>>> Barron's Summary: Positive on CHL, GS, SVU, BCO; Cautious on WFM, TWTR

Barron's Summary: Positive on CHL, GS, SVU, BCO; Cautious on WFM, TWTR

- Cover story: Barrons ETF Roundtable; Jared Kizer of BAM Alliance, Fran Rodilosso of Van Eck, Luciano Siracusano of WisdomTree, Chris Brightman of Research Affiliates, and Maz Jadallah of AlphaClone discuss new approaches to ETF investing including smart beta, an umbrella term for index investing designed to beat the market rather than simply match it.

- Tech Trader: Cautious on Alibaba: Tiernan Ray says Chinese e-commerce sites IPO prospectus, which did not come with updated financials, raises many questions, including those concerning loans to media companies owned by chairman Jack Ma and how subject to the whims of Chinese regulators company will be, in addition to concerns about its partnership structure.

- Trader: Now that the market is into its fifth month of 2014, its safe to conclude it probably wont be like last year; Positive on GS: Those willing to think about the long term may be rewarded by investing in Goldman Sachs despite its equity and fixed-income businesses, since demand for underwriting, trading, and custodial services is likely to keep growing; Positive on SVU: Company is in a better position to compete in food wholesaling, and has begun to reverse the issues that led to losses amid a focus on returning to sustainable and healthy profits.

- Features: 1) Positive on CHL: Companys mobile growth could rebound as it rolls out its high-speed network, prompting increased, lucrative smartphone use, and could see upside after Alibabas IPO, given the e-commerce sites reliance on it; 2) Special Report: Picks from those who attended the Sohn conference, including William Ackman (FNMA), David Einhorn (short ATHN), Mariko Gordon (EFII, FUL, PCRX), Jim Grant (Gazprom), Michael Guichon (Fiat), Jeffrey Gundlach (short XHB), Phillippe Laffont (LBTYA), Michael Novogratz (Brazilian stocks), Larry Robbins (HUM, WLP, MON), Zach Schreiber (VLO, MPC; short WTI), Chris Shumway (MCO); 3) Positive on FLS: Shares of leading player in fluid-control products and services have rallied and could continue to rise as demand grows in the multiple markets it serves.

- Small Caps: Positive on BCO: Recent selloff looks like a buying opportunity for company that retains substantial franchise value in a fragmented industry; Positive on BGFV: Sporting goods retailer is expanding its merchandise lineup by adding higher-margin name-brand goods as it seeks to return to pre-recession operating margins. - Follow-Up: Cautious on WFM: Shares have fallen on slowing growth, but P/E multiple belongs to a time when retailer saw 15-20% annual profit increases; any future stock rise will come from earnings and not multiple expansion, but growing competition will make that difficult; Cautious on TWTR: While its tough to justify Twitters stock price based on its financial outlook, some deep-pocketed tech and Internet giants could see franchise value in the stock, and shares may have found a floor; Positive on BEAV: Company is a good way to play the rise in aerospace and defense M&A.

- Mutual Funds: Interview with George Evans, Portfolio Manager, Oppenheimer International Growth (top ten holdings: BT, SAP, Roche Holding, Aalberts Ind, SYT, Aryzta, UL, Inditex, Intertek Group, Weir Group); Interview with Marty and Ari Sass, Chairman and CEO & Senior VP of M.D. Sass (top picks: MCK, ACT, SBGI, NXST, CBS, SLB, CBI, CAM).

- European Trader: European large-cap stocks could begin to shine again with some help from the ECB (Positive on ING, Deutsche Post).

- Asian Trader: With demand for deep-sea oil and gas exploration rising, two of the best plays in offshore drilling are Singapore shipyards (Positive on Keppel, SembCorp Marine).

- Emerging Markets: San Diego-based Brandes Investment Partners, with a value-oriented and sharply contrarian approach, likes Russia and Brazil despite problems in those countries (Positive on Gazprom, PBR).

- Commodities: Prices for commodities from sugar to nickel to palm oil are poised to rise as investors prepare for the possibility of more extreme weather this year.

- Streetwise: Though offshore drillers such as NE and RIG have been hammered this year, Dallas-based refiner HFC looks interesting despite recent disappointments because production in Permian Basin is booming and company has $1B on its balance sheet to keep paying dividends

Merkel Adviser Calls for Swiss-Style Intervention for Euro: Welt

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Merkel Adviser Calls for Swiss-Style Intervention for Euro: Welt 2014-05-11 00:00:00.0 GMT

By Christoph Rauwald May 11 (Bloomberg) -- ECB should “define a clear exchange rate target and defend it,” Sunday edition of Die Welt cites Peter Bofinger, an economic adviser to German Chancellor Angela Merkel, as saying in interview. * ECB should follow example of Swiss National Bank * Says exchange rates moves largely detached from macroeconomic facts, which justifies intervention by central banks * Says strong euro jeopardizing efforts by European crisis states to reduce labor costs, improve competitiveness * NOTE: Related story: French Call for ECB Action on Euro Said to Rile German Lawmakers NSN N5BFCC6TTDSM <GO> * NOTE: Related story: Euro Falls Most in Seven Weeks as Draghi Signals Easing in June NSN N5BSGW6KLVRI <GO>

For Related News and Information: First Word scrolling panel: FIRST <GO> First Word newswire: NH BFW <GO>

To contact the reporter on this story: Christoph Rauwald in Frankfurt at +49-69-9204-1146 or crauwald@bloomberg.net To contact the editors responsible for this story: Chad Thomas at +49-30-70010-6232 or cthomas16@bloomberg.net John Deane, Ash Kumar

BT to Start New Mobile Network; 4G Price War Looms: Telegraph

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BT to Start New Mobile Network; 4G Price War Looms: Telegraph 2014-05-11 07:40:54.42 GMT

By Gaurav Panchal May 11 (Bloomberg) -- BT will relaunch its mobile network for business within three months, with its re-entry into consumer market due by next April, the Sunday Telegraph reports. * BT plans to create its network by upgrading customers’ Home Hub equipment to broadcast 4G as well as Wi-Fi: Telegraph

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Gaurav Panchal in London at +44-20-7392-0511 or gpanchal2@bloomberg.net To contact the editors responsible for this story: James Ludden at +44-20-7673-2645 or jludden@bloomberg.net Ash Kumar, John Deane

Siemens CEO Sees ‘Many Open Questions’ in Alstom Talks: Spiegel

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Siemens CEO Sees ‘Many Open Questions’ in Alstom Talks: Spiegel 2014-05-11 11:20:22.130 GMT

By Christoph Rauwald May 11 (Bloomberg) -- Siemens to evaluate risks and opportunities for a potential deal before deciding whether it should make a concrete offer for Alstom at month-end, Spiegel cites CEO Joe Kaeser as saying in interview. * NOTE: Merkel Ally Says Germany Shouldn’t Intervene in Alstom Deal

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Christoph Rauwald in Frankfurt at +49-69-9204-1146 or crauwald@bloomberg.net To contact the editors responsible for this story: Chad Thomas at +49-30-70010-6232 or cthomas16@bloomberg.net Ash Kumar, James Amott

>>> Will History Record The Ending Of QE As An Archduke Moment?

Will History Record The Ending Of QE As An Archduke Moment? One can’t help but look at the situations transpiring around the globe and hope: things are different this time. The problem is being different puts it right back in line with that other caveat: history doesn’t repeat itself, but it does rhyme. And so lies the most troubling aspect facing not only the U.S. economy, but quite possibly the world as whole. For if things rhyme anything inline with past events in history: We’re all in a dung heap of QE based minutia, with Geo-political ramifications the “intellectual” crowd never contemplated as possible – let alone probable.

It was just a mere 4 years ago this month in which then Fed. Chair Ben Bernanke announced to the world via his now infamous Jackson Hole speech that QE would basically be adulterating the financial markets indefinitely. i.e., QE1 became QE2 signaling QE4eva. And since that time the Federal Reserve has done just. And as always that decision was heralded by the financial media as “genius.”

And why wouldn’t they since this would now afford them a seemingly never-ending revolving set of happy faced hedge fund managers that could tell the world how they were just making a killing for their investors. Everything once again seemed just ducky. “Don’t fight the Fed.” again became the clarion call. However what most of these “wizards of smart” couldn’t read past their teleprompter is that the world may turn and fight them – literally.

The distortions in financial markets throughout the world have been breathtaking to anyone who’ll look using a thimble full of common sense. As the emerging markets became overheated and searched for ways to deal with hot money inflows wreaking havoc within their own markets. The Fed. and crew kept the pedal down, year, after year seemingly not giving any notion of care that others may retaliate in ways never contemplated by the intellectual crowd. i.e., War.

Just look at recent comments made by now Fed. Chair Janet Yellen in her most recent appearance before Congress as reported by ZeroHedge™:Yellen Warns Of Small Cap Bubble. I read that headline and thought: Are you F’n kidding me?! I then took to the media channels to see if anyone called out that statement as proof the Fed. has no idea of what they are doing and counting on the media as to not point it out. It seemed I was correct for the silence was in fact – deafening.

If one thinks back to nearly every single testimony given as proof that QE was working you’ll recall Mr. Bernanke state, (I’m paraphrasing) “Just look at the Russell 2K.” Now suddenly a mere 5 months after his departure when the media et al gave his steady hand a sycophantic waving of goodbye, no one reports as to elaborate the glaringly obvious admittance by the new Fed. Chair? No one?

Revelations such as this along with the sheer unwillingness (or worse – incomprehension) of others to question such out right contradictory assessments must also be leaving others as slack-jawed as much as myself. But (and it’s a very big but) there are others that see such ineptitude, rudderless, contradiction in monetary, as well as political: as opportunity.

Nothing rallies a nation faster than the threat of an enemy. And nothing serves a political class born of dictators than using any and every tool at their disposal as to rally the glaring eyes of political unrest and affix it to another as to release their ire. And what better straw-man has the world offered the tyrannical powers of the world at large than the interventionist monetary policies of the Federal Reserve via their QE program.

Attach to this the mighty response as a “show of strength” in unison across the globe that sanctions along with freezing accounts is the openly decided upon tool more powerful than armies, or weapons.

To the multitude of uninformed as well of as misinformed people under these regimes. This is propaganda made to order in ways that even Goebbels would blush.

One can’t help but find the timing hauntingly coincidental that Vladimir Putin decided the window of opportunity to make his move on former parts of the Soviet Union was in near unison with the Fed. revelations that in fact QE was being wound down. i.e., In February when the announcement of the 2nd $10 Billion dollar reduction made manifest that in fact the QE wind down was on schedule. (A schedule many across the financial media said wouldn’t happen.) Now economies such as Russia and others would find themselves once again at the center of any political unrest, while simultaneously being economically hamstrung screamed opportunity to use it to their advantage with Machiavelli inspired actions.

Tag onto this that other land mass with far more people to cast political upheaval than Putin has to contend with: China.

Suddenly the economy touted as “the” economy that will save us all is not only slowing, it’s contracting at a pace far more quickened as a direct result of QE being pulled.

One has to search far and deep to find just how bad and the frightening instability within their financial system that could take down world markets in a free fall under the right circumstances.

The issue here is these circumstances are not a million to one, they could be as high as 1 in 10. The U.S. “intelligentsia” seems absolutely oblivious to these facts or even the notion that such could transpire. Yet, suddenly that trading partner that every one of our so-called “smart crowd” regurgitates “they need us as more than we need them” is publicly taking the side, drawing up trade deals, and standing for photo ops with: Russia. Seems they have something in common suddenly don’t you think?

I marveled the other day when I found myself in a heated argument with others in respects to the events of today and how they’re playing out. Every time a point was brought about on how or why the circumstances along with the possibility for WWIII breaking out in earnest was met with sheer contempt, as if such things were ancient history.

Even when it was pointed out the display this past week by Soviet forces in assorted missile launches coupled with the now seemingly joined at the hip China sending in armed protection provoking retaliation or provocation in both U.S. friendly Japan and Vietnam territories: it was brushed aside.

Used as defense was the ludicrous notion that things like this aren’t as probable any more since economically we’re all dependent on each other as never before. That’s why the monetary policies since WWII has kept that type of balance in check. Personally I was left once again – mouth agape.

Even when the notion was interjected we could see a Bay Of Pigs styled replay at any given time, and that alone could bring on consequences no one has a clue about. Once again it was met as if all the powers that be are in fact “all-powerful” and can handle things with little to no disruption of any significance using , Greece, Spain, and even our own conflicts such as Iraq and more as validation.

I wonder how many besides myself felt quite unnerved when none other Iran was put back into the spotlight openly thumbing their nose in a way that Mussolini could identify with when none other than China publicly endorsed their relationship.

WWI began in earnest just about a month following the Archduke’s demise. Russia invaded Crimea in about the same time-frame. Couple with that the quickness of communist leaders publicly displaying solidarity reminiscent of events that transpired at the beginning of WWII. And the outright visible show of armament and the willingness to display it prominently under the noses of Western alliances suggestive of The Bay Of Pigs, and I guess there’s really no need for concern. After all we’ve got the latest and greatest deterrent the world has ever seen: #hashtags.

Telegraph : Investors tell Astra to engage

Investors tell Astra to engage
Osborne to take 'hard-nosed’ approach on Pfizer, while leading scientist backs US drugs giant’s stance

Shareholders in AstraZeneca have told the company’s management they must engage with Pfizer if and when the US drugs giant returns with a higher offer.
The Telegraph has learnt that a number of major investors who have met chief executive Pascal Soriot in recent days are understood to have told him that a higher offer must not be rejected without full engagement.
Previous approaches from Pfizer — the most recent a £63bn proposal 10 days ago — have been dismissed almost immediately by the board of the British company.
The insistence on communication came at follow-up meetings to Mr Soriot’s defence presentation on Tuesday last week, at which he set out his thoughts on AstraZeneca’s future pipeline.
Feedback at the meetings is said to have been largely positive.

The vast majority are said to have been comfortable with the rejections of the indicative proposals to date, and pleased that the executive has now set out details to allow the company to be properly valued.
Pfizer is expected to return with a higher offer towards the tail-end of this week, raising the cash element of its original approach from 30pc to approximately 40pc, in part as a result of the falling value of its share price following disappointing results last week.
News of investors’ intentions — no discussions on a potential take-out price are thought to have been had at the meetings — came as George Osborne, the Chancellor, upped the rhetoric ahead of a series of select committee appearances for both companies on Tuesday and Wednesday this week.
Ian Read, Pfizer’s chairman and chief executive, and Mr Soriot are due to appear before the Commons business select committee on Tuesday, followed by the science select committee a day later.
Mr Osborne said that he would take a “hard-nosed” approach in order to establish what a deal between Pfizer and AstraZeneca might mean for British jobs.
Speaking on BBC Radio 4’s Today programme, the Chancellor said: “My job is to create both a really competitive place for businesses to come to Britain and create jobs in Britain. And we’re seeing those jobs being created.
“But I’m also, on the specifics, prepared to get in the room and have a hard negotiation with very large companies and be very, very, hard-nosed about what we want to deliver in terms of good British science and good British jobs.”
Mr Osborne went on to say that the UK is an “open economy” and defended the tax system which is one of the key drivers of Pfizer’s approach.
His comments are expected to be echoed by David Cameron, the Prime Minister, who is expected to appear on The Andrew Marr Show on BBC One on Sunday morning.
Mr Osborne was being interviewed at roughly the same time as Pfizer released a series of short videos featuring Mr Read, answering questions with regard to its intentions.
Mr Read said in the videos that a takeover of AstraZeneca would be a “win-win” for shareholders, stakeholders and society, and that a combination of the two pharmaceutical giants would strengthen their abilities to meet patients’ needs and bring drugs to market sooner.
He explained that the deal was motivated by three drivers; AstraZeneca’s strong drugs pipeline; cost cutting; and the strength given to the combined balance sheet through the lower tax base the UK provides.
Meanwhile a leading Cambridge professor has broken ranks with the scientific community, saying efforts to characterise the US pharmaceuticals giant as a “praying mantis” were unfair and that Britain owed a debt of gratitude to the company.
Steven Ley, professor of organic chemistry at Cambridge and former president of the Royal Society of Chemistry, defended Pfizer’s record against a volley of criticism of the company and the proposed takeover.
Politicians and leading scientists have savaged the potential deal, amid fears that Pfizer could cut jobs and spending on research and development in Britain.
However, Prof Ley, who has worked as a consultant for Pfizer, spoke up for the American business, saying that the sustained attacks were out of kilter with reality.
“Talking about broken promises and calling Pfizer a praying mantis — these sound-bites do not resonate well with me,” he told The Telegraph.
“This is a company I have been involved with for many years and known it to be highly ethical and supportive of the science base across the world.
“The whole UK economy and health of our nation have benefited from Pfizer’s substantial contribution,” Prof Ley added.

Barron's What to Do When the Market Plays Hard to Get

What to Do When the Market Plays Hard to Get

The market is sending mixed signals -- so much so that analysts and fund managers have made some pretty bad calls. But the outlook isn't as gloomy as many think. Plus: A good time to buy HollyFrontier.

Like an eligible bachelor who refuses to settle down, the market's sending mixed messages and driving investors crazy.

The Standard & Poor's 500 index has come to a virtual standstill, giving investors the opportunity to play "she loves me, she loves me not" with each data point and price swing. Last Thursday, for instance, the benchmark fell 0.1%, despite a large drop in first-time jobless claims, while the 10-year Treasury yield hovers near its lowest level in 10 months. For those inclined toward melancholy, it's easy to imagine that a slower economy, deflation, and a bear market lurk just around the corner.

But what if the market is just playing hard to get? Sure, overpriced market favorites like Twitter (ticker: TWTR) and Groupon (GRPN) and once-surging small companies have plunged, while ultrasafe utilities have topped the list of best-performing sectors so far this year, suggesting investors are running scared. But not all investors: Energy stocks like ConocoPhillips (COP) and Halliburton (HAL), which benefit from a stronger economy, are flying high. And heavily shorted stocks, which should be dropping if the market is really heading for a fall, haven't suffered in the past two months, suggesting that pockets of optimism remain.

These mixed signals have been especially painful for the pros. Some 90% of large-company value and growth funds have lagged their benchmarks this year, far worse than last year's 56%. The stocks with the highest ratings from analysts have lost 2.4% this year, while their least-favorite companies have gained 3.5%, according to Bespoke Investment Group's Paul Hickey. And even retail investors have bought into the doom and gloom, as they've poured nearly $1 billion back into bonds in the week ended on April 30, while pulling $4 billion out of U.S. stocks.

Such caution is understandable -- no one likes to be played for a fool, after all -- but are these signs as contradictory as they seem? Consider the recent plunge in small stocks. The Russell 2000 has dropped 8.4% since it peaked on March 4, while the S&P 500 has ticked up 0.2%. To some, the Russell's collapse portends trouble, because it means that the bigger stocks are driving the rally, and it's only a matter of time before they fall, too. But if that were the case, the smallest stocks in the S&P 500 should be lagging as well, says Doug Ramsey, chief investment officer at the Leuthold Group. They're not. The equal-weighted S&P 500, which includes as much of the $3 billion International Game Technology (IGT) as it does the $500 billion Apple (AAPL), has dropped just 0.3%, a fraction of a percent lower than the S&P 500's rise. "When you get glaring weakness in small caps, people jump to the conclusion that this is the end," Ramsey says. "It doesn't mean the game is over."

The drop in U.S. Treasury yields might be more worrisome, if only because the bond market has a reputation for being smarter than stocks. Yet, the falling yield doesn't have to mean that something's wrong with the U.S. economy. In fact, Deutsche Bank strategist Alan Ruskin has a list of reasons for the low yields, including the Federal Reserve's large holdings and ongoing buying, pension-fund rebalancing, and short-covering. Even the never-ending standoff in Ukraine could be driving some investors to the safety of U.S. bonds. And those low yields, rather than being a sign of turmoil ahead, could actually give the economy -- and stocks -- a boost if they stay low. Says Ruskin: "It should be very positive for U.S. equities."

ENERGY STOCKS HAVE BEEN hot this year, but the love hasn't been spread equally. So-called exploration and production companies and oil-field services firms have notched double-digit gains, while offshore drillers like Noble (NE) and Transocean (RIG) have been hammered. Refiners, however, occupy a middle ground.

HollyFrontier (HFC) looks particularly interesting. The performance of the Dallas-based refiner has been a disappointment recently, and for good reason. Last Tuesday, HollyFrontier said that its first-quarter profit had been cut in half from a year ago, and it missed analyst earnings forecasts by a penny. As a result, its shares dropped 5% last week.

The future looks brighter, however, says Credit Suisse analyst Edward Westlake, who upgraded the stock last week. For starters, Holly refines oil drilled in the Permian Basin -- an area that encompasses parts of western Texas and the southeastern corner of New Mexico. Production in the region has been booming, so its oil is cheaper than elsewhere, which should juice Holly's margins. The refiner also has about $1.8 billion in cash on its balance sheet to keep paying its 2.4% dividend yield, as well as periodic special dividends, Westlake says. Yet, it trades at just 11.3 times 2014 earnings, well below the S&P 500's 15.9. If Westlake is right, Holly could trade as high as $62, up 26% from Friday's close.

No mixed message there.

>>> Italian Government could sell STM stake to Fsi (Fondo Strategico Italiano,)

Italian Government could sell STM stake to Fsi (Fondo Strategico Italiano,)

The Italian government could sell its 13.75% stake in listed European electronic chip producer STMicroelectronics to Fondo Strategico Italiano, Italian daily Il Sole 24 Ore reported, citing unspecified sources. This was part of a long report which mainly quoted Fsi head Maurizio Tamagnini, which has been appointed in the supervisory board of STM, as talking about some M&A deals in Italy. The report said that Tamagnini is in pole position to become STM chairman

A previous report said that the Italian government could make EUR 700m from the deal.

A previous item noted that the Italian government holds the stake indirectly via ST Holding, a vehicle in which it holds a 50% stake. The report said that the other 50% stake in ST Holding is held by the French government


Source Il Sole 24 Ore

>>> Mediaset mulling last-minute rival bid for Prisa’s DTS

Mediaset mulling last-minute rival bid for Prisa’s DTS

Spanish media group Prisa may receive a last-minute bid for DTS from Mediaset, despite having reached an agreement to sell its 56% stake to Telefonica, ABC reported.

Prisa announced that it had accepted a EUR 725m offer from the listed Spanish telco on 8 May for its stake in DTS, a pay-TV provider known commercially as Canal+.

According to the ABC report, which cited people with knowledge of the situation, Mediaset is considering tabling a counter offer over the next two weeks, the amount of time Spanish law gives it to submit a rival bid.

Both Mediaset and Telefonica both currently own a 22% stake each in DTS, the item noted.


Source ABC

(BN) Apple’s Cook Pursuing Beats Seen Presaging More Big Takeovers

Apple’s Cook Pursuing Beats Seen Presaging More Big Takeovers
2014-05-10 04:01:00.6 GMT


By Peter Burrows
     May 10 (Bloomberg) -- Tim Cook is making a habit of
breaking with Apple Inc.’s past.
     The chief executive officer is overseeing talks to purchase
Beats Electronics LLC, the headphones and music service company
founded by music-industry executive Jimmy Iovine and hip-hop
artist Dr. Dre, for $3.2 billion, people with knowledge of the
matter have said.
     That goes against the playbook of Apple co-founder Steve
Jobs, who never paid more than a few hundred million dollars for
an acquisition, choosing to buy small companies designed to
bring in technology and talent. Buying Beats will also signify
Cook’s willingness to use Apple’s $150.6 billion in cash more
aggressively, according to Gene Munster, an analyst at Piper
Jaffray Cos. in Minneapolis.
     “This opens the door to do more mergers and acquisitions,
and I think you’ll see more deals around content and products,”
Munster said.
     Apple’s possible targets include Yelp Inc., payments
company Square Inc. and Twitter Inc., Munster said.
     Until now, Cook has closely followed Jobs’s mergers
strategy. The Cupertino, California-based company has bought 24
companies over the past 18 months, mostly small.
     The biggest-ever acquisition was the $400 million Apple
paid in 1997 to buy Next Computer Inc. as part of a deal to
bring Jobs back to the company. Since then, the largest known
purchase was Anobit Technologies Ltd., a flash-memory drive
maker, for about $390 million two years ago.

                         Modus Operandi

     A deal to buy Beats would be unlike anything Jobs ever did,
and shows that Cook is taking his predecessor’s advice to heart.
“Just do what’s right,” Cook recalled Jobs telling him before
his death in 2011. Cook said the Apple co-founder told him not
to worry about what he would do.
     Cook has already been putting his stamp on Apple since
taking over, introducing dividends and share buybacks and
rolling out a corporate philanthropy program. Apple is also
sharing more information about its environmental efforts and
labor conditions in its supply chain.
     “This appears to be the first time they are acquiring
another brand, which hasn’t been their modus operandi,” said
Todd Lowenstein, a money manager at Highmark Capital Management
Inc. in Montecito, California. “At this deal value, this would
mark the largest acquisition in its history and a material
divergence from past strategy.”
     Tom Neumayr, a spokesman for Apple, and Sarah Joyce, a
spokeswoman for Beats, declined to comment. Faryl Ury, a
spokeswoman for Square, and Rachel Walker, a spokeswoman for
Yelp, declined to comment. A Twitter representative didn’t
immediately respond to requests for comment.

                           Big Targets

     Lowenstein and some other investors are questioning why
Cook would choose Beats as the company to break the mold. With
annual sales of around $1 billion, the Santa Monica, California-
based company won’t deliver meaningful top-line growth relative
to Apple’s revenue of $170.9 billion in its latest fiscal year,
even if Beats were to grow 50 percent a year, according to
Charles Wolf, an analyst at Needham & Co.
     “I don’t think investors care at all about the $3.2
billion,” Wolf said. “They might care if Apple did a $50
billion acquisition.”
     Apple shares barely budged on news of the Beats deal. The
stock fell less than 1 percent to $585.54 at the close in New
York.

                          Brand Appeal

     With Beats, Apple would also bolster its online music
services as the market for downloads, which Apple dominated,
slows. Music has long been one of the cornerstones of Apple’s
business, with its iTunes store and the iPod player that
reignited the company’s growth more than a decade ago. Apple has
also rolled out iTunes Radio, an advertising-supported streaming
service that competes with Pandora Media Inc. and Spotify Ltd.
     While Beats would be too small to jump-start growth, the
deal would indicate that Apple is more serious about selling
more content and services to its customers to make up for slower
sales of mobile devices, according to Colin Gillis, an analyst
at BGC Partners LP in New York.
     “This would be a step toward building a services layer,”
Gillis said. “Why not just buy Spotify? Go for the big boy in
the market.”
     Maintaining a separate brand might also help Apple appeal
to a younger audience that no longer thinks Apple is cool,
Gillis said. Still, 67 percent of U.S. teens said their next
smartphone would be an iPhone, according to Piper Jaffray.
     Another benefit of a deal would be bringing Beats co-
founder Iovine closer into Apple’s fold. The 61-year-old music
producer was instrumental in helping Jobs hone the strategy that
enabled iTunes to dominate the music business.
     “Apple seems to want to burnish its brand with a younger
demographic and Dr. Dre and Jimmy Iovine have done a great job
of branding those headphones,” Mike McGuire, an analyst at
Gartner Inc., said. “Tim Cook has been alluding to new products
coming soon, maybe they are feeling they need to round their
lineup a bit.”

For Related News and Information:
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FIFW NSN N5BP326KLVRF <GO>
Apple Said to Prepare Song-ID Feature for IPhone Software Update
FIFW NSN N45GO56KLVRF <GO>
Carlyle Group Buys Minority Stake in Dr. Dre’s Beats Electronics
FIFW NSN MTS7806K50XS <GO>
Apple income charts: AAPL US <EQUITY> FA Q IS CHART <GO>
Apple relative value: AAPL US <EQUITY> RV <GO>
Top Technology Stories: TTOP <GO>

--With assistance from Scott Moritz in New York and Sarah Frier
and Adam Satariano in San Francisco. 

To contact the reporter on this story:
Peter Burrows in San Francisco at +1-415-617-7191 or
pburrows@bloomberg.net
To contact the editors responsible for this story:
Pui-Wing Tam at +1-415-617-7327 or
ptam13@bloomberg.net
Reed Stevenson, Stephen West