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QUEST MEANS BUSINESS

US Department of Justice Challenging Airline Merger; Penney's Boardroom Battle; Dollar Mixed; Gibraltar Tensions Grow; Breaking the Impasse

Aired August 13, 2013 - 14:00   ET

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


RICHARD QUEST, HOST: Grounded by the government. The United States tries to stop the American Airlines-US Airways merger.

A department store dust-up. Bill Ackman quit the board at JC Penney.

And between a rock and a hard place. Tonight, Gibraltar's chief minister on the Spanish spat with Great Britain.

I'm Richard Quest in New York, and I mean business.

Good evening from New York. In the last couple of hours, the United States announced it's trying to block a merger that would create the world's largest airline. It's the deal that would unite American Airlines with US Airways.

The deal seemed almost complete. We reported on this program at this time yesterday. What the difference a day makes. Yesterday, all the talk was smooth sailing towards completing by the end of the month. Now, the very deal itself may be in jeopardy.

A few hours ago, the Justice Department, along with six state attorneys general filed a lawsuit challenging the $11 billion merger on anti-trust grounds. The suit says the merger would "substantially lessen competition in commercial air travel."

The most dramatic, immediate effect besides the jaw hitting the ground was the shares of American Airlines, down 49 percent. Admittedly, the company is in Chapter 11, so it's not a real market in their shares, but those shares that are there, down 49 percent. US Airways is down 9 percent.

The two airlines responded to the legal action. In a joint statement, they said, "We believe the DOJ's wrong in its assessment of our mergers. Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together. Blocking this pro-competitive merger will deny customers access to a broader airline network that gives them more choices."

This was very late in the day in terms of the total deal. A merger which was announced back in February of this year and which has progressed over various months. Think about it. The shareholders have e approved it, the EU regulators have approved it, the creditors have approved it, and now the US DOJ has stepped in at the last moment.

How much of a surprise this is? Well, yesterday on this program, I spoke to American Airlines chief exec on the floor of the New York Stock Exchange. Tom Horton said he was confident it would get the go-ahead.

(BEGIN VIDEO CLIP)

TOM HORTON, CEO, PRESIDENT, AND CHAIRMAN, AMR AND AMERICAN AIRLINES: This was a mission to put American back on top, and thanks to the hard work of 75,000 people at American Airlines, we're about to complete a very successful restructuring and turnaround of this company.

QUEST: You've got the bankruptcy judged has to approve and the DOJ. What do you expect from the Department of Justice? Are they going to want slots?

(LAUGHTER)

HORTON: Well --

QUEST: Reagan National, for instance?

HORTON: Well, we've been working very closely with the Justice Department, people at American, people at US Airways, making sure that they have all the information they need to make an informed view of the merger, and we'll just have to wait and see.

(END VIDEO CLIP)

QUEST: We thought, of course, they would merely wants slots. In other words, take off and landing times at the main airports. Well, the Department of Justice now has a number of problems with the deal.

First of all, higher airfares. They say, for example, American Airlines and US Airways, US Airways advantage, cheaper fares would be restricted, there would be less competition through nonstop city pairs.

Then, they say there'll be higher fees for baggage, flight changes, and the like. And they would see reduce choice for services.

Charlie Leocha is the director of the Consumer Travel Alliance, who testified against the merger before the US Congress. Charlie, even you must admit, this was a surprise that they didn't just go for some form of divestiture or some sort of recompense. They're going to block it. You must've been surprised, too.

CHARLIE LEOCHA, DIRECTOR, CONSMER TRAVEL ALLIANCE: Well, I will say that I'm surprised that it happened today, and I'm very, very pleased. Only yesterday, I was talking with people, and I basically gave it a 50-50 chance.

I've been doing an awful lot of work with the Department of Justice, I've spoken with them several times, and I know that the lawyers there at the Department of Justice really are probably the best team that consumers could possibly have had looking at this merger.

And when it started off, I thought it was a 90-10 slam dunk. But then, as things went along and our organization, the Consumer Travel Alliance, came out with an overlapping, competing route study --

QUEST: Right.

LEOCHA: All of a sudden, we saw that one-stop routes -- there were 761 of those, which would -- where we had American and United -- or American and US Air competing with each other --

(CROSSTALK)

QUEST: The problem, of course, is -- but the problem is in this regard, American, of course, now is more competitive because it's got its cost base down. US Airways has been trying to look for or has been thought to need a partner.

If this deal does not go through -- I understand you're the consumer's voice, I understand that, but put that to one side for one second. If this deal does not go through, these two smaller airlines are at a disadvantage compared to the colossus of Untied and the behemoth of Delta.

LEOCHA: Well, you might say that, but then again, you might say that they have an advantage. They're going to be able to focus on their own markets, they'll be able to provide better service, they'll be able to give consumers what they really want.

Let's look at what happened with Southwest Airlines. It started as a tiny little airline in Texas, and now it flies more passengers domestically than any other airline, including the Behemoths.

So, if someone pays attention to the consumers, if they treat them with dignity, if they maintain control over their pricing, consumers will fly on that airline.

QUEST: The evidence --

LEOCHA: I don't see that problem.

QUEST: The evidence on the US Airways -- I've read the studies, up to a certain point. Not as much as yourself. And if you look at the non- stops and the competing non-stops, there's not that many of them, and I accept your point about the one-stops and the baggage fees and all of those.

But is it the right way for the DOJ to basically say a deal that everybody signed off on with an airlines that is bankrupt, that is just days from closing the transaction, should now be stopped? It's late in the day.

LEOCHA: No, I don't think that it's wrong. What's wrong is that the airlines have given the impression that this was moving along and it was not going to be objected to. They knew that this was a dicey situation with the Department of Justice. They knew ahead of time that this was going to be a close call. But they've gone along and they made a PR decision --

QUEST: Right.

LEOCHA: -- that they were going to act as though nothing was happening. In the meantime, we've been working very, very diligently since Valentine's Day, when they announced their little love affair --

(LAUGHTER)

LEOCHA: -- and we have worked in Congress --

QUEST: Right, you --

LEOCHA: We've worked with al to of people to make sure that they understand where consumers stand, and that's the difference here. What you're talking about is bankruptcy, and bankruptcy deals with creditors and with stockholders. But when you're talking anti-trust, that deals with consumers, and that's the big difference.

QUEST: Last question here, now. Again, I know you want this deal out the window, dead, and buried under six foot of soil, but is it your experienced judgment in this that really what we're going to see here is a negotiating position with the DOJ and that eventually a deal will be done? It may be more divestiture, it may be over sight or whatever. But the deal will eventually take place.

LEOCHA: I don't think it's going to happen. I think that this deal is dead. We have an enormous loss of competition across the country, the General Accountability Office marked something like 1665 airport pairs which lose competition. And it is a nationwide problem. It's not a problem that can be solved by just giving up a couple of slots.

QUEST: Charlie, good to talk to you. We'll talk more about it. Thank you for giving us that view and for putting it in perspective, at least from the consumer's point of view. We often forget that. Charlie Leocha, joining us --

LEOCHA: Thank you.

QUEST: -- from Washington. Much appreciated. Now, more corporate news of quite extraordinary types in the US. Bill Ackman is backing down. Why do we care? Well, you do, because he's the activist investor. He had a very nasty public feud with the US retailer JC Penney, and we'll talk about that after the break. QUEST MEANS BUSINESS.

(RINGS BELL)

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QUEST: A bitter boardroom battle at JC Penney has finally come to a head, and some would say out the door. The company's biggest investor, the hedge fund manager Bill Ackman, has resigned from the board. He'd been trying to push out the company's chief exec, Mike Ullman, for nearly three years.

Now, Ackman helped unseat the company veteran in 2011, claiming he was behind the retailer's poor performance. Apple's former retail chief, Ron Johnson, was brought in to replace him. Eighteen months later, JC Penney's financials were so dreadful, Johnson was kicked out the door.

Ullman was reinstated as the interim chief, and Ackman was not happy. He's drawn criticism from fellow investor George Soros, who backs Ullman, from Starbucks chief executive, Howard Schultz, who called Ackman's actions "despicable." Mike Ullman still sits on the Starbucks board.

It's by no means Bill Ackman's first boardroom battle. Last year, he accused Herbalife of being a massive pyramid scheme and said he'd made a billion dollars betting against the company, which spooked investors and sent the shareholders absolutely sliding. Herbalife just reported what it's called -- what it's saying is the best quarter ever.

In May of this year, Ackman successfully pressured Procter & Gamble to replace its chairman and chief exec, Bob McDonald.

Robert Kaplan is professor of management at Harvard Business School. He's also the former vice chairman of Goldman Sachs. He joins me now, live from Cambridge, Massachusetts. Sir, whenever these chaps -- whenever they actually meet and are interviewed and we hear from these investors, they always day that they are doing the shareholders' work of holding the board -- to account in the shareholders' interests. Do you buy that? Or are they a bloody nuisance?

(SILENCE)

QUEST: And -- we appear to be having a slight problem there with Mr. Kaplan hearing us at the moment. We for some reason are not able to hear him. We'll take -- we will take a look and see how JC Penney shares have fallen nearly 3 percent so far today. Alison Kosik is at the New York Stock Exchange. Allison?

ALLISON KOSIK, CNN BUSINESS CORRESPONDENT: Richard, nothing like a good executive fight in the sandbox to get a stock moving. JC Penney shares right now falling about 3 -- a little over 3 percent right now.

Interesting thing with the stock, it's not just today. Look at this battle going on between Ackman and the board. It's really taking the stock on a wild ride. You look at JC Penney shares, they're down more than 25 percent over the past month.

Much of this fight revolves around Ackman's pressure on JC Penney's board to get a new permanent CEO in place. Ackman hasn't been happy with Myron Ullman, who took the interim CEO spot when Ron Johnson stepped down in April.

But the stock, you look at it, it wasn't exactly doing great under Johnson, either. And when you look back to when the former Apple executive first took the helm almost two years ago, shares were down 60 percent since then.

Now, the company is going to be posting earnings next week. This is going to be the first full quarter that interim CEO Ullman has been leading the company, so this is going to be interesting to see, Richard, JC Penney posted a bigger loss than expected on weak sales. Richard?

QUEST: Of course, it's whether or not JC Penney is held beneath the water line and anybody can do anything to try and rescue the sinking ship.

KOSIK: Exactly, and this is a stock that's really just getting hammered, a company that's really trying to turn around, its management having huge issues, obviously, with what we see playing out in public with Ackman firing off this five-page letter last week to the public, really playing this out in the public arena, Richard.

QUEST: Alison Kosik at the New York Stock Exchange with the market side of this. Back to Robert Kaplan, the professor of management at the Harvard Business School. Professor, hopefully you are able to hear me now. You join me live from --

ROBERT KAPLAN, PROFESSOR OF MANAGEMENT, HARVARD BUSINESS SCHOOL: I am now.

QUEST: Excellent! Excellent! My question to you was this: whenever these activist investors like Ackman come along, they always say that they're doing the shareholders' yeoman work, holding the company's board in the shareholders' interests. Do you buy that, or are they a nuisance?

KAPLAN: No, I do buy -- in a lot of cases, they've served a very positive role. Chesapeake is a great example this last year, where they pushed for very positive changes. The difference is they normally do it from the outside.

Once you join the board, you've got to work as a team with the board. You're now a fiduciary. So, if you're at odds with the board, it's very awkward to be on the board.

QUEST: But here's -- but hang on. If you own 17 or 16 or 17 percent and you are the largest single shareholder, you're a fiduciary on the board for yourself, because de facto, you have more say than anybody else on the board.

KAPLAN: You do, but even in that case, there are 100 percent of the shareholders that you're responsible for, and you've got to work with the other board members, and there's a greater onus on you -- remember, you're getting paid by the shareholders a board fee to play that role.

So, yes, you can watch out for your 17 percent, but if the other board members disagree with you, they have a responsibility to the other 83 percent, too.

QUEST: I'm thinking of the -- some would say the good old days, others would say the bad old days, the 80s, the LBOs, the proxy fights, the time when people -- the RGO and Nabiscos when you went into battle.

We're a long way from those heady days, but when you see Carl Icahn coming back and having a run at Dell, and as he has done on numerous other occasions, there is still a role for these swashbuckling buccaneers, isn't there?

KAPLAN: There's definitely a role, and one thing that Ackman -- one bullet he doesn't have that Carl Icahn does, Carl Icahn could step up and say I want to buy the company. Gives him a lot of credibility. Ackman doesn't do that and is not suggesting he would do it here.

But if you don't agree with the board members about the other 83 percent you don't own, the obvious thing for you to do if you want to get control, buy the company.

QUEST: And since he's not about to do that, you end up with a troublesome, worrisome sore that makes it just about -- particularly in a company like Penney's, which has got crucial, systemic issues that could take the whole thing down. Would you agree?

KAPLAN: I agree. Which is why he did the right thing to resign. He should play this role now from the outside.

QUEST: Professor, good to see you. Professor Kaplan, thank you for joining us. We'll talk more about these --

KAPLAN: Thank you.

QUEST: -- these -- I was just going to say "corporate raiders," but they're not. Some would say troublesome meddle-makers. We'll talk more about that in the future. Good to see you, sir. Thank you. Tonight's Currency Conundrum.

(RINGS BELL)

QUEST: The world's most valuable coin has been moved temporarily to an exhibition here in New York. It's a 1933 gold double eagle, which has sold at auction for $7.5 million in 2002. Where does the coin normally live? The Fed of New York? The Bundesbank? Or Fort Knox? The answer later in the program. I'm guessing it's got to be cleverer than this. It can't be too obvious, it just can't be.

The dollar is flat against the pound, down against the euro, and strongly up against the yen. Those are the rates --

(RINGS BELL)

QUEST: -- this is the break.

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QUEST: British warships have set sail for Gibraltar as the diplomatic storm clouds gather between the UK and Spain. The Royal Navy insists the deployment has been long planned. They're calling it routine. HMS Westminster will join nine other vessels on an international training exercise in the Mediterranean and the Gulf.

At the Spanish border with Gibraltar, drivers are having to wait for up to five hours to get across. Britain says Spain's new border checks are politically motivated and threatened Madrid with legal action. From London, CNN's Dan Rivers is following the developments.

(BEGIN VIDEOTAPE)

DAN RIVERS, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, the war of words is continuing between Spain and the United Kingdom over Gibraltar, further queues again on Tuesday as Spanish customs officers search each and every vehicle that was crossing the border. They have about 10,000 Spaniards that cross over every single day.

The dispute has been sparked by the Gibraltese government putting in a fishing reef just off the coast of Gibraltar. The Spaniards are saying that that will prevent their trawlers from fishing for shellfish there.

It's reignited a long-running dispute over the sovereignty of the territory, which is classified as a British overseas territory, one of 14 around the world that falls under the sovereignty of Britain. Britain's had sovereignty for more than 300 years.

Now Spain is saying that it is going to take the whole issue to the UN Security Council. It's seeking Argentinean support for that because they have a similar claim over the Falkland Islands. Meanwhile, Britain is saying it will take Spain to the European court, if necessary.

And on Tuesday, there was a further escalation when the Spanish minister for agriculture and fishing said he would impose tough sanctions against any ships that are conducting ship-to-ship refueling based in Gibraltar, further broadening the dispute, not just concerned now with alleged cigarette smuggling into Gibraltar from Spain, not just concerned with fishing, but now also with shipping as well.

Dan Rivers, CNN, London.

(END VIDEOTAPE)

QUEST: Gibraltar's a territory of less than seven square kilometers. The economy there is booming. Spain is in recession. And the rock has been one of the highest GDP-per-capita ratios in the world. A combination of low policies and the financial services and banking sector that is robust along with tourism and online gambling.

Gibraltar is also home to 30,000 people, and you'll struggle to find anyone out of work. The unemployment rate there is 2.5 percent. Move the decimal point to 26.3 percent in Spain, and it's nearly 36 percent in the Andalusia region, which borders Gibraltar.

Looking at the growth numbers, Gibraltar's GDP up 7.8 percent last year. Spain is contracting 1.4 percent, and Britain is just about unchanged.

Fabian Picardo is the chief minister of Gibraltar, and the minister joins me now via Skype. Minister, OK. So, the dispute is an existing one that has been going on for many years. The UK is now sending a warship on planned exercises. But you've got to admit, the rhetoric is now heating up.

FABIAN PICARDO, CHIEF MINISTER OF GIBRALTAR: Indeed, and one has to wonder why. We've been facing this rhetoric, as you say, since we created this artificial reef, which was only a week after a Spanish civil guard launch -- fired rubber bullets on a jet skier from Gibraltar who was in British Gibraltar territorial waters. He was doing nothing wrong. He was just set upon by them.

We didn't raise the temperature and the rhetoric then. We dealt with matters in a much professional and diplomatic way.

QUEST: Right. Just --

PICARDO: Why is it that Spain wants to raise the rhetoric?

QUEST: Right. Let me ask you this: the cynics say it's because the economic situation is so bad in Spain and they're doing the old trick of diverting attention by focusing on a nationalist spat with another country over Gibraltar. Is it really that simplistic?

PICARDO: I don't think it is. I'll tell you, I think it's about two aspects of Spanish politics. The first is the one you identify, which is the serious economic problems that Spain is having.

But I think the more serious issue -- because that's been going on already for three or four years -- the more serious issue are the corruption allegations engulfing Mariano Rajoy and the Popular party, which are ironically coming to a head with some hearings in court tomorrow, the Barcenas case.

I think that has more to do with why Spain wants to divert attention to me and my 30,000 fellow citizens and the difficulties that they are creating for us.

QUEST: If that's right, then this thing -- the worst that anybody can do is respond to it, because effectively, Spain isn't going to invade Gibraltar, which is, of course, part of another EU country. So, that's not going to happen. At best, they will be troublesome, and at worst, they will make life a bit more difficult for you.

PICARDO: Yes, but it's also not possible to just roll over and take it. So, it's a combination of having to deal with things in a diplomatic, calm, and assured manner, and not deal with issues as the -- as Spain might wish.

If you look at the Spanish newspapers, eight pages of Spanish "ABC," which is one of the right-wing newspapers, and another eight pages of "La Razon," the most right-wing of the Spanish newspapers, have been dedicated to this every day for the past nine or ten days.

That really is Spain trying to ensure that -- or the Popular Party trying to ensure its supporters are reading about this nationalistic issue and not about the issues afflicting the party.

QUEST: Finally, ultimately, what do you want? You want Spain to let you -- just go away, basically, and then behave on this subject. But ultimately, what do you want the UK to do? You've got these warships coming down on planned exercises. Are you calling for a show of force?

PICARDO: No, let's be very clear, Richard. We don't want Spain to go away. We want Spain to be a strong partner of Gibraltar. Our most treasured relationship is the relationship with the United Kingdom. That is strong, and that is why we're standing shoulder-to-shoulder facing down these problems together.

But our next most important relationship must be with Spain, 10,000 Spaniards come into Gibraltar every day to work here. People from Gibraltar get married to people from Spain. Despite the headlines, there's a lot of great business going on --

QUEST: Right.

PICARDO: -- between Gibraltar and Spain. The bunkering happens because we buy bunkers from the Spanish suppliers. So, at the end of the day, what we're saying is, let's get back to having a great partnership, which works for all of us.

QUEST: Minister, thank you very much. Appropriately, the minister, there, joining us in front of the flags of the UK and, of course, the European Union, and Her Majesty, the Queen, over the shoulder as well. We thank you for that, sir.

Details are slowly coming in now of events that took place in Nigeria, a series of gruesome deaths. And an extremist group in the country issuing a threat to confront the United States. We'll have that story. This is QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN and, on this network, the news always comes first.

(BEGIN VIDEO CLIP)

QUEST (voice-over): Nigerian police are investigating the massacre of 44 worshippers inside a mosque. It happened in the northern Nigerian town of Kunduga (ph) over the weekend. No one has claimed responsibility. But the militant group Boko Haram has been waging an insurgency in the region.

Supporters and opponents of the ousted Egyptian president clashed in Cairo today. Police reportedly fired tear gas to break up the confrontation. It happened as pro-Morsy protesters held rallies outside several government ministries.

These are live pictures coming to us from outside an Israeli jail. We're expecting Israel to free 26 long-term Palestinian prisoners soon. They will be the first of 104 prisoners to be released under a deal agreed to get peace talks going again.

However, Israel is also forging ahead with a plan to build more than 900 housing units in East Jerusalem in addition to the 1,000 units announced on Sunday. The settlement news is infuriating Palestinian leaders.

The U.S. Justice Department has filed a lawsuit to block the merger of American Airlines with US Airways. It's an $11 billion deal; it would have formed the world's largest airline. It's been approved by the E.U., the shareholders and the creditors of the company. The complaint says customers would face higher air fares, fewer -- higher fees and fewer choices.

Canada has suspended the license of a rail operator whose tanker train exploded in Quebec last month. Forty-seven people were killed in the disaster. The Canadian Transportation Agency says the company does not have enough third-party liability insurance.

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QUEST: (Inaudible) shootings in Nigeria and it is not clear who is behind the attack, but about the same time the leader of a militant Islamist group issued a video that also threatened the United States.

Nima Elbagir is following the story, joins me now from the Kenyan capital in Nairobi.

This is a particularly gruesome and unpleasant happening.

NIMA ELBAGIR, CNN CORRESPONDENT: It's absolutely horrific, Richard, especially when you take into account the new reports that we've been receiving that this could have been part of a broader attack. Local police sources tell us that they have been discovering bodies of murdered villagers not too far from the scene of that mosque attack. They say the villagers were found with their hands bound together and their throats slit around the same time as news of this attack broke. A video message from the leader of Boko Haram emerged in which he appears to be crowing and laughing. He said that his group have proved that they are more than a match, not just for the Nigerians but also for Nigeria's ally, the United States. Have a listen, Richard.

(BEGIN VIDEO CLIP)

ABUBAKAR SHEKAU, LEADER, BOKO HARAM (through translator): We have killed countless soldiers and we are going to kill more. Our strength and firepower is bigger than that of Nigeria. Nigeria is no longer a big deal to us as far as we are concerned. We will now comfortably confront the United States of America.

(END VIDEO CLIP)

ELBAGIR: Oona state (ph) has been under a complete communications blackout, Richard, since a state of emergency was imposed in May. So we're having a little bit of difficulty getting confirmed information out of there.

But what we're hearing is pretty horrendous, I should say, Richard.

QUEST: Listening to what Boko Haram was saying, for those of us who may not be as familiar with them, the ability to make that sort of threat against the United States or against anybody, is it an empty threat or one that must be taken with grave seriousness?

ELBAGIR: Well, Boko Haram definitely have managed to outsmart the Nigerian government forces that have been fighting them for quite a while now, Richard. And we've seen pretty credible reports of their presence as far east of the continent as Somalia, fighting along the Al Qaeda-linked military great, Al-Shabaab, but also they had quite a concerted presence in Mali. And they clearly troubled the U.S. enough to lead President Obama to put a $7 million bounty on Abubakar Shekau, who you saw earlier, the leader of Boko Haram's head. They've also called them a terrorist entity. So it is probably as much as about the damage that they can cause within Nigeria and also to those Western oil installations as it is about how far their reach is outside of Nigeria, Richard.

QUEST: Nima, thank you very much indeed. Talk more about this. Thank you. We appreciate it.

This is QUEST MEANS BUSINESS. We're live in New York.

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QUEST (voice-over): The answer to the "Currency Conundrum" tonight, where does the world's most valuable coin, the 1933 gold Double Eagle normally live? The answer: Federal Reserve Bank of New York. It was sold to a private collector for around $7.5 million in 2002. It's valuable because it shouldn't exist. All $20 pieces minted in '33 were meant to have been destroyed by President Teddy Roosevelt who took the U.S. off the gold standard.

(END VIDEO CLIP)

QUEST: There are further signs Europe is finally edging out of recession in the Eurozone. Industrial production -- I.P output grew by 0.7 of a percent. It's a sharp bounce back from the previous decline of the previous moor (ph) of the month.

Meanwhile, a boost for investor confidence in Germany. The Zew Indicator, a reading on the country's business sentiment, has regained momentum. It's up a handful of points to 42. That's the highest level since March of this year.

So if people are feeling more competent about the economy in Germany, well, of course the election on September the 22nd has been the prime focus of the government.

Today the German Chancellor Angela Merkel put the economy on the back burner while she took a history class instead. No, she wasn't learning about history. She was teaching it. CNN's Diana Magnay is in Berlin.

(BEGIN VIDEOTAPE)

DIANA MAGNAY, CNN CORRESPONDENT: German Chancellor Angela Merkel making history by teaching it, holding class at a Berlin high school to share her experiences about growing up in Communist Eastern Germany.

ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): The 13th of August is the 52nd anniversary of the construction of the wall. That was in 1961, the year I first went to school. My favorite classes were languages, German and math.

MAGNAY: Merkel was asked to guest teach by German youth magazine, "Spiete (ph)." The election's about six weeks away. This is her first appearance on the campaign trail after a three-week summer break.

UNIDENTIFIED MALE (from captions): When I see you from behind, you look a lot like Stoltenberg.

JENS STOLTENBERG, PRIME MINISTER, NORWAY (from captions): You think I look like Stoltenberg?

UNIDENTIFIED MALE (from captions): Are you Stoltenberg?

MAGNAY: It's nothing quite as flashy as Norway's prime minister, who moonlighted as a taxi driver in June, to sound out voters' views on campaign issues, a pre-election stunt and campaign video which went viral.

UNIDENTIFIED FEMALE (from captions): I was lucky now, because I wanted to send you a letter.

MAGNAY: But Angela Merkel's definitely opting to go heavy on the personal side of things this election season with a revamped website launched on Monday detailing how she loves gardening and making potato soup. With old photos from her childhood and personal memories of how reunification inspired her to enter politics.

Opposition social Democrat candidate Pier Steinberg did himself no favors earlier this month, when he suggested that Angela Merkel's East German childhood had given her a different understanding of Europe than those who'd grown up in the West. Coupled with his frequent assertion that she lacks passion for European politics, he did little to endear himself with the 17 million voters living in the former East Germany.

Polls show Merkel is the more popular candidate at this stage. Her own history and record over the past two terms working in her favor with the German public, who've grown used to the no-nonsense, vaguely schoolmistressy approach of their current chancellor -- Diana Magnay, CNN, Berlin.

(END VIDEOTAPE)

QUEST: Diana mentioned the Norwegian prime minister's taxi stunt and it's now emerged it wasn't quite as spontaneous as it seemed. The country's Labor Party has admitted some of the unsuspecting passengers were paid about $100 each to take part in a video. However, a party spokesman insists that they didn't realize Jens Stoltenberg was going to be doing the driving.

Now once again, these are live pictures coming to us from outside the Israeli jail where we are awaiting the release of prisoners. Israeli officials are in the process of releasing 26 Palestinian prisoners. The Israeli prime minister, Benjamin Netanyahu, urged the government to approve their release to help set up revived peace talks between the two countries.

Now talks have already -- if you like, meetings have already taken place. It was the dinner, officer, at the State Department in Washington. And further meetings between the Palestinians and the Israelis are now planned. And it was part of this confidence building measures and boosting of goodwill that the Israelis have agreed to the 26 released. It was approved on Sunday.

At the same time, whilst this is one part of the story, Israel is also forging ahead with plans to build more than 900 housing units in East Jerusalem. There's 1,000 units also being announced on Sunday. Certainly the settlement news is infuriating Palestinian leaders.

For analysis on what this prisoner release means, and of course the details -- you're looking at the gate where the prisoners -- from where the prisoners will come -- Christiane Amanpour will have a report in just a little while (inaudible) on this.

When we come back, how to make military grade helicopters, production line goes behind the scenes at the most high-tech (inaudible) in the world.

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QUEST: The billionaire investor Carl Icahn not content with taking on Dell and its efforts to go private and with Michael Dell. Now he has announced he has a stake in Apple. He tweeted a few moments ago, "We currently have a large position in Apple. We believe the company to be extremely undervalued. Spoke to Tim Cook" -- that's the chief executive of Apple -- "today. More to come."

So that raises an entire panoply of possibilities, everything from are they going to want management changes? Is he possibly an investor? Is he going to want to change things? We'll be watching that one very closely, that rapidly becomes one of the most important business stories of the day.

Deep in the green fields of England tonight, they are making some of the most advanced rotorcraft machines in the world. Rotorcraft -- those are the helicopters to you and me. A hundred-year factory in Southern England is turning out military grade helicopters. It's home to Anglo- Italian firm Agusta Westland. Jim Boulden flew in to see the production line.

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JIM BOULDEN, CNN CORRESPONDENT (voice-over): (Inaudible) England and a bird's eye view of an industrial giant, Agusta Westland.

It's not until you fly above the site that you get the enormity of it. It's some 300 acres. It's been here for nearly a century. And this is what we're here to see. The British military call it the Wildcats. To the rest, it's the AW-159.

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RAY EDWARDS, MANAGING DIRECTOR, AGUSTA WESTLAND: Aircraft that are in the heart of a battle are bespoke military applications with their own defensive aids, their own weapon systems and such like. But 80 percent of military application can be done by a commercial aircraft that's missionized to meet 80 percent of the requirements.

BOULDEN (voice-over): Missioning a helicopter relies on several crucial components. The managing director, Ray Edwards, calls them the crown jewels.

EDWARDS: Electronics or the mission equipment integration in the design and build of the transmission system and in the design and build of the blades. More of the man-hours are spent in the design activity and in the detail manufacturing capabilities.

BOULDEN (voice-over): Design is where this aircraft is truly cutting edge.

BOB PEMBERTON, PRODUCTION MANAGER: We saw the opportunity with a large order of a new aircraft. So this was our chance to design the aircraft on a digital fashion with a computer. And the first prototype aircraft flew exactly on the day we programmed it to. Now in the past that would have been pretty well impossible to achieve. And they got a clash detect system which they can monitor and say that loom is trying to go through this metal and it won't fit. So you never get something which --

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BOULDEN: You'll know that before you actually start to do that here?

PEMBERTON: Absolutely.

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UNIDENTIFIED MALE: This is stage six, the last thing. This aircraft moves in about 2-3 days to the flight lane.

BOULDEN: So what are they doing now?

UNIDENTIFIED MALE: They're testing the ID displays. They check the fuel, the fuel loadings on there, the hydraulic pressure, all the warnings.

BOULDEN (voice-over): Warning lights might have come in useful for the business. Agusta Westland is currently facing corruption allegations related to an Indian contract. The Indian government has frozen payments.

EDWARDS: We are supporting all the investigations. There's no reference to any poor performance to the helicopter.

BOULDEN (voice-over): And in 2011, Agusta Westland had to lay off almost 400 staff as cuts in the British defense budget hit hard. Two years on, that battle is far from won.

EDWARDS: Everybody on this site fully understands that if we don't improve we won't have a future or the future will be a limited. So it really is always just getting 3.5 thousand people rowing the boat in the same direction so we continually improve what we need to do.

BOULDEN (voice-over): If needed, he says, this factory could triple capacity. They can only hope eventually demand will provide that vital lift -- Jim Boulden, CNN, Yilvil, England.

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QUEST: I've never liked helicopters. I know some people say that they're safer than fixed wing and all that, but I've never liked helicopters. But I love planes.

Jenny Harrison is at the World Weather Center. I've heard all -- please, what are you doing?

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JENNY HARRISON, CNN METEOROLOGIST: Can you see them? This is --

QUEST: Well, of course I can see them. I've got my right specs on. Never mind the sort of nonsense that you're wearing.

HARRISON: Look, nonsense? This is not nonsense. This is not nonsense. This is -- I'm wearing -- I'm wearing what will soon be available to everybody -- not right now. These are the new Google glasses --

QUEST: Can we please -- can we please zoom in?

HARRISON: You want to see me?

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QUEST: Yes, we want to see -- well, take them off. We'll do our zooming. Let's see what you're talking about.

HARRISON: No, I'm not allowed to take them off because if I take them off, I might stop them recording. These are recording what I am seeing right now. So let me just explain to you why I'm wearing these. So it's not now, but sometimes perhaps in tomorrow's show, Richard, we're going to show what I am seeing right now. So I'm obviously looking behind (inaudible) camera. I can see everything. I'm looking across the studio, looking at the five monitors. Oh, there we go. That is what I'm seeing right now. The reason we're testing these out to show you is because they're not available now but they're being tested all around the world by different users. And eventually when they're available, we will have a CNN app on here which means that you can, on these glasses, actually have live CNN breaking news video in front of your very eyes. And also here's the thing of course when it comes to weather, you will also be able to send into us your iReport video. You can take it straight from your glasses and downstream it straight to CNN. So it is fairly incredible.

So I'm going to carry on doing my weather with these very strange glasses on so you can then see what it's like for me.

So here is the satellite. Let me tell you what's going on in Europe. Fairly quiet picture, much quieter picture this week than last week. We've still got some rain. But the thunderstorms pretty much sort of come to an end. This is the synoptic curve as we go through Thursday. You can see here we've got low pressure to the north. It's much cooler than it was.

We've got the heat, though, actually beginning to build in across the southwest and still the heat clinging on across the southeast. So on Tuesday, still a few high temperatures. You can see there Scorpius (ph) 35 Celsius, that's still 6 degrees above the average, Belgrade as well. And there's a 6 degrees above the average as we go through the next few days.

It'll still stay a little bit warm in Belgrade as well. But most of the regions, most of the cities actually coming back down to the average. We've got that cooler air across the north and then elsewhere things pretty much as they should be this time of year, apart from the far southwest.

That is always -- oh, yes?

QUEST: (Inaudible) interrupting, I'm interrupting you.

HARRISON: Oh, now I can see you. Now I can see a split screen (inaudible).

QUEST: Let's sort of let daylight in on magic here.

If our kind director will take the picture of your glasses, can we see your glasses? Can we see what you're looking at? Right, (inaudible).

And now look at -- look at the wall.

HARRISON: The wall?

QUEST: Yes, (inaudible).

HARRISON: That wall, yes, the blue wall.

(Inaudible) delay as I turn. That's (inaudible).

QUEST: Now the viewers, there we are. So what color is the wall?

HARRISON: It's a very nice shade of blue, sort of a purply blue.

QUEST: This shows our viewers exactly how challenging it is for you, isn't it?

HARRISON: Well, the other thing is that actually everything's switched -- everything's opposite in the camera. So of course I see what you see in the camera, but it's actually reversed. So over there is not where I'm actually pointing, if that makes sense. It's not actually over there; it's actually over there. (Inaudible) very odd, isn't it? Yes. And of course I can walk this way and do the same thing and look over there. Oh, and if I look over here, there's actually -- you can't see it apart from the blue, can you? I've got five people looking at me, waving at me. I've got --

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QUEST: (Inaudible) because of the light.

HARRISON: There's also technical people looking at me, because they want to make sure these glasses work. Yes. And actually across the studio, Richard, we've got Ms. Gorani waiting to do her show coming up next. She's over there -- you can't see her, but there she is. (Inaudible). Yes, she's over there.

So yes, that's what's going on.

QUEST: And upon -- and upon this technology rests the future of mankind?

HARRISON: Well, I don't know if the future -- why are you asking me questions like that, Richard?

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HARRISON: (Inaudible) question, not really. I'm just wearing the glasses. I'm not worrying about the future of mankind, Richard. I've been asked to wear the glasses and do my weather, and I'm a good girl and I'm doing as I'm told. Doing the best I can, I have to say. It's a little bit disconcerting trying to do (inaudible).

QUEST: (Inaudible), Jenny Harrison, thank you. Let's turn our glasses off. Maybe she'll -- @RichardQuest on this whole concept of Google glasses. You can join us on that. And of course you'll be aware that many places, the U.K. for example, they have banned driving whilst you're going to be wearing Google glasses because of course the information which will be coming up, you wouldn't be able to see anyway. You get the idea. Google glasses.

As for me, well, these just a pair of ordinary specs. I will have a "Profitable Moment" after the break.

That's what you look like.

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QUEST: Tonight's "Profitable Moment": Tom Horton, the chief executive of American Airlines is either an extremely good poker player and gave nothing away when he was being interviewed by me yesterday, or it came as a complete surprise that the Department of Justice has decided to sue American and US Airways to try and halt their merger.

Whichever one it is, it's astonishing that this has happened so late in the day. Think about it; the European Commission approved it. The creditors of the company, both of them, approved it. The shareholders of both companies approved it. And then at the last minute, just two weeks before this deal is supposed to take place, the U.S. Justice Department and six attorneys general decide they're going to put a spoke in the works.

Whatever the rights and wrongs of this particular merger I'm pretty certain this isn't the right way to go about it. And that's QUEST MEANS BUSINESS for this edition. I'm Richard Quest. Whatever you're up to in the hours ahead, I hope it's profitable.

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QUEST (voice-over): The headlines; it's the top of the hour.

The Nigerian police are investigating the massacre of 44 worshippers inside a mosque. It happened in the northern Nigerian town of Kunduga (ph) over the weekend. No one has claimed responsibility. But the militant group Boko Haram has been waging an insurgency in the region.

Supporters and opponents of the ousted Egyptian president clashed in Cairo on Tuesday. Police reportedly fired tear gas to break up the confrontation. It happened as pro-Morsy protesters held rallies outside several government ministries.

Minutes ago Israel released 26 long-term Palestinian prisoners . They are the first of 104 to be released under a deal agreed to restart peace talks.

However, Israel is also forging ahead with their plan to build more than 900 housing units in East Jerusalem in addition to the 1,000 units announced on Sunday. The settlement news has infuriated Palestinian leaders.

The U.S. Justice Department has filed a lawsuit blocking the merger of American Airlines and US Airways. The $11 billion deal would have formed the world's largest airline. Now it will be decided by the courts.

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QUEST: Those are the stories we're watching for you tonight. "AMANPOUR" is next.

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