passengers with particular requirements.
UNIDENTIFIED MALE: Here in the cockpit we are equipped with a temperature controller. It's here; the ideal temperature should be in the range between 4 and 8 degrees. It's important because roses are easily perishable goods, very important not to disrupt the cold chain.
SOARES (voice-over): As the pilots make a quick exit, the flowers in hand, of course, the wheels of this cold chain begin to turn. Pallet after pallet of roses are on the move.
SOARES: These roses will need to be leaving Frankfurt in roughly six hours, so from here on in, it really is about speed and punctuality, what, of course, never suggesting they have to meet tough quality standards and strict region.
SOARES (voice-over): When the doors open in temperatures below zero, every second matters.
UNIDENTIFIED FEMALE: Today it's really cold outside and these temperatures for the roses (inaudible) ambient temperature. So therefore we're trying to (inaudible) as fast as possible into the (inaudible) center.
SOARES (voice-over): Lufthansa doesn't do this for love. The roses are big business for them. Every year, it transports 20,000 tons of flowers and plants. In the days leading up to Valentine's Day, they will carry 1,000 tons of roses.
UNIDENTIFIED FEMALE: So they do have to be (inaudible). The incoming, their plane for the flowers, but there (inaudible) on there because at the airport, flowers (inaudible) or whatever, then they might see that this (inaudible) brought into the European Union and (inaudible) the roses may be here. They will get this (inaudible) as well.
SOARES (voice-over): Inside Lufthansa's perishable center, the produce is moved quickly. The temperature is taken once again. Ten percent of all produce is check. Hans Jurgen (ph) represents the German government. He's responsible for the checks on all food and plants that come through Frankfurt.
HANS JURGEN (PH), GERMAN GOVERNMENT (through translator): We are border inspectors for the whole of the European Union and also Switzerland.
SOARES: What will you be looking for when you're looking at these roses?
JURGEN (PH) (through translator): The cut flowers we mainly look for lice and caterpillars. We have a guideline for inspectors that describes the different diseases.
SOARES (voice-over): The guidelines are detailed and descriptive. They need to be. After all, the inspectors have less than 15 minutes to examine each shipment.
JURGEN (PH) (through translator): It's important to look at the underside of the leaves to detect plant thrips, mildew and whitefly. I look at the leaves and the stems.
SOARES: Hans (ph) tells me this shipment's clean. So the paperwork gets a final signoff. And the roses are ready for departure. With the doors tightly locked, in 14 hours they'll be arriving in London.
The precision of this logistical chain means there's very little love lost. Lufthansa gets (inaudible) customers. The European Union moves along nicely and people like me, we end the day with a spring in our step.
(END VIDEO CLIP)
QUEST: To Isa Soares in Frankfurt. When we come back after the break, we meet the chief exec who's not warming hearts, he's warming homes. The CEO of Spain's energy company, Iberdrola.
QUEST: Welcome back to MARKETPLACE EUROPE. The head of one of Europe's largest energy groups is warning the continent government to stop treating the companies as cash cows to be milked for tax revenues. The CEO of Iberdrola told me his priorities are investments and energy conservation. And he has tens of millions of customers to think about.
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QUEST (voice-over): Iberdrola is Spain's leading energy company, with a strong focus on renewables. The group has become the world's biggest producer of wind energy. Iberdrola has over 30,000 employees, operating in 40 countries. And the company provides power to 30 million customers.
QUEST: The economy in Spain seems to be coming back. What's your gut feeling?
GALAN: Well, I think the government is doing a lot of things. Unfortunately in the last four years, not very many thing has already been done. In very many the action and decision has been -- it has been taken during these three (ph) months, (inaudible) been taken four years ago, the situation would be absolutely different.
But with this (inaudible) taken, decision has been taken in the area of labor, for instance; they are much more flexibility. They are -- they have more -- much more productivity. So we have already conducted in the Spanish business are really more competitive. We are much exporting. The balance of trade is already positive. And in the end, that is the reason why the things are improving.
QUEST: So the -- but it's a glass half-full and a glass half-empty, because there's no structural reforms in the economy to get -- changes are made. They start to attack you, not personally, but they start to attack your industry.
GALAN: Well, I think -- I feel certain, but I think it's not a case of Spain only. I think most of Europe, some countries, has already discovered the traditional utilities. They think that we are already too rich because they believing we are too rich. They are only contemplating one part of the equation, which is resolved.
They are not contemplating the asset and the capital involved. And they are already taxing a lot. What have making -- that -- what they are making is that in this particular moment, the companies in the Eurozone has been much worse performers in the market than another companies in another areas.
QUEST: Do you feel you are being made the ATM for governments? When in doubt, take money out of the energy sector.
GALAN: In the Eurozone, the utilities, electrical company represent 5 percent of the GDP. We employ -- we invest it in a range of 40-50 billion euros per annum. We employ 750,000 people directly. So we can already help to the governments to create wealth and to create jobs and to create riches.
QUEST: But do you feel when it comes to balancing the budget, they are expecting you to do more and too much?
GALAN: Well --
QUEST: They're basically taxing you too much. Is that your point?
GALAN: Yes, yes. The point is that if we comfort Eurozone, we do not (inaudible) for instance. Our energy is not as competitive as the American one. Among others, because our bill, the building, the oil we are paying are approximately 50 percent of taxes.
When toward the Americans, it's 10 percent. So that is producing a real lack of competitiveness of our industry toward another ones.
QUEST: You've got a problem.
GALAN: Well --
QUEST: Your problem is this:
GALAN: Well, it -- no, we got a problem, it's true. But because we got a problem, we, Iberdrola, we took the decision very many years ago, diversify our risks. And today, our business are already depending less than 40 percent of Eurozone and the rest are in pound area, dollar area, real area, Mexican peso area.
QUEST: That's --
GALAN: So 70 percent of our business are not Hispanics. So in that case, I'm not the Spanish in 60 percent (inaudible) are not Eurozone area business. So in that case, we are affected but we are affected less than the rest. And that makes maybe in the last, during the crisis, we are the only large utility in Europe. So we have therefore maintaining our profit and maintaining our dividend.
QUEST: I know you're not threatening anyone, but are you effectively warning politicians in Spain and in other E.U. countries, you carry on doing what you're doing and taxing us like this, and I will move more resources into more profitable areas of the world?
GALAN: Yes, no, I'm saying if we are not generating enough cash flows, we are going not to invest in these areas. So I think the cash flow is needed to continue reinvesting. If they are already taking the cash flows in taxes, this money cannot flow into the investment.
So but in another country, this (inaudible) is different. For instance, in Britain, in Britain, the transitional industry (inaudible) networks are really trying to do the best for attracting capital for investing in this one and getting wealth.
(END VIDEO CLIP)
QUEST: The head of Iberdrola. And that's MARKETPLACE EUROPE for this week. I'm Richard Quest. As always, whatever market you're in, I hope it's profitable.