Facebook to Hire Thousands, Open NYC Office

By Henry Goldman and Brian Womack - Dec 3, 2011 12:01 PM GMT+0700

New York City Mayor Michael Bloomberg (L) and U.S. Sen. Charles Schumer (D-NY) (C) attend a news conference at New York's Facebook headquarters with Sheryl Sandberg, Facebook's chief operating officer (R) on December 2, 2011 in New York City. Bloomberg and Schumer announced that Facebook will be opening a center for engineers in New York City in 2012. Photograph by: Spencer Platt/Getty Images

Facebook Inc., preparing for a potential initial public offering, plans to hire thousands of employees in the next year and add an engineering office in New York to lure technical talent.

The world’s largest social-networking company, with about 3,000 workers and more than 800 million users, will open the Facebook NYC engineering office in early 2012, Chief Operating Officer Sheryl Sandberg said at an event yesterday in the city. She gave no firm target for the engineering team in New York, the first outside the West Coast.

The “user base and revenue are growing very rapidly,” Sandberg said. “And that’s what we’re betting on.”

Facebook is looking to woo talent as bigger companies such as Google Inc. (GOOG) and Apple Inc. (AAPL) compete for the brightest minds. Earlier this month, Chief Executive Officer Mark Zuckerberg visited Harvard University and the Massachusetts Institute of Technology to recruit potential engineers.

Facebook is considering raising about $10 billion in an initial public offering that would value the company at more than $100 billion, a person with knowledge of the matter said this week. The Palo Alto, California-based company may file for the IPO before the end of the year, said the person.

Web startups including Foursquare Labs Inc. and Tumblr Inc. are based in New York.

Facebook currently has about 100 employees in the city, including in marketing and recruiting, Mike Schroepfer, vice president of engineering at Facebook, said at the event. Facebook will begin accepting applications for jobs in New York immediately, according to a statement.

“New York has a strong history of innovation and is home to thousands of talented technical people, and we want them to help us solve the challenges of designing and building the next generation of Facebook,” Schroepfer said in the statement.

Serkan Piantino, an engineering manager for teams that handle Facebook chat and messages, will lead the new office, the company said.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net;

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.

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RIM Tumbles as Apple Extends Lead

By Hugo Miller and Scott Moritz - Dec 3, 2011 5:31 AM GMT+0700
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RIM fell (RIMM) as low as $16.61 in trading before U.S. exchanges opened. Photographer: Adeel Halim/Bloomberg

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Dec. 2 (Bloomberg) -- Jennifer Fritzsche, an analyst at Wells Fargo Securities LLC, discusses Research In Motion Ltd.'s third-quarter revenue, which the company said was "slightly lower" than forecast. The maker of the BlackBerry smartphone is scheduled to report detailed results for the third quarter on Dec. 15. She speaks with Betty Liu and Cris Valerio on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Research In Motion Ltd. (RIM) plunged the most in 11 weeks after saying revenue missed its forecast last quarter amid accelerating market-share losses for BlackBerry smartphones and PlayBook tablets to Apple Inc. (AAPL)

Third-quarter revenue was “slightly lower” than the $5.3 billion to $5.6 billion the company had projected and earnings were “at the low to mid point” of its forecast, according to an unscheduled statement from Waterloo, Ontario-based RIM today. RIM said it doesn’t expect to meet its full-year profit target.

The shortfall -- the fourth straight quarter sales missed analysts’ estimates -- puts more pressure on co-Chief Executive Officers Jim Balsillie and Mike Lazaridis as they seek to revive a company that once dominated the U.S. smartphone market. RIM’s market-share decline has prompted investors such as Jaguar Financial Corp. (JFC) to call for a change in leadership and for RIM to divide into separate companies or seek a sale.

“The next question from a management perspective is do they need someone different? They cannot keep going on the same course forever,” said Bahl & Gaynor Investment Counsel’s Matt McCormick, whose firm oversees $4.1 billion. McCormick, speaking from Cincinnati, said he’s “glad” his firm doesn’t own RIM stock.

RIM fell 9.7 percent to $16.77 at 4 p.m. in New York, percent, the most since its previous sales miss in September. The stock has lost 71 percent this year as Apple advanced 21 percent.

PlayBook Slump

RIM will record a $485 million pretax provision to revalue the inventory for the PlayBook tablet, which has failed to win over users in a market dominated by Apple’s iPad. RIM said more promotions are needed to drive demand for its tablet, whose shipments fell (RIMM) to 150,000 units last quarter, less than a third of the 500,000 tablets RIM shipped in the first quarter after they went on sale in May. In its most recent quarter, Cupertino, California-based Apple sold a record 11.12 million iPads.

“When the PlayBook is supposed to be the savior and it’s not, where do you go,” McCormick said.

RIM posted its first quarterly revenue decline in nine years in September, and is struggling to move its BlackBerry lineup onto a new operating system called BBX. The company’s U.S. market share sank to 9.2 percent in the third quarter from 24 percent a year earlier as consumers opted for Apple’s iPhone and phones from Samsung Electronics Co. (005930) and HTC Corp. (2498) that run Google Inc. (GOOG)’s Android software, according to researcher Canalys.

RIM’s current products “are now in terminal decline,” said Tavis McCourt, an analyst at Morgan Keegan & Co. in Nashville, Tennessee, who has a “market perform” rating on RIM shares. The BBX devices will be “crucial if there is ever going to be a turnaround.”

Further ‘Erosion’

RIM said device shipments in the fourth quarter will decline from the third quarter. In the fiscal third quarter ended Nov. 26, BlackBerry smartphone shipments were 14.1 million, in line with the company’s forecast.

“RIM’s soft fourth quarter outlook sustains concerns of further franchise erosion and raises the bar for a turnaround,” Mike Abramsky, an RBC Capital Markets analyst, said in a note today. He has a “sector perform” rating on the stock.

Analysts on average predicted third-quarter profit to decline to $1.20 a share and sales to slump to $5.31 billion, the average of estimates compiled by Bloomberg. RIM’s earnings forecast for the period was $1.20 to $1.40 a share.

The company also said it booked $50 million in costs for a service disruption customers suffered last quarter.

RIM plans to report detailed results for the third quarter on Dec. 15.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Geithner to Press Europe on Crisis Ahead of Summit

By Ian Katz and Sandrine Rastello - Dec 3, 2011 12:00 PM GMT+0700

U.S. Treasury Secretary Timothy F. Geithner travels to Europe next week to press political leaders and central bankers to stem the region’s worsening debt crisis.

Geithner will continue to push the Europeans for quicker and more decisive action, a Treasury official said yesterday. The U.S. has no plans to make bilateral loans to the International Monetary Fund to help stem the crisis, said the official, who declined to be identified as a condition for holding a briefing with reporters in Washington.

Geithner will meet with French President Nicolas Sarkozy, Italian Prime Minister Mario Monti and European Central Bank President Mario Draghi during his Dec. 6-8 trip, the Treasury Department said in a statement yesterday. He will return to Washington before European leaders hold a Dec. 9 summit in Brussels.

The U.S. has been pressing European leaders to take stronger action in the crisis, which has seen bailouts of Greece, Ireland and Portugal and now threatens to engulf Italy and Spain. Officials from the Treasury and the Federal Reserve have said Europe also poses a risk to the U.S. recovery.

The IMF has ample resources of about $400 billion, the Treasury official said. European finance ministers said this week they would seek a greater role for the IMF alongside their own bailout fund. Several countries including Brazil and Mexico have said they are ready to help boost IMF resources.

Europe, IMF

Though Europe has been looking at providing bilateral loans to the IMF, the main emphasis must be strengthening the so- called firewall in the region, the Treasury official said. If other countries make bilateral contributions it doesn’t have any implications for the U.S., the official said.

“My sense is that the U.S. would not block it” if Europe and emerging-market nations decide to increase IMF contributions, said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and a former IMF economist.

Christine Lagarde, the IMF’s managing director, has indicated that the funds the IMF currently has available for lending may not suffice should the global outlook worsen.

Geithner will meet Dec. 6 in Frankfurt with Draghi and Bundesbank President Jens Weidmann. Later that day, he will talk with German Finance Minister Wolfgang Schaeuble in Berlin.

The next day, he will meet in Paris with Sarkozy and French Finance Minister Francois Baroin before traveling to Marseille for discussions with Spain’s prime minister-elect, Mariano Rajoy, “who will be in France for other meetings,” the Treasury said. Geithner will meet with Monti on Dec. 8 in Milan. The Treasury official said President Barack Obama asked Geithner to take the trip to Europe.

‘Useful’

“It seems useful for the secretary to continue to press European policy makers to take decisive action, though it’s not clear they are ready to listen to his advice,” said Phillip Swagel, who was an assistant secretary for economic policy in the George W. Bush administration.

Geithner’s objective “is to reinforce the vital need for European policy makers to come through with some substantive policy steps” at the Dec. 9 summit, said Mark Zandi, chief economist of Moody’s Analytics Inc. “Financial markets will rebel if policy makers appear to be punting again.”

A European proposal to channel central bank loans through the IMF may deliver as much as 200 billion euros ($268 billion), two people familiar with the negotiations said.

At a Nov. 29 meeting attended by Draghi, euro-area finance ministers gave the go-ahead for work on the plan, said the people, who declined to be named because the talks are at an early stage. The need for a new crisis-containment tool emerged as an effort to boost the 440 billion-euro rescue fund to 1 trillion euros fell short.

Recycle Funds

Under the proposal, national central banks would recycle funds through the IMF, potentially to underwrite precautionary lending programs for Italy or Spain, the two countries judged to be the most vulnerable now, the people said.

The euro area’s 17 national central banks operate under the ECB’s umbrella. Draghi on Dec. 1 hinted at a stepped-up crisis- fighting role as long as governments move toward a “fiscal compact” that ensures healthy public finances.

German Chancellor Angela Merkel laid out elements of that strategy yesterday, calling for European treaty amendments to create automatic, court-enforced sanctions on countries that overstep limits of 3 percent of gross domestic product on deficits and 60 percent of gross domestic product on debt.

“It’s Europe’s crisis,” Geithner said Nov. 15. “Fundamentally, the resolution of this is going to depend on the choices they make going forward. And we hope they make some progress more quickly.”

To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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India May Put Foreign Retail Opening on Hold

By Karthikeyan Sundaram - Dec 3, 2011 10:35 PM GMT+0700

India may put on hold a Nov. 24 decision to allow foreign ownership in multibrand retail chains until there is a political consensus on the issue, the Press Trust of India reported today, citing West Bengal Chief Minister Mamata Banerjee.

Banerjee spoke to reporters in Kolkata after meeting with Indian Finance Minister Pranab Mukherjee today, PTI said. Her party, Trinamul Congress, is an ally of Prime Minister Manmohan Singh’s government in New Delhi.

India’s decision to allow as much as 51 percent foreign ownership in multibrand retail chains is likely to benefit local merchants’ credit profiles as they gain access to equity and improved liquidity. Shops and markets across India were shut on Dec. 1 as traders supported a daylong strike demanding the government not allow overseas retailers like Wal-Mart Stores Inc. (WMT) from opening outlets.

Owners of family-run stores, the backbone of an Indian retail market that London-based Business Monitor International expects to double in size to $785 billion by 2015, fear they will be forced out of business by foreign companies.

D.S. Malik, a spokesman for the finance ministry in New Delhi, didn’t respond to three calls to his work phone and three to his mobile phone after office hours. Harish Khare, media adviser to Prime Minister Singh, didn’t respond to three calls to his mobile phone.

India’s retail industry will get investments of $8 billion to $10 billion over the next five to 10 years as overseas competitors enter and local companies spend to keep pace, according to billionaire Kishore Biyani, founder and managing director of Pantaloon Retail India Ltd, the country’s largest chain by market value.

Wal-Mart currently has 14 wholesale outlets through a joint venture with Bharti Enterprises, Germany’s Metro AG owns six and France’s Carrefour SA (CA) announced the opening of its second wholesale store on Nov. 28.

Allowing foreign investments will create up to 10 million jobs and give farmers better prices, India’s Commerce Minister Anand Sharma said on Nov. 25.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Dick Schumacher at dschumacher@bloomberg.net

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China Can’t Use Reserves to ‘Rescue’ Countries: Fu

By Bloomberg News - Dec 3, 2011 4:10 AM GMT+0700

China can’t use its $3.2 trillion in foreign exchange reserves to “rescue” European nations and the country “has done its part” to help the region deal with its financial crisis, Vice Foreign Minister Fu Ying said.

“Foreign reserves are not revenues,” Fu, whose portfolio is European affairs, said in a question and answer session following a speech in Beijing yesterday. “It’s not money that can be used by the premier or the finance minister.”

Fu said China can’t use its reserves to fund poverty alleviation at home or to bail out foreign countries. The country learned from the 1997 Asian Financial Crisis that it needs to keep large reserves to maintain liquidity in order to honor obligations, she said.

Europe is struggling to contain a sovereign debt crisis that has forced Portugal, Ireland and Greece to seek bailouts. After leaders in October agreed to increase the region’s rescue fund, French President Nicolas Sarkozy said he planned to call Chinese President Hu Jintao to discuss how the Asian country can contribute.

China’s foreign exchange reserves, the world’s largest, stood at $3.2 trillion at the end of September. The country invests in U.S. Treasuries, sovereign debt sold by European Union countries and other international bonds. A portion is also invested in equities and other financial instruments by China Investment Corp., the country’s sovereign wealth fund.

U.S. Investment

China wants to convert some of those reserves into investments in the U.S., Chinese Commerce Minister Chen Deming said separately in a speech to the American Chamber of Commerce in Beijing yesterday evening.

China is “willing to convert some of the holdings of debt into investment in the U.S.,” Chen said, without giving details. He also said that the government is also very concerned that a further “festering” of the debt crisis in Europe will affect the nation’s economy.

The nation’s sovereign wealth fund, China Investment Corp., may give “indirect” support to Europe through investments without being the nation’s main route to any aid, fund Executive Vice President Jesse Wang said Nov. 24.

The fund “wouldn’t be the main channel” if China helps tackle the sovereign-debt crisis, Wang said in an interview at a forum in Beijing yesterday. “However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support.”

Central Bank’s Call

The Foreign Ministry does not control the country’s foreign exchange reserves, and the ministry’s Fu said yesterday it would have been more appropriate for People’s Bank of China Governor Zhou Xiaochuan to make the remarks, which were in response to a question. Fu is one of six vice foreign ministers, according the the ministry’s website.

Fu also said “now is not the time” for China to have a contingency plan in the event a euro zone country defaults on its debts or exits from the 17-nation single currency. The government has already done its part to help Europe, which has the “wisdom” and strong economic fundamentals to solve its sovereign debt crisis, she said.

“The argument that China should rescue Europe does not stand,” Fu said.

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editor responsible for this story: John Brinsley at jbrinsley@bloomberg.net

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Delors Says Euro Doomed to Debt Crisis, Daily Telegraph Reports

By Erik Larson - Dec 3, 2011 8:21 PM GMT+0700

Jacques Delors, the former European Commission president who played a central role in creating the euro in 1999, told the Daily Telegraph that politicians’ errors at the time “doomed” the currency to the current debt crisis.

Delors, who led the commission from 1985 to 1995, said leaders ignored the “fundamental weaknesses and imbalances” of the member countries’ economies and failed to create strong central powers for the group, the newspaper reported today.

All European countries must now share the blame for the crisis, which was triggered by excessive borrowing by Greece, Italy and other countries that took the euro region to the “brink of disaster,” Delors told the Daily Telegraph.

Delors blamed part of the crisis on Germany’s strict demand that the European Central Bank shouldn’t support highly indebted euro users over inflation fears, the Daily Telegraph said. Delors also blamed the “stubbornness of the Germanic idea of monetary control” and the lack of a shared vision among the member countries, according to the report.

To contact the reporter on this story: Erik Larson in London at elarson4@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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AT&T, Sprint Sued by Customers Over Tracking

By Karen Gullo - Dec 3, 2011 12:01 PM GMT+0700

AT&T Inc. (T), Sprint Nextel Corp. (S), Apple Inc. (AAPL) and T-Mobile USA were sued by mobile phone customers who claim that Carrier IQ Inc. tracking software installed on their phones violates U.S. wiretapping and computer fraud laws.

The lawsuit cites a YouTube report by a technology blogger that purported to show that Carrier IQ software collects information on phone users’ locations, applications and Web browsing and even the keys they press. Four consumers filed a complaint yesterday in federal court in Wilmington, Delaware, seeking to block the carriers and phone makers from using the software.

Carrier IQ software logs user activity and runs in the background of mobile devices. After the YouTube report, the U.S. Senate Judiciary Committee contacted the company seeking information and alleging that the software may violate federal privacy laws, according to a copy of the complaint supplied by David Straite, an attorney for the plaintiffs. The filing of the lawsuit couldn’t be confirmed yesterday through electronic court records.

AT&T and Sprint, the second- and third-largest U.S. wireless providers, said in e-mailed statements on Dec. 1 that the software data is used to improve service performance. Apple stopped supporting Carrier IQ in most products and will remove it completely in a future software update, Natalie Harrison, an Apple spokeswoman, said in a Dec. 1 e-mail.

Punitive Damages

The customers who sued seek compensatory and punitive damages on behalf of all others whose devices contain the so- called rootkit software from Mountain View, California-based Carrier IQ, which is also named as a defendant in the suit. The software is currently installed on 150 million phones worldwide, according to the complaint.

Violations of the federal wiretap laws, which prohibit willful interception of wire or electronic communication, can result in damages of $100 a day per violation, according to the complaint.

Carol Roos, a spokeswoman for Dallas-based AT&T, declined to comment on the lawsuit.

Tom Neumayr, a spokesman for Cupertino, California-based Apple; Leigh Horner, a spokeswoman for Overland Park, Kansas- based Sprint Nextel; and T-Mobile USA (DTE) representatives didn’t immediately return calls seeking comment after regular business hours yesterday. Carrier IQ spokeswoman Mira Woods didn’t immediately respond to an e-mailed request for comment.

In a statement Nov. 16, Carrier IQ said its software is designed to improve user experience and is embedded in devices by manufacturers along with other diagnostic tools. The company also says it doesn’t sell personal subscriber information to third parties.

The case is Pacilli v. Carrier IQ, U.S. District Court, District of Delaware (Wilmington).

Related News and Information:

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Zynga Eyes $1B in Biggest Web IPO Since Google

By Lee Spears, Douglas MacMillan and Brian Womack - Dec 3, 2011 3:05 AM GMT+0700

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Dec. 2 (Bloomberg) -- Alex Bangash , managing director of Rumson Consulting Group, talks about Zynga Inc.'s initial public offering. Zynga is seeking to raise as much as much as $1 billion and is offering 100 million shares for $8.50 to $10 apiece, according to a regulatory filing today. Bangash speaks with Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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Dec. 2 (Bloomberg) -- Scott Galloway, founder of Firebrand Partners and a professor at New York University, talks about Zynga Inc.'s initial public offering. Galloway speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

Zynga Inc., the biggest maker of games on Facebook, is seeking as much as $1 billion in the biggest initial public offering by a U.S. Internet company since Google Inc. (GOOG)’s debut.

The company is offering 100 million shares for $8.50 to $10 apiece, according to a regulatory filing today. The high end of the range would value San Francisco-based Zynga at $7 billion.

The IPO values Zynga at as much as 6.8 times sales in the year through Sept. 30, or more than triple Electronic Arts Inc. (ERTS)’s price relative to sales in the same period, data compiled by Bloomberg show. Zynga is working to keep its lead over the Redwood City, California-based company, which bolstered its own online services by purchasing PopCap Games this year.

“In a lot of ways, they’ve found the secret sauce to optimize their games for social networks,” Anupam Palit, senior equity analyst at New York-based GreenCrest Capital Management LLC, said of Zynga. “A risk is that there’s no competitive moat -- if someone else finds a nice formula that works, they’ll use it. The EA-PopCap combination poses a very significant business risk.”

Electronic Arts had a market value of $7.73 billion, or 2 times trailing 12-month sales, as of yesterday’s close, Bloomberg data show.

Scaling Back

Zynga had originally planned a larger IPO, scaling back after Internet companies including Groupon Inc. and Pandora Media Inc. sank following their debuts this year, a person familiar with the plans said yesterday. Zynga is selling about 14 percent of its common stock, a larger portion than some Web companies have sold this year in offerings.

The price range puts Zynga’s market value at least 29 percent lower than the level implied by a February investment by mutual funds affiliated with Morgan Stanley (MS), according to today’s filing. The funds bought 5.3 million preferred shares for $75 million, or $14 a share, today’s filing shows. When the IPO is completed, each of those preferred shares will convert to one common share, according to the filing.

Those funds may still recoup the paper loss before the IPO, if Zynga raises its asking price in response to strong investor demand. The sale is scheduled for Dec. 15, according to Bloomberg data.

Facebook IPO?

Facebook may raise about $10 billion in an IPO next year that would value the world’s largest social-networking site at more than $100 billion, a person with knowledge of the matter said this week. Google, operator of the world’s biggest search engine, raised $1.9 billion in its 2004 IPO, including an over- allotment option.

Zynga is selling all of the 100 million shares in the offering and expects net proceeds of about $889 million, according to the filing. That would add to a cash pile that totaled $604 million as of Sept. 30.

If underwriters exercise an option to buy 15 million additional shares in the over-allotment, then venture backer Avalon Ventures would sell the largest portion of Zynga at more than 2.5 million.

If the over-allotment is exercised, Foundry Group and Institutional Venture Partners would each sell about 2.5 million shares, while Union Square Ventures would offer 2.2 million. Venture firm Kleiner Perkins Caufield & Byers, Zynga’s biggest shareholder after Pincus, isn’t selling shares in the IPO.

Trimming Stakes

Google and buyout firm Silver Lake would trim their stakes by about 1.7 million shares each. Mail.ru Group Ltd. and Digital Sky Technologies, both managed by Russian billionaire Yuri Milner, would sell more than 1 million shares combined. Investment firm Tiger Global Management would offer about 554,000 shares.

Founder and Chief Executive Officer Mark Pincus, who isn’t selling any shares in the offering, will have about 37 percent voting control once the offering is complete. His salary was $300,000 in 2010, according to Zynga’s filing.

Pincus owns about 112 million shares of common stock, which the IPO would value at as much as $1.12 billion. The $10 top of the IPO range is more than 5 times the average price of $1.76 at which existing investors bought their Zynga stock, according to the filing.

Popular Games

Zynga aims to capitalize on the popularity of social networks and virtual goods. The company lets users play games for free and then makes money by selling items, such as a townhouse in “CityVille” or a shipyard in “Empires & Allies.”

Founded in 2007, Zynga has hired Morgan Stanley and Goldman Sachs Group Inc. (GS) to manage the IPO. Zynga’s shares will trade on the Nasdaq Stock Market under the symbol ZNGA.

About 6.7 million of Zynga users were paying customers in the first nine months of the year, up from 5.1 million in the year-earlier period, according to the filing. Revenue more than doubled to $828.9 million. The worldwide virtual-goods market will more than double to $22.5 billion in 2015 from $9.27 billion last year, according to Lazard Capital Markets.

In October, Zynga announced a new service, called Project Z, geared toward reducing its dependence on Facebook users. The company also introduced new games, including “Zynga Bingo” and “Hidden Chronicles.”

Ninety-three percent of Zynga’s third-quarter revenue was generated on Facebook, the world’s most popular social network. That number has ranged from 91 percent to 94 percent since the beginning of last year, according to Zynga filings.

More Mobile Games

Adding more mobile games is part of Zynga’s plan to diversify. The company said in November that the number of daily active users on mobile devices increased more than 10-fold from November 2010 to September 2011, reaching 9.9 million. By October, the number was 11.1 million.

Sunil Paul, a founding partner of venture capital firm Spring Ventures, recently joined Zynga’s board. Paul, who started software companies Brightmail Inc. and FreeLoader, was brought on because of “his extensive experience with Internet companies,” Zynga said on Nov. 17.

Groupon went public earlier this month, helping revive the IPO market after the European debt crisis and stock-market volatility (VIX) hampered deals. The shares of the Chicago-based company, which leads the Internet-coupon industry, have dropped 5.3 percent through yesterday.

Angie’s List, a site that rates plumbers, contractors and other service providers, has seen its shares decline 3.5 percent since their debut on the Nasdaq on Nov. 17.

Groupon Effect

Zynga’s choice to seek a lower valuation “is a reflection of what we’ve seen in Groupon,” said David Dillon, a San Francisco-based portfolio manager at HighMark Capital Management, which oversees about $17 billion. “If you price yourself too high, you do yourself a disservice in the long term.”

Declines in shares of newly listed Internet companies this year have come as the Standard & Poor’s 500 Index plunged as much as 19 percent from a peak and volatility spiked to a two- year high. LinkedIn Corp., which more than doubled in the weeks following its May IPO, now trades about 50 percent above its offer price.

Yelp Inc., which features user reviews of restaurants and businesses, also is planning an IPO. The San Francisco-based company filed on Nov. 17 to raise as much as $100 million in a 2012 offering. The $100 million amount is typically used as a placeholder to calculate fees and may change.

To contact the reporters on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net

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Verizon Wireless Allies With Cable Carriers in $3.6 Billion Spectrum Deal

By Alex Sherman - Dec 3, 2011 4:45 AM GMT+0700

Verizon Wireless, the largest U.S. mobile-phone carrier, struck an alliance with cable companies that will change how customers buy Internet, mobile and pay-TV services and present new challenges for rivals such as AT&T Inc. (T)

Verizon Wireless will pay the group $3.6 billion for wireless spectrum, the companies said today in a statement. Comcast Corp. (CMCSA), the country’s largest cable provider, will receive $2.3 billion, while Time Warner Cable Inc. (TWC) gets $1.1 billion and Bright House Networks LLC gets $189 million.

Verizon Wireless and the cable companies will also market and sell each other’s services under the agreement. The Basking Ridge, New Jersey-based mobile carrier will offer cable-TV products in its retail stores and receive a percentage of revenue for every cable customer it signs up, while cable companies will receive fees for each wireless customer they sign up, according to Time Warner Cable spokesman Alex Dudley.

“This is a strategic masterstroke for Verizon,” Craig Moffett, an analyst at Sanford C. Bernstein & Co., said in a note today. The agreement will lead to “a complete reordering of the competitive universe as we know it today.”

The deal allows Verizon Wireless to add airwaves as customers increasingly use smartphones such as Apple Inc.’s iPhone to watch video and browse the Web. AT&T, the second- largest U.S. wireless operator, has been trying to add capacity through its proposed acquisition of T-Mobile USA, though the U.S. Justice Department has sued to block the deal.

Verizon Communications Inc. (VZ), which co-owns Verizon Wireless with Vodafone Group Plc, rose 0.2 percent to $37.85 at the close in New York. Comcast gained 3.5 percent to $23.36 and Time Warner Cable gained 4.7 percent to $63.80.

New Partners

The deal allows the cable companies to offer wireless services to their customers without investing in their own network or acquiring a wireless company, Neil Smit, a Comcast executive vice president, said in an interview. After four years, Comcast, Time Warner Cable and Bright House can market Verizon Wireless service under their own brands. The cable companies will be able to bundle and price the service as they see fit, according Smit.

The two largest U.S. cable companies can offer wireless voice and data along with home phone, broadband and TV in one bundle, said Smit, potentially offering discounts for customers that sign up for multiple services. Time Warner Cable will also sell Verizon wireless products, such as Apple Inc. (AAPL)’s iPhones, in its retail stores, said Dudley.

“Frienemies”

The partnership between Verizon Wireless and cable comes as Verizon Communications sells FiOS, a broadband and television service that directly competes with cable offerings. The partnership may make Verizon and cable operators more cooperative “frienemies,” said David Joyce, an analyst at Miller Tabak & Co. in New York. Comcast and Time Warner Cable could benefit if Verizon feels less compelled to create undercutting price promotions against its new partners, he said.

“This might slow the competitive push from FiOS to drive down prices, which could help the cable companies,” said Joyce in an interview.

Verizon FiOS will continue to compete aggressively with Comcast and Time Warner Cable in overlapping markets, said Verizon Wireless Chief Executive Officer Dan Mead.

“It’s the nature of our business in wireless now,” Mead said in an interview. “You’re competitors one minute and suppliers or partners the next.”

There is only a 15 percent overlap in Comcast’s region with Verizon’s FiOS, according to Comcast spokeswoman Jennifer Khoury, which made Comcast more willing to strike the deal. Time Warner Cable has an 11 percent overlap, said Dudley.

Changing Wireless Landscape

Time Warner Cable is selling its spectrum for a 74 percent premium after originally purchasing it for $632.8 million in 2006. Comcast bought its spectrum for $1.29 billion in 2006, earning a 78 percent increase.

The deal may put additional pressure on Sprint Nextel Corp. (S) and partner Clearwire Corp. The cable companies have had a partnership with Clearwire, in which Sprint has a majority economic interest, that allows them to resell Clearwire’s wireless service. Comcast has 30,000 wholesale customers and Time Warner Cable has 27,000. Comcast and Time Warner Cable will stop offering Clearwire service within six months, according to Smit and Dudley.

“It aligns the cable companies with Verizon Wireless in the near and longer term,” said James Ratcliffe, an analyst at Barclays Capital. “That means a close partnership with Sprint becomes very unlikely at this point.”

Sprint, Clearwire

Sprint’s ability to be “a viable partner” to the cable industry is now in doubt, according to Moody’s credit analysts Dennis Saputo and John Diaz. Clearwire (CLWR) also is “a loser,” wrote Saputo and Diaz, as it effectively ends the probability that cable will provide more funding for the money-losing company.

Susan Johnston, a spokeswoman for Clearwire, and Scott Sloat, a spokesman for Sprint, declined to comment.

Clearwire rose 5.4 percent to $2.14 and Sprint dropped 3.7 percent to $2.60.

The partnership also removes an option for Deutsche Telekom AG’s T-Mobile USA if its acquisition by AT&T falls through. T- Mobile would have been able to enhance its competitive position by buying cable’s spectrum, said Moffett. Deutsche Telekom fell 3.1 percent to 9.26 euros.

Regulatory Approval

The partnership still needs approval from regulators. The Federal Communications Commission will “undertake a thorough, fair and fact-based review of the proposed transaction,” according to FCC spokesman Neil Grace.

The FCC and Justice Department are likely to approve the deal, though they may require the sale of assets in certain markets, said Jeff Silva, senior policy director for telecommunications, media and technology at Medley Global Advisors LLC in Washington.

“This deal is likely to eventually get approved with possible divestitures in any markets that the FCC and Justice Department find that Verizon would have excessive spectrum concentration,” he said.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Google’s $400 Million Admeld Purchase Approved by U.S. Justice Department

By Chris Dolmetsch - Dec 3, 2011 1:42 AM GMT+0700

Google Inc. (GOOG)’s $400 million purchase of AdMeld Inc. was approved by the U.S. Justice Department after regulators found competition in the online display advertising industry ensures the acquisition won’t harm consumers.

The department said today its investigation of the deal determined that Web publishers use multiple display advertising platforms and move business among them in response to price changes or the quality of ad placements.

“This use of multiple display advertising platforms, commonly called ‘multihoming,’ lessens the risks that the market will tip to a single dominant platform,” the department said in a statement.

Google’s acquisition of New York-based AdMeld, announced in June, will strengthen its position in online display advertising, the segment of the Internet ad market that’s outpacing others, according to Emarketer Inc., a New York-based digital research firm.

AdMeld offers technology services to Internet publishers that help manage display ads from hundreds of sources, including ad networks. Customers of the company, founded in 2007, include News Corp. (NWSA)’s Fox News and the Weather Channel.

‘Unprecedented Moment’

“This represents an unprecedented moment for publishers,” as opportunity in online advertising expands, Mountain View, California-based Google said in a statement posted on its official blog. “We believe that improved technology and services can help publishers seize it and make online advertising work much better.”

AdMeld Chief Executive Officer Michael Barrett said on the company’s website that the deal will close in the next few days.

Google, the world’s largest Internet-search provider, is using acquisitions to add services and find new sources of advertising. It made 57 purchases of intangible assets during the first three quarters of the year, according to an Oct. 26 regulatory filing.

The company is expected to grab 9.3 percent of online display advertising spending in the U.S. this year, up from 8.6 percent last year, making it the No. 3 provider, according to EMarketer. Facebook Inc. will increase its share to 16 percent, the No. 1 position, up from 12 percent a year ago, while Yahoo! Inc. will drop to 13 percent from 14 percent, EMarketer said.

Higher Sales

Google, which generates most of its revenue from advertising, posted higher sales during the third quarter as the number of clicks on ads rose about 28 percent and the average price per click increased about 5 percent. Sales, excluding revenue passed on to partner sites, rose to $7.51 billion.

The department’s approval of the AdMeld deal contrasts with its treatment of Google’s $676 million purchase of ITA Software. In April, the antitrust division imposed conditions on that deal, including requirements that Google make information from the travel-search company available to search-engine rivals and let the government review any complaints that it’s acting unfairly.

In August, Google said it would spend $12.5 billion for Motorola Mobility Holdings Inc., its largest deal. The Justice Department requested more information about the transaction as it extended its review, the companies disclosed Sept. 28. Google has said it expects to close that acquisition, announced in August, by the end of this year or in early 2012.

Shared Authority

The Justice Department and the Federal Trade Commission share authority to sue to block mergers they consider anticompetitive and to review whether dominant companies are abusing their market power.

In July, they ended two years of jockeying to lead an antitrust probe of Google, agreeing to divide responsibilities, two people familiar with the matter said at the time. The FTC is conducting a broad investigation of the company’s dominance of Internet search, Google disclosed on June 24.

“Although the antitrust division concluded that this particular transaction was unlikely to cause consumer harm, the division will continue to be vigilant in the enforcement of the antitrust laws to protect competition in display and other forms of online advertising,” the Justice Department said.

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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Michigan Plans Review of Detroit’s Finances

By Chris Christoff - Dec 3, 2011 12:01 PM GMT+0700

Detroit’s finances will be given a preliminary review by state officials starting Dec. 6, Michigan Treasurer Andy Dillon said, in what may be the first step toward the appointment of an emergency manager.

The 18th-largest U.S. city may face $400 million in penalties if an emergency manager is put in charge, because of swap agreements made with two banks that helped Detroit borrow money in 2009, according to Ted Damutz, senior credit officer for Moody’s Investors Service in Chicago.

Dillon is aware of the potential penalty, Terry Stanton, spokesman for the state treasury department, said by e-mail. He said the financial review is only a first step in a process that may lead to state intervention.

Detroit faces a $44 million cash shortfall by June, on top of an accumulated $155 million deficit. Yesterday, Mayor Dave Bing and City Council members denounced the potential state action, saying the city will heal itself. Republican Governor Rick Snyder has said that while he doesn’t want to name an emergency manager, the city needs help.

“The goal of the mayor and governor is to avoid the appointment of an emergency manager,” Steve Serkaian, a Bing spokesman, said yesterday by telephone. So concern that the swaps penalties may kick in is “speculative,” he said.

UBS, Siebert

The penalties were included in a renegotiated financing agreement after the city’s credit rating was cut in 2009, Damutz said yesterday in a telephone interview. He said the city could try to renegotiate terms if an emergency manager takes over Detroit’s finances. A Moody’s report lists the banks as Zurich- based UBS AG (UBSN) and Siebert, Brandford, Shank & Co. in New York.

Karina Byrne, a UBS spokeswoman in New York, didn’t immediately respond to a message seeking comment on the swaps, left after normal business hours. A person answering a call to Siebert’s West Coast headquarters in Oakland, California, said no one was available to provide a comment on the deals.

Dillon, in a conference call with reporters yesterday, said he ordered a preliminary review because of the city’s worsening cash flow and because the mayor, City Council and union leaders have been unable to agree on a plan to reduce the deficit.

Bing has proposed eliminating 1,000 of the city’s 11,000 jobs, while the council wants to cut 2,300 positions, including 500 from the police and fire departments.

The financial examination will be completed within 30 days, Dillon said. If it shows sufficient distress, a formal review may be ordered to determine further action, which Dillon said wouldn’t necessarily mean the appointment of a manager.

‘Fixable’ Issues

The city’s difficulties “are fixable,” Dillon said. He dismissed the possibility of a municipal bankruptcy.

A state law passed this year broadened the powers of emergency managers over municipal finances, including the ability to nullify union contracts, with the treasurer’s consent. Detroit’s schools are already under control of such a state-appointed overseer.

“It’s our goal to work together with the city in coordination and to have a good, healthy city of Detroit, because that’s critical to the future of Michigan,” Dillon said.

Dillon’s action is “unfortunate,” Bing said in a statement. He said the city would cooperate with the review.

“We believe we have the right plan to address the city’s fiscal crisis,” the mayor said. “We will continue to work with the City Council, our unions and other stakeholders to achieve the necessary cuts and concessions, including pension, health- care and work-rule reform.”

A review can be triggered when a municipality’s bond rating falls to BBB or lower, or the equivalent, Dillon said. Detroit is rated Ba3 by Moody’s and BB- by Fitch Ratings -- both three steps below investment grade. Standard & Poor’s puts the city’s credit one level higher at BB.

To contact the reporter on this story: Chris Christoff in Lansing at cchristoff@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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Euro Gains for First Time Since October Before Crisis Summit; Dollar Drops

By Catarina Saraiva and Allison Bennett - Dec 3, 2011 12:00 PM GMT+0700

The euro advanced for the first time in five weeks against the dollar as six central banks including the Federal Reserve acted to make more funds available to lenders to keep Europe’s debt crisis from deepening.

Gains in the shared currency were tempered by concern a summit of European leaders next week won’t be able to stem the two-year-old crisis that began in Greece. South Africa’s rand was the best performer among the dollar’s 16 most-traded peers as stocks and commodities rebounded from two weeks of losses. The greenback and the yen were the biggest losers as demand for safety faded.

“The overall hope is that by Friday we’ll be able to get a lot more financial monetary stimulus and a comprehensive plan to save Europe,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said yesterday. “You have a huge week next week.”

The euro rose 1.2 percent to $1.3391 yesterday, its first weekly gain since the five days ended Oct. 28. It advanced from a seven-week low of $1.3212 that was reached Nov. 25 as investors avoided risk. The 17-nation currency was strengthened 1.5 percent versus the yen to 104.43 in its first weekly advance since Nov. 4. The dollar gained for a second week against the yen, rising 0.3 percent to 77.90 yen.

South Africa’s rand appreciated 6.2 percent to 8.0437 in its biggest weekly gain since February 2009.

Franc Weakens

The Swiss franc declined versus the euro as Switzerland said it may consider additional steps to support the central bank in its fight to curb the currency’s gains. The franc slipped 0.2 percent to 1.2342 per euro.

The cost for European banks to fund in dollars shrank from the most expensive since 2008 after the central banks said Nov. 30 they’d cut the rate on dollar liquidity swap lines.

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, fell to as low as 1.19 percentage points below the euro interbank offered rate on Dec. 1. It touched 1.63 percentage points on Nov. 30.

The central banks, including the ECB and Bank of Japan, agreed to reduce their rate to the dollar overnight index swap rate plus 50 basis points, or half a percentage point, from 100 basis points, the Fed said in a statement.

“It doesn’t solve all of the euro zone’s problems, but it reduces some of the financial-system concern,” Greg Anderson, a currency strategist at Citigroup Inc. in New York, said Nov. 30.

Loans Through IMF

The euro reached $1.3548 yesterday, the strongest intraday level since Nov. 22, on optimism European central banks may funnel loans through the International Monetary Fund to fight the debt crisis. Two people familiar with the negotiations said the region’s finance ministers gave the go-ahead for work on the IMF plan at a Nov. 29 meeting. The proposal could deliver up to 200 billion euros to fight the debt crisis, said the people, who declined to be named because talks are at an early stage.

European Union leaders meet Dec. 9 in Brussels to address the euro region’s debt crisis.

“We are now entering the critical period of 10 days to complete the crisis response,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels on Nov. 30. “It’s very important that we at this juncture reinforce our financial firewalls” to “reduce market turbulence,” he said.

Futures traders increased bets the euro will fall against the dollar, data from the Washington-based Commodity Futures Trading Commission show. So-called net-short wagers rose to 104,302 in the week ended Nov. 29, the most since June 2010.

China’s Bank Move

The dollar and the yen slid on Nov. 30 as China, in a move to encourage growth, cut the amount of cash banks must set aside as reserves for the first time since 2008, damping safety demand. The People’s Bank of China said reserve ratios will decline by 50 basis points effective Dec. 5. That may add 350 billion yuan ($55 billion) to the nation’s financial system, according to UBS AG.

Australia’s dollar climbed 5.2 percent this week to $1.0215 as the Standard & Poor’s 500 Index of stocks gained 7.4 percent and the S&P GSCI index of 24 raw materials rose 3.5 percent. Neither gauge had posted a weekly gain since Nov. 11.

“All the developments built upon each other,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York said Nov. 30. “You have China’s ratio cut, which was supportive of risk, you had lower swap rates, which was extremely supportive, so you saw big spikes in commodity currencies.”

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, weakened 1.2 percent to 78.683.

Action by Japan

Japan’s currency fell yesterday versus most major peers as Finance Minister Jun Azumi said he’ll take action on speculative currency moves. Japan sold 9.09 trillion yen ($116.5 billion) in the currency market from Oct. 28 to Nov. 28, the Ministry of Finance said on its website, to stem yen appreciation.

The yen advanced 2.14 percent over the past month in the best performance against nine developed-market peers measured by Bloomberg Correlation-Weighted Currency Indexes. The dollar rose 2.05 percent, and the euro declined 0.88 percent.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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House Republican Split Slows Push for Payroll Tax Cut Extension Into 2012

By Steven Sloan and Richard Rubin - Dec 3, 2011 12:00 PM GMT+0700

U.S. House Speaker John Boehner will seek in the next week to persuade fellow Republicans to set aside their concerns and support a one-year extension of a payroll tax cut that some members of the party are resisting.

The Ohio Republican presented a plan yesterday to members of his caucus that would extend the payroll tax cut for employees into 2012 and offset the forgone revenue. The proposal hasn’t been released publicly, and some of the Republicans expressed skepticism about it.

Boehner is facing a political dilemma of tending to his party’s concerns while trying to rebuff Democratic criticism that Republicans are willing to allow taxes for the middle class to increase. Representative Jeff Flake, an Arizona Republican, said many Republican lawmakers during the caucus meeting cautioned Boehner against pushing a proposal to the House floor.

“Most of the people standing up were troubled with moving ahead on this,” Flake told reporters.

Unless Congress acts, the tax cut -- which lowered the employee portion of the Social Security payroll tax from 6.2 percent to 4.2 percent for 2011 -- will expire Dec. 31. The 2011 tax break resulted in $111.7 billion in forgone revenue to the Treasury over 10 years, according to the congressional Joint Committee on Taxation.

The government transferred money from the general fund to cover the reduced funding for Social Security.

House Republicans

The House hasn’t scheduled a vote on an extension. If 24 or more Republicans don’t back it, Boehner will need the support of some Democrats for passage.

The debate marks an unexpected reversal for congressional Democrats, who remain bitter over the deal President Barack Obama struck late last year with Republicans to extend the Bush- era tax cuts through 2012. Boehner and other Republican leaders cautioned that allowing tax cuts for income, capital gains and dividends to expire would harm the economy and small business owners. That’s the argument Democrats now are using to pressure Republicans to extend the payroll tax cut.

Representative Nancy Pelosi of California, the House Democratic leader, said lawmakers should “stop toying with the American people and their economic security.”

She told reporters yesterday that Republicans are “feeling the heat” from Democrats over tax policy.

The ‘High Ground’

Representative Steve Israel of New York, who leads the Democratic Congressional Campaign Committee, said his party has the “high policy ground” on taxes as a result of the payroll debate.

“We’ve got them trying to defend the indefensible,” Israel said.

Obama told reporters yesterday that a failure to extend the payroll tax cut “would be a significant blow to our economy.”

“I expect that it’s going to get done before Congress leaves,” Obama said. “Otherwise, Congress may not leave at all and we can all spend Christmas here together.”

At a press conference, Boehner said he wasn’t worried about Republicans losing control of their message on tax issues.

“The fact is that Republicans are doing everything we can to allow American families and small businesses to keep more of what they earn,” he said. “The other side can go out, come out with all the rhetoric they want to come up with, but the facts are facts.”

Surtax Fails

The U.S. Senate on Dec. 1 rejected a Democratic proposal that would have imposed a 3.25 percent surtax on annual income exceeding $1 million to pay for extending the payroll tax cut and expanding it to employers.

The Senate also thwarted a Republican measure that would have extended the payroll tax cut for employees for one year and offset the cost by reducing the federal workforce by 10 percent, freezing federal pay through 2015 and requiring high earners to pay more for Medicare premiums.

The Republican proposal was rejected by 26 members of the party. Some Republicans, such as Senator Orrin Hatch of Utah, said they are troubled by the tax cut and that it hasn’t provided economic growth as promised. Representative Tim Walberg, a Michigan Republican, said the tax cut is a short-term solution that stops lawmakers from tackling the more fundamental fiscal problems the U.S. faces.

‘Flat Broke’

“Extending and taking away the pain and taking away the reality that we are flat broke and printing our money right now has really hurt this country,” Walberg said. “We understand that we have a problem that we just can’t kick down the road.”

Like the Republican plan that was blocked in the Senate, the proposal being developed in the House includes a federal pay freeze, according to Representative Peter King, a New York Republican.

Representative Steve LaTourette, an Ohio Republican, said the House measure would change the structure for unemployment insurance and would avoid cuts to physician reimbursements by Medicare for two years. It would include language addressing the Keystone pipeline and an Environmental Protection Agency proposal to limit emissions for industrial boilers, LaTourette said. These provisions could attract more Republican support.

“There’s obviously some angst among some members of our conference,” LaTourette said. “It’s the speaker’s job to work that out.”

Pelosi said lawmakers should use the money that would have funded the wars in Iraq and Afghanistan to cover the extension’s cost.

“It’s the perfect place to go,” she said.

House Budget Committee Chairman Paul Ryan, a Wisconsin Republican who said in June that the payroll tax cut is a “sugar high,” said yesterday that he thinks a deal will be worked out to extend the break.

“We’ll figure it out,” he said. “It’s all good.”

To contact the reporters on this story: Steven Sloan in Washington at ssloan7@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Treasury Yields at Month High as Fed Eases Contagion Concern

By Cordell Eddings and Daniel Kruger - Dec 3, 2011 12:00 PM GMT+0700

Treasuries fell, pushing 10-year yields to the highest level in more than a month, as emergency dollar funding for European banks arranged by the Federal Reserve reduced concern the region’s debt crisis will worsen.

Ten-year note yields rose for the first time in three weeks as a report yesterday showed job gains in the U.S. picked up last month and the unemployment rate unexpectedly fell to the lowest level since March 2009. Treasuries retained their claim as the world’s favored refuge from turmoil, with U.S. bond yields dropping below those on German debt for the first time since May 2009 before a summit of European leaders on Dec. 9.

“The momentum in the market has gotten better because we haven’t seen the end of the world and central banks are signaling they get it,” said George Goncalves, head of interest rate strategy at Nomura Holdings Inc., one of 21 primary dealers that trade directly with the Fed. “Still, we are at the mercy of a lack of conviction in the market as there is a large sense of skepticism about policy makers coming through in the weeks ahead.”

The benchmark 10-year note yield rose seven basis points, or 0.07 percentage point, to 2.03 percent from 1.96 percent Nov. 25, according to Bloomberg Bond Trader prices. The 2 percent note due November 2021 dropped 20/32, or $6.25 per $1,000 face amount, to 99 22/32. The yield reached as high as 2.16 percent, the most since Oct. 31.

Bond Yields

The yield on the 30-year bond rose 11 basis points to 3.02 percent. The yield traded as low as 2.92 percent on Nov. 29 while German 30-year yield reached as high as 2.96 percent.

Treasuries have returned 8.5 percent in 2011, set for the best annual return since a 14 percent gain in 2008, Bank of America Merrill Lynch index data show.

The U.S. 10-year yield traded in a 28-basis-point range during November, with a high of 2.15 percent and a low of 1.87 percent. That compares with a 70-basis-point range the month before.

“The European sovereign-debt issue is still the biggest issue and that will continue to give Treasuries support,” Larry Milstein, managing director in New York of government and agency debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors, said on Nov. 29.

Bet Swings

Hedge-fund managers and other large speculators reversed from a net-short position to a net-long position in 10-year note futures in the week ending Nov. 29, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will increase, outnumbered short positions by 17,301 contracts on the Chicago Board of Trade. Last week, traders were net-short 15,291 contracts.

The Fed said it was joined in the swap-rate cut by the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and the Swiss National Bank. The dollar funding rate interest rate has been reduced to the dollar overnight index swap rate plus 50 basis points, or half a percentage point, from 100 basis points, and the program was extended to Feb. 1, 2013, the Fed said in a statement in Washington.

The central banks acted after the cost for European banks to fund in dollars rose to the highest levels in three years as concern about a possible breakup of the euro area increased after leaders said they’d failed to boost the region’s bailout fund as much as planned.

Stress Measures

The two-year swap spread, an indicator of risk in the financial system, rose two basis points to 45 basis points yesterday. The spread, which equals the difference between two- year swap rates and comparable maturity Treasury yields, fell as low as 39 basis points on Nov. 30.

The U.S. unemployment rate, derived from a survey of households, was forecast to hold at 9 percent in November. The decrease in the jobless rate reflected a 278,000 gain in employment at the same time 315,000 Americans left the labor force. Labor Department figures showed yesterday in Washington.

Payrolls climbed 120,000, after a revised 100,000 increase in October, with more than half the hiring coming from retailers and temporary-help agencies, The median estimate in a Bloomberg News survey called for a 125,000 gain.

Economic Direction

“It’s a step in the right direction,” said Richard Schlanger, who helps invest $20 billion in fixed-income securities as vice president at Pioneer Investments in Boston. “However, Europe is dominating the headlines right now, and we’re going to have to wait and see how that plays out.”

Pacific Investment Management Co.’s Bill Gross said U.S. employment growth won’t prevent the Fed from signaling that borrowing rates will remain lower longer than policy makers have already indicated.

The central bank will keep the target rate for overnight loans at current levels for as long as four years, up from the through the middle of 2013 period outlined, Gross, manager of the world’s biggest bond fund, said in a radio interview yesterday on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

German Chancellor Angela Merkel likened solving the debt crisis to a marathon in a speech yesterday as she rejected joint euro-area bonds and central-bank action while pushing for closer economic ties among euro nations allied to tougher enforcement of budget rules to counter the debt crisis now in its third year. Merkel said she will consult with French President Nicolas Sarkozy on Dec. 5 to coordinate their approach to next week’s summit.

IMF Plan

A European proposal to channel central-bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($270 billion) to fight the debt crisis, two people familiar with the negotiations said.

“Europe is too important for anything else to have a huge impact as the events there are still driving the market,” said Gary Pollack, head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York, which manages $12 billion in bonds. “Until we see something closer to resolution from Europe the market will be transfixed by events over there.”

The 10-year yield will rise to 2.20 percent by year-end, according to a Bloomberg News survey of financial companies, with the most recent forecasts given the heaviest weightings. The yield will reach 2.25 percent by the end of March 2012, the surveys show.

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Altria’s Philip Morris Must Pay $47.7 Million to Oregon, Top Court Rules

By Bob Van Voris - Dec 3, 2011 12:01 PM GMT+0700

Altria Group Inc. (MO)’s Philip Morris USA must pay $47.7 million to Oregon, the state’s Supreme Court ruled, rejecting arguments from the biggest U.S. cigarette maker that the tobacco industry’s landmark 1998 settlement with 46 states barred the recovery.

The Oregon Supreme Court decided yesterday that Philip Morris, a unit of Richmond, Virginia-based Altria, must pay the state 60 percent of a $79.5 million punitive damages award, plus interest, in a smoking-related wrongful death claim.

A jury in 1999 awarded that amount, in addition to compensatory damages, to the estate of Jesse Williams, a smoker who had died of lung cancer. An Oregon law cited in the court’s ruling requires that 60 percent of punitive damages awards go to the state.

Philip Morris claimed the state released its claim by signing the $206 billion multistate settlement agreement resolving health care cost-recovery lawsuits against U.S. cigarette makers.

“We believe that the Oregon Supreme Court misapplied the law and reached an erroneous result,” said Murray Garnick, Altria Client Services senior vice president and associate general counsel. “As the lower court recognized, the state released its claims to any punitive damages when it signed the Master Settlement Agreement.”

The case is Williams v. R.J. Reynolds, SC S059014, Oregon Supreme Court (Salem).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Oracle Accuses HP of False Advertising in Revised Itanium Suit

By Karen Gullo - Dec 3, 2011 12:01 PM GMT+0700

Oracle Corp., accussing Hewlett- Packard Co. (HPQ) of false advertising in a revised countersuit, said HP secretly paid Intel Corp. (INTC) to continue producing the Itanium computer chip.

OrSacle claims HP “made false and deceptive statements” to Oracle and the public regarding the future of the chip to induce Oracle to continue to build software that runs on HP servers that use the Itanium chip, according to an amended complaint provided by Deborah Hellinger, an Oracle spokeswoman. Filing of the document couldn’t be immediately confirmed through electronic state court records yesterday.

HP and Intel had an Itanium collaboration agreement under which Intel would prolong Itanium instead of discontinuing the chip, according to the complaint.

The agreement was kept secret until Oracle uncovered it in a lawsuit first filed by HP against Oracle in June. HP alleged then that Oracle used “strong arm tactics” to force customers to shift away from HP’s Itanium server hardware to Oracle’s own server hardware.

Details of the Itanium agreement, such as the date it was signed and how much HP paid Intel, are blacked out of the document. Oracle, based in Redwood City, California, seeks to rescind an agreement that settled litigation over Oracle’s hiring of former HP chief executive officer Mark Hurd as well as unspecified damages.

“Oracle is in breach of its contractual commitments to HP, and it has failed to honor its promises to customers,” Michael Thacker, a spokesman for Palo Alto, California-based HP, said yesterday in an e-mailed statement responding to Oracle’s new claims. “Oracle should be addressing and rectifying this conduct rather than making up claims against HP.”

The case is Hewlett-Packard Co. v. Oracle Corp. (ORCL), 111- cv-0203163, California Superior Court (Santa Clara County).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Kindle Fire Ranks as Top IPad Challenger: IHS

By Danielle Kucera - Dec 3, 2011 1:31 AM GMT+0700

Amazon.com Inc. (AMZN)’s share of the tablet computer market will surge to 14 percent this quarter as consumer demand catapults the Kindle Fire to the No. 2 spot after Apple Inc.’s iPad, according to research firm IHS Inc. (IHS)

Amazon will probably ship 3.9 million units of the Fire in the final three months of the year, IHS said today in a report. After hitting store shelves on Nov. 14, the Kindle Fire has surpassed more established products from Samsung Electronics (005930) Co. and Barnes & Noble Inc. (BKS) in vying with the iPad, which will ship an estimated 18.6 million units, IHS said.

Jeff Bezos, chief executive officer of Amazon, stoked demand for the Fire with low prices and promotions on his company’s site, the world’s largest e-commerce provider. While IHS says Amazon is losing money on every $199 tablet it sells, Susquehanna Financial Group LLP said Nov. 15 that each machine may generate $384 in revenue for the company when accounting for sales of associated digital music, books and movies.

“Nearly two years after Apple Inc. (AAPL) rolled out the iPad, a competitor has finally developed an alternative which looks like it might have enough of Apple’s secret sauce to succeed,” Rhoda Alexander, a senior research manager at IHS, said in the statement.

Bezos is counting on revenue from that content to counter the operating margin contraction that results from selling the product at a loss.

Global tablet shipments will be about 64.7 million this year, compared with 17.4 million in 2010, according to IHS. The firm ramped up its forecast for shipments by 2015 -- to 287.5 million from the previous projection of 275.3 million.

The Fire has a 7-inch display, smaller than the iPad’s 9.7- inch screen. The device runs on Google Inc.’s Android software, have a dual-core processor and offer Wi-Fi connectivity, Amazon said.

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Euro Falls on Bets Summit Won’t Stem Crisis

By Catarina Saraiva - Dec 3, 2011 5:15 AM GMT+0700

The euro dropped against the dollar for the first time in three days on mounting speculation that next week’s summit of European leaders won’t be able to stem the region’s sovereign-debt crisis.

The shared currency still rose for the first week in a month versus the greenback on optimism European central banks may funnel loans through the International Monetary Fund to fight the crisis. The euro dropped today after a rally that saw it rise 1.5 percent from a seven-week low on Nov. 25. The dollar advanced against most of its major peers as stocks pared gains.

“We’ve priced in quite a bit of optimism in the last three or four days,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. “I’m inclined to be very cautious in terms of risk positions going into next week’s events. The measures were dealing with symptoms of the sovereign-debt crisis, but we still have to deal with the actual underlying problem.”

The euro depreciated 0.5 percent to $1.3391 at 5 p.m. in New York, paring its weekly gain to 1.2 percent. Earlier, the 17-nation currency gained as much as 0.7 percent. It fell 0.2 percent to 104.43 yen. The dollar rose 0.4 percent to 77.99 yen.

The Standard & Poor’s 500 Index (SPX) was little changed after climbing earlier as much as 1.3 percent.

South Africa’s rand and Brazil’s real were the top performers among the greenback’s 16 most-traded counterparts. The real gained 0.5 percent to 1.7908 to the dollar, and the rand strengthened 0.5 percent to 8.0437 per dollar.

Franc Drops

The Swiss franc declined against the euro after Switzerland said yesterday it may consider additional steps to support the central bank in its fight to curb the currency’s gains. The franc slipped 0.1 percent to 1.2342 per euro.

Canada’s dollar fell for the first time in seven days, losing 0.6 percent to C$1.0195 per U.S. dollar, after employment in the nation unexpectedly fell last month.

Europe’s 17-nation currency advanced earlier after two people familiar with the negotiations said the region’s finance ministers gave the go-ahead for work on the IMF plan at a Nov. 29 meeting attended by European Central Bank President Mario Draghi. The proposal could deliver up to 200 billion euros to fight the debt crisis, said the people, who declined to be named because talks are at an early stage.

The need for a new crisis-containment tool emerged as the effort to boost the region’s 440 billion-euro ($589 billion) rescue fund to 1 trillion euros fell short.

Calls Shunned

German Chancellor Angela Merkel likened solving Europe’s debt crisis to a marathon, shunning investor calls for quick action while pushing for stricter budget enforcement.

Speaking to lawmakers in Berlin today before the European summit on Dec. 9, Merkel rejected joint euro-area bonds or trying to make the European Central Bank the lender of last resort as quick fixes.

The euro erased gains versus the greenback as the Hill newspaper reported conservative U.S. lawmakers in Washington may try to block the plan to channel central-bank loans through the IMF to protect U.S. taxpayers. Senator Tom Coburn said he plans legislation that would direct the government to veto an expanded role for the fund, the Washington-based publication said today.

“It’s a big dose of IMF worries on a Friday evening, and some euro decoupling from stocks,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. “The euro didn’t get high enough to trigger meaningful short- covering.”

Lost Momentum

A short position is a bet the price of an asset will fall. The euro rose as high as $1.3548 earlier, and its failure to break above $1.3560 led it to lose momentum, Juckes said.

Futures traders increased bets the euro will fall versus the dollar. The so-called net short positions rose to 104,302 in the five days ended Nov. 29, the most since June 2010, according to Commodity Futures Trading Commission data released today.

The Federal Reserve said Nov. 30 it had agreed with the central banks of Europe, Canada, Switzerland, the U.K. and Japan to reduce the premium to borrow dollars overnight by half a percentage point to 50 basis points.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners including the euro and yen, rose 0.5 percent to 78.682 after falling earlier as much as 0.4 percent.

The greenback gained 6.6 percent over the past three months against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Currency Indexes as investors sought haven. The yen advanced 3.1 percent, and the euro rose 0.3 percent.

Jobless Rate

The U.S. unemployment rate declined to 8.6 percent in November, the lowest since March 2009, from 9 percent in October, Labor Department figures showed today in Washington.

Payrolls climbed by 120,000 jobs, compared with a forecast of a 125,000 gain in a Bloomberg News survey. More than half the hiring came from retailers and temporary-help agencies. There was a revised 100,000-job increase in October that was more than initially estimated.

The U.S. economic recovery may be gaining momentum, data earlier this week signaled. American manufacturing expanded in November at the fastest pace in five months, an Institute for Supply Management index showed yesterday. The Conference Board’s index of consumer confidence increased to a reading of 56 last month from 40.9 in October, the biggest jump since April 2003, a report from the private research group showed on Nov. 29.

“With the strong consumer confidence and the decent ISM yesterday, the expectations for today’s payrolls were amplified,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. based in New York. “It’s broadly in line with expectations, but it’s not as good as widely hoped for.”

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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