Zynga Says IPO Price Range Affected by Undereperformance of Recent Offers

By Lee Spears - Dec 10, 2011 12:01 PM GMT+0700

Zynga Inc. said the valuation it’s seeking in an initial public offering is 50 percent less than an August fair value estimate after it took into account recent IPOs that have underperformed.

The price range of $8.50 to $10 a share is based on “a review of the offering price and recent aftermarket performance of companies that completed IPOs in 2011,” the company said in a regulatory filing yesterday.

The top end of Zynga’s offering range would value the company at $7 billion, or half the $14.1 billion it said represented its fair value as of August. Groupon Inc., the Chicago-based provider of online coupons, raised $805 million in its IPO last month including an over-allotment option. The shares surged as much as 31 percent in the first weeks of trading before plunging as much as 42 percent from their high.

Angie’s List Inc., the Indianapolis-based operator of a consumer-reviews website, raised $132 million in its IPO last month, including an over-allotment. The shares tumbled as much as 29 percent from a high in public trading.

Groupon and Angie’s List both have recovered this month. Groupon closed yesterday at $23.48, 17 percent above its offering price. Angie’s List closed at $16.03, 23 percent higher than its IPO price.

Game Development

San Francisco-based Zynga’s offering of 100 million shares, set to price on Dec. 15, would be the biggest by a U.S. Internet company since Google Inc. (GOOG) went public in 2004, Bloomberg data show. Zynga may raise about $889 million in the share sale to spend on developing new games and possibly buying companies or technologies, according to its filing.

Zynga had originally planned to seek a higher market value in its IPO, and scaled back after Internet companies including Groupon sank following their debuts, a person with knowledge of the plans said this month. Zynga said its IPO price “was not determined using the methodology used by management and the third party valuation firm to value our stock in August.”

Investors have already put in enough orders to cover all the stock being offered, people familiar with the matter said Dec. 8.

Morgan Stanley and Goldman Sachs Group Inc. are managing the IPO. Zynga’s shares will trade on the Nasdaq Stock Market under the symbol ZNGA.

To contact the reporter on this story: Lee Spears in New York at lspears3@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

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Iran Shows Off Downed Spy Drone on TV as U.S. Assesses Loss of Technology

By John Walcott - Dec 10, 2011 2:37 AM GMT+0700

The unmanned RQ-170 Sentinel is still highly classified, yet since one came down in Iran five days ago, it’s a lot less secret.

Three U.S. defense officials said the plane the Iranians displayed on television yesterday appears to be the Lockheed Martin Corp. (LMT) RQ-170 that controllers lost contact with on Dec. 4. The Pentagon and the Central Intelligence Agency have declined to comment on the matter.

Three U.S. intelligence officials said the greatest concern now is that the Iranians will give Russian or Chinese scientists access to the aircraft, which is designed to be virtually invisible to radar and carries advanced communications and surveillance gear.

Studying it may give two technologically sophisticated potential adversaries insight into the unmanned spy plane’s flight controls, communications gear, video equipment and self- destruct, holding pattern or return-to-base mechanisms, officials said. The officials spoke on condition of anonymity because the RQ-170 is part of a Secret Compartmented Intelligence (SCI) program, a classification higher than Top Secret, and because the investigation into the loss of the drone is also classified.

Reverse Engineering

In addition, they said, the remains of the RQ-170 could help the Russians, Chinese, Iranians or others develop Infrared Surveillance and Targeting (IRST) or Doppler radar technology that under some conditions are capable of detecting stealth aircraft such as drones and the new Lockheed Martin F-35s.

There also is a danger that the fallen Sentinel’s shape, special coatings, control surfaces, engine inlet and other unique qualities could help other countries develop or improve their own radar-evading aircraft, such as China’s J-20 stealth fighter.

“There is the potential for reverse engineering, clearly,” Air Force Chief of Staff General Norton Schwartz said yesterday during a taping of the television show “This Week in Defense News,” according to Air Force Times. “Ideally, one would want to maintain the American advantage. That certainly is in our minds.”

If the jet “comes into the possession of a sophisticated adversary, there’s not much the U.S. could do about it,” he said.

The intelligence officials said that Chinese or Russian access to the drone is a greater concern than a possible Iranian effort to reverse-engineer the RQ-170, which they said is unlikely given the drone’s special coatings and other materials.

Stealing Secrets

“Buy, Build or Steal: China’s Quest for Advanced Military Aviation Technologies,” a new report from the Institute for National Strategic Studies at the National Defense University in Washington, says that stealth technology is a high priority for Beijing since “few things differentiate the lethality of an air force more than the level of technology in its most advanced aircraft.”

“China will likely rely more heavily on espionage to acquire those critical military aviation technologies it cannot acquire legitimately from foreign suppliers or develop on its own,” the report concludes.

Nevertheless, the Obama administration didn’t seriously consider bombing the wreckage or sending special operations forces into Iran to destroy or retrieve it because either would be an act of war, two U.S. officials said.

Hacking Claim

Reverse engineering the Sentinel or its components would be difficult and time consuming, the intelligence officials said. The most troubling prospect is that the Iranians’ second claim about how they brought it down -- by hacking into its controls and landing it themselves -- might be true, said one of the intelligence officials .

The official said the possibility that the Iranians, perhaps with help from China or Russia, hacked into the drone’s satellite communications is doubly alarming because it would mean that Iranian or other cyber-warfare officers were able to disable the Sentinel’s automatic self-destruct, holding pattern and return-to-base mechanisms.

Those are intended to prevent the plane’s secret flight control, optical, radar, surveillance and communications technology from falling into the wrong hands if its controllers at Creech Lake Air Force Base or the Tonopah Test Range, both in Nevada, lose contact with it.

Targeting Computer Networks

In recent years, one of the officials said, computer hackers thought to be part of extensive Chinese or Russian cyber espionage efforts have attacked the computer networks of numerous defense contractors, including Lockheed Martin; broken into two satellite ground stations and planted keystroke logging software in some military computers -- including some that are used to control some U.S. drones.

It isn’t known whether that malware has been found in RQ- 170 computers, or only in those used to control less advanced drones such as the Predator and Reaper, made by General Atomics Aeronautical of San Diego, that are used by the Air Force and CIA in Afghanistan, Pakistan, Yemen, Somalia and elsewhere.

Two U.S. intelligence officials said that while the drones’ and other military and intelligence computer networks are kept separate from the public Internet, investigators have uncovered what they said are numerous instances when thumb drives containing Chinese and other malware have infected classified networks. Often, they said, such infections have spread quickly and proved very difficult to eradicate.

Television Debut

The drone made a 2 1/2 minute television debut yesterday on Iran’s state-owned Press TV channel. Two U.S. officials with knowledge of the RQ-170 program said that some details, including the seams on the drone’s fuselage, its access ports and its unusual air intake, appear to confirm that it’s genuine.

The official Iranian Republic News Agency reported that the Foreign Ministry protested the “violation of Iran’s airspace by a U.S. spy drone on Dec. 4,” the day Iranian forces claimed to have shot down the aircraft 140 miles inside the Iranian border from Afghanistan.

The RQ-170 was flying a reconnaissance mission inside Iranian airspace when its controllers lost contact with it, U.S. officials said.

The officials said that for three years the U.S. has been flying two types of unmanned surveillance missions over Iran and along the Afghanistan-Iran border from a 9,200-foot runway at a former Soviet airbase in Shindand in western Afghanistan’s Herat province.

In addition to monitoring construction and other activity at suspected Iranian nuclear facilities from high altitudes, the officials said, the CIA has been using drones to monitor cross- border traffic and Iranian support for insurgents.

The CIA, not the Air Force, flies the missions inside Iran so they are covert operations that the U.S. government can deny.

To contact the reporter on this story: John Walcott in Washington at jwalcott9@bloomberg.net

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

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Gold Traders Most Bullish in Month on Debt Crisis: Commodities

By Nicholas Larkin - Dec 10, 2011 1:10 AM GMT+0700

Gold traders are more bullish as investors buy metal at the fastest pace in a year to protect their wealth from Europe’s escalating debt crisis.

Eighteen of 26 surveyed by Bloomberg expect the metal to advance next week, the highest proportion since Nov. 11. Holdings in exchange-traded products backed by gold rose 108.5 metric tons to a record from the start of October, the most since the second quarter of 2010, data compiled by Bloomberg show. The extra bullion is valued at $5.99 billion.

Investors are now making a $130.2 billion bet on gold as European leaders meet in Brussels to seek ways to tackle the crisis that means Germany and France are under threat of losing their AAA rating from Standard & Poor’s. The European Central Bank yesterday cut interest rates for a second consecutive month to shore up growth, increasing the appeal of gold, which earns investors returns through price gains.

“People are buying out of concern, out of fear,” said Mark O’Byrne, executive director of Dublin-based GoldCore Ltd., a brokerage that sells everything from quarter-ounce British Sovereigns to 400-ounce bars. Central banks “are all pursuing extremely loose monetary policies and we still have negative real interest rates. That makes gold attractive.”

Bullion rose 21 percent to $1,717.80 an ounce this year on the Comex in New York, and reached a record $1,923.70 in September. The Standard & Poor’s GSCI gauge of 24 commodities rose 1.8 percent and the MSCI All-Country World Index of equities retreated 8.9 percent. Treasuries returned 9.3 percent, a Bank of America Corp. index shows.

Raw Sugar

Traders also anticipate gains in corn and soybeans and declines in copper and raw sugar next week, the surveys showed.

Investors held a record 2,358.2 tons of bullion through ETPs on Dec. 6, and bought 84.8 tons last month, the most since July. The combined tonnage is greater than the reserves of all but four of the world’s central banks and equal to more than 10 months of global mine supply.

Growth in the euro region will drop to 1.1 percent next year, from 1.6 percent this year, the International Monetary Fund forecasts. The ECB lowered its benchmark interest rate by 0.25 percentage point to 1 percent yesterday to match a record low. Bullion rose 3.6 percent in three days after the bank cut rates by the same amount on Nov. 3.

Unlimited Cash

The ECB also said it would offer banks unlimited cash for three years and loosened the collateral criteria it imposes when lending by making credit claims such as bank loans eligible and reducing the rating threshold on asset-backed securities.

Gold bar and coin demand in Europe more than doubled to 118.1 tons in the third quarter from a year earlier, data from the London-based World Gold Council show. European Union clients opened a record number of accounts with GoldCore last week and that may be exceeded this week, O’Byrne said.

Central banks are adding to their gold reserves for the first time in a generation. South Korea said last week it bought 15 tons in November to diversify its foreign-exchange reserves. The World Gold Council expects central banks to buy as much as 450 tons this year. Official holdings stand at 30,708 tons, data from the council show.

The banks were also buying gold in 1980 as prices rose to a then-record $850, only to drop for most of the next 20 years. Bullion tripled from 1999 through the beginning of 2008 as the banks sold more than 4,000 tons.

Global Equities

Increasing optimism that European leaders would find a way of containing the debt crisis spurred investors to add $2.56 trillion to the value of global equities since Nov. 26, according to data compiled by Bloomberg. A reversal of that sentiment would also be a threat to gold. The metal fell 5.6 percent in the two weeks through Nov. 25 as stocks declined 9 percent, with investors selling the metal to cover their losses.

“If there is no agreement at all, this could put pressure on the equities and commodities and might drag gold down,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt.

Hedge funds and other money managers are paring bullish bets. Speculators cut their net-long position by 15 percent from a two-month high to 146,298 futures and options contracts in the two weeks to Nov. 29, data from the Commodity Futures Trading Commission show. Goldman Sachs Group Inc. said Dec. 1 it expects gold to trade at $1,940 in 12 months, 13 percent more than now.

Twelve of 26 traders and analysts surveyed by Bloomberg expect copper to fall next week, and five were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, declined 19 percent to $7,800 a ton this year.

ICE Futures

Raw sugar retreated 27 percent this year to 23.32 cents a pound on ICE Futures U.S. in New York. Seven of 10 people surveyed expect prices to drop next week.

Thirteen of 25 anticipate a gain in corn, while 14 of 26 said soybeans will increase. Corn declined 6.2 percent to $5.90 a bushel in Chicago this year, and soybeans slid 21 percent to $11.0925 a bushel.

“The growth in the developed world is at risk, this makes us more cautious in the first six months of the year,” said David Field, who manages the 1.3 billion-euro ($1.7 billion) Carmignac Commodities fund at Carmignac Gestion in Paris. Growth in developing economies “will be strong enough, and that will drive a reasonably robust demand picture for commodities.”

Gold survey results: Bullish: 18 Bearish: 2 Hold: 6
Copper survey results:  Bullish: 9 Bearish: 12 Hold: 5
Corn survey results: Bullish: 13 Bearish: 8 Hold: 4
Soybean survey results: Bullish: 14 Bearish: 10 Hold: 2
Raw sugar survey results: Bullish: 2 Bearish: 7 Hold: 1
White sugar survey results: Bullish: 2 Bearish: 8 Hold: 0
White sugar premium results: Widen: 4 Narrow: 4 Neutral: 2 

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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Standard Panic Stop for Keyless-Ignition Cars Sought by U.S.

By Angela Greiling Keane - Dec 10, 2011 1:29 AM GMT+0700

U.S. auto-safety regulators proposed standardizing keyless ignitions to allow drivers to turn off cars faster and more easily in incidents of unintended acceleration following Toyota Motor Corp.’s record recalls.

The proposed rule will cost less than $500,000 a year, the U.S. National Highway Traffic Safety Administration said in a proposed rule to be published Dec. 12 in the Federal Register.

“These are the kinds of things you never think to read up on when you’re in a new vehicle or a rental vehicle,” said Henry Jasny, vice president of Advocates for Highway and Auto Safety, which pushed for the standard. “It’s better that it’s standardized.”

The rule, developed after a driver and his family died in the crash of a borrowed Toyota Lexus ES-350, seeks to make sure that all vehicles with keyless ignitions can be turned off in the same way. Toyota in 2009 and 2010 recalled more than 10 million Toyota and Lexus vehicles for defects that may cause unintended acceleration. Some of the cars had push-button starts, meaning panicking drivers would have to hold down the button to stop the car rather than turning a key.

‘Inability to Stop’

“At issue are drivers’ inability to stop a moving vehicle in a panic situation, and drivers who unintentionally leave the vehicle without the vehicle transmission’s being ‘locked in park,’ or with the engine still running, increasing the chances of vehicle rollaway or carbon monoxide poisoning in an enclosed area,” the regulator said in the proposal.

The rule would standardize the length of time drivers must push a button to stop a moving car to a half-second. The Society of Automotive Engineers, which writes industry standards for automakers to follow voluntarily, in January recommended a range of a half-second to two seconds.

In the Lexus ES-350 crash that killed four people in 2009, helping prompt Toyota’s recalls, the car had a keyless electronic starting system with a push-button control that required the driver to hold the button for as long as three seconds to stop the engine, NHTSA said in the proposed rule.

The rule probably won’t help sales of push-button ignitions or components because it will probably require a calibration change, rather than different parts, said Rich Hilgert, a Morningstar Inc. analyst who follows auto suppliers.

Ignition Sales

“There’s more than likely an off-the-shelf solution, especially with electronics,” Hilgert, based in Chicago, said in a telephone interview. “It doesn’t seem like this is going to be that difficult to come up with a solution for.”

Suppliers of push-button start ignitions include Strattec Security Corp. (STRT), based in Milwaukee. BorgWarner Inc. (BWA), Federal- Mogul Corp. and Robert Bosch GmbH supply ignition parts, according to Automotive Who’s Who Inc., a company in Grand Rapids, Michigan, that oversees an automotive-supplier directory.

Automakers have also worked on standardizing keyless ignitions and are reviewing the proposed rule, said Gloria Bergquist, a spokeswoman for the Alliance of Automotive Manufacturers, whose members include Toyota, Ford Motor Co. (F) and General Motors Co. (GM)

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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Euro Weakens After ECB, EU Leaders Fail to Boost Confidence in Debt Plan

By Allison Bennett and Catarina Saraiva - Dec 10, 2011 12:00 PM GMT+0700

The euro fell against the majority of its most-traded counterparts after a European Union agreement for tighter fiscal controls failed to convince investors the region’s two-year financial crisis is closer to a resolution.

The 17-nation currency weakened for the fifth week in the past six against the dollar on speculation leaders would struggle to institute tougher anti-deficit rules and as European Central Bank President Mario Draghi damped speculation the central bank to step up its bond-buying. The pound was one of the best performers this week as U.K. Prime Minister David Cameron said he would not sacrifice sovereignty to save the euro. The Dollar Index fell for a second week amid better-than- forecast economic data before the Federal Reserve meets Dec. 13.

“The ECB and Draghi were not inclined to really participate more aggressively in sovereign bond markets,” Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc., said yesterday. “The key thing for the market is whether this is something that’s going to trigger more aggressive balance sheet use by the ECB. If we don’t have the ECB stepping in, it’s hard for the market to stabilize.”

The euro fell 0.1 percent to $1.3386 from $1.3391 on Dec. 2, after touching a one-week low of $1.3282 yesterday. The shared currency declined 0.5 percent to 103.89 yen and the Japanese currency gained 0.4 percent to 77.65 per dollar.

Bank Funding

The cost for European banks to fund in dollars reached 1.22 percentage points below the euro interbank offered rate, the most in a week, after Cameron said there was “fundamental disagreement” in European Union talks in Brussels that ended yesterday and rejected signing a “fiscal pact.” Finland also threatened to withdraw from the permanent bailout fund if changes to decision making are introduced.

“There is nothing in interbank-funding market that shows marked improvement in lending environment,” Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co said yesterday. “We still think that with any euro rally on any event news you want to sell on those moves as it’s not sustainable and this isn’t a game changer.”

IntercontinentalExchange Inc.’s Dollar Index (DXY) dropped four times in five days as signs the world’s biggest economy will avoid a recession reduced investor appetite for safer investments. The gauge, which Intercontinental Inc. uses to measure the greenback against six currencies fell 0.1 percent to 78.593.

Consumer Mood

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 67.7 this month from 64.1 at the end of last month. The Labor Department reported initial jobless claims fell to the lowest in nine months.

Sterling rose 0.5 percent to $1.5671 and gained 0.1 percent to 85.43 pence per euro as Britain will stay outside of the European Union budget agreement.

Bank of England policy makers kept the benchmark interest rate at a record low 0.5 percent on Dec. 8 and their asset- buying target at 275 billion pounds ($431 billion). The central bank extended its bond-purchase program in October to help bolster the flagging economy.

Norway’s krone was the best performer against the dollar during the week, advancing 0.8 percent to 5.7461.

The U.S. currency has rallied 0.5 percent in a past month against nine developed-nation counterparts tracked by the Bloomberg Correlation-Weighted Currency Indexes. The euro fell 0.8 percent and the Japanese currency was 0.8 percent stronger.

ECB Moves

The ECB cut its benchmark interest rate by a quarter- percentage point to 1 percent on Dec. 8, matching a record low, as forecast by 55 of 58 economists in a Bloomberg News survey.

Draghi said during a press conference in Frankfurt that he was “kind of surprised by the implicit meaning” that was given to his comments last week when he said the ECB could follow faster fiscal union with “other elements.”

“So the market misinterpreted the fiscal compact argument that Draghi used at the European Parliament,” Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London said Dec. 8. The focus is back on Europe’s two bailouts funds, the European Financial Stability Facility and the European Stability Mechanism, “although as we know they have limited, inadequate firepower.”

Euro-area governments have to repay more than 1.1 trillion euros ($1.5 trillion) of long- and short-term debt in 2012, with about 519 billion euros of Italian, French and German debt maturing in the first half alone, data compiled by Bloomberg show. The ECB has bought a total of 207 billion euros of sovereign bonds during the region’s crisis in an effort to stem surges in bond yields.

Futures traders decreased their bets that the euro will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 95,814 on Dec. 6, compared with net shorts of 104,302 a week earlier.

The euro will weaken to $1.30 by the end of the March 2012, according to median forecast in a Bloomberg News survey of 42 economists and analysts. The shared currency will reach $1.32 by the end of next year, the survey shows.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; 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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Amazon Stocked on Toys Rivals Don’t Have

By Matt Townsend and Ashley Lutz - Dec 10, 2011 4:19 AM GMT+0700

The number of out-of-stock toys is increasing at the websites of Wal-Mart Stores Inc. (WMT), Target Corp. (TGT) and Sears Holdings Corp.’s (SHLD) Kmart chain while Amazon.com Inc. (AMZN) remains almost fully stocked, according to a Bloomberg Industries analysis.

Wal-Mart, the world’s largest retailer, was missing 34 percent of 116 toys tracked as of Dec. 7, up from 16 percent a month ago, according to a report led by Poonam Goyal, a Bloomberg Industries analyst. Out-of-stock items totaled 46 percent at Target’s website, 23 percent at Kmart and 29 percent at Toys “R” Us. Amazon didn’t have two of the 116 toys.

The data highlights Amazon’s advantage in e-commerce because it also sells the goods of other retailers through its site, so it is more likely to have items in stock, Goyal said. That will train shoppers to rely more on Amazon to find in- demand items, she said.

“These retailers risk their consumers migrating to another retailer,” Goyal said in an interview. These chains haven’t managed their inventory well because being out-of-stock this early means they are missing out on sales, Goyal said.

Wal-Mart, based in Bentonville, Arkansas, rose 0.6 percent to $58.32 at the close in New York. Minneapolis-based Target was little changed at $53.50, while Seattle-based Amazon increased 1.3 percent to $193.03 and Hoffman Estates, Illinois-based Sears dropped 2.4 percent to $56.96.

Wal-Mart didn’t have 53 percent of a similar group of toys available on its website on Dec. 10 of last year, according to Bloomberg Industries. Target was missing 45 percent, followed by 44 percent at Toys “R” Us, 18 percent at Kmart and 7 percent at Amazon.

Restock Popular Merchandise

Representatives from Wal-Mart didn’t immediately respond with comment.

Target customers who can’t find a product online can use a feature on the retailer’s website to see stocked items in local stores, Kirsten Halloran, a spokeswoman, said in an e-mailed statement.

Toys “R” Us plans to restock popular merchandise tomorrow, including the LeapPad Explorer tablet, Bob Friedland, a spokesman, said in an e-mailed statement.

Kmart has more merchandise available through in-store pickup, Tom Aiello, a vice president at Sears Holdings, said in an e-mailed statement. He didn’t comment on when Kmart would restock toys.

Amazon projected how many toys to stock based on sales from previous years, Grace Chung, a spokeswoman, said in an e-mailed statement.

“We’ve grown up in a super competitive online environment,” Chung said.

Target’s Prices Cheaper

Prices online at Target, the second-largest U.S. discount chain, were 1.4 percent cheaper than Wal-Mart, the Bloomberg Industries survey also showed.

Amazon’s prices were 0.4 percent cheaper than Wal-Mart’s, compared with 4.6 percent a week earlier. Toys “R” Us also gained on Wal-Mart, reducing the price difference from 11.5 percent on Nov. 30 to 7.7 percent. Wal-Mart’s advantage over Kmart remained the same at about 6 percent.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net Ashley Lutz in New York at alutz8@bloomberg.net;

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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SEC Says It May Sue Hedge Fund Harbinger Capital

By Saijel Kishan - Dec 10, 2011 6:47 AM GMT+0700

Billionaire Philip Falcone’s hedge fund, Harbinger Capital Partners LLC, was told it may be sued by federal regulators for securities-law violations and said it plans to halt investor withdrawals at year-end.

Falcone, 49, as well as fund executives Omar Asali and Robin Roger, the general counsel, also received Wells Notices from the staff of the U.S. Securities and Exchange Commission, Harbinger said in a client letter today.

The threat of a lawsuit adds to woes for Falcone as assets at his $5.7 billion hedge fund have slumped from a peak of $26 billion three years ago and a wireless technology venture he’s backing faces regulatory hurdles. Harbinger is being probed by the SEC and the U.S. Attorney’s office over a $113 million loan Falcone took from one of his funds. The investigation also looked into possible preferential treatment of some investors, two people with knowledge of the probe said last year.

“Harbinger went from being a well-regarded fund to one that is potentially toxic for institutional investors,” said Peter Rajsingh, a managing member of Castellar Partners LLC, a New York-based firm that advises clients on investing in hedge funds. “It’s unfortunate; the compounding factors here will make it an uphill battle” for Falcone, he said.

The SEC’s notices relate to alleged “violations of the federal securities laws’ anti-fraud provisions in connection with matters previously disclosed and an additional matter regarding the circumstances and disclosure related to agreements with certain fund investors,” the New York-based hedge fund said.

Halting Withdrawals

Harbinger said it “anticipates” withdrawals from its main hedge fund will be suspended effective Dec. 30, according to a letter sent to clients today.

Harbinger “believes that the decision to temporarily suspend withdrawals is necessary when balancing the preservation of value for all Feeder Fund investors,” the firm said.

Harbinger three years ago curbed client withdrawals from its biggest fund in the aftermath of the 2008 bankruptcy of Lehman Brothers Holdings Inc. Falcone segregated hard-to-sell assets into another fund and told clients it would take as long as two years for them to get their money back.

Goldman’s Investment

The Wells Notices relate to an SEC investigation into whether Harbinger allowed some clients, including Goldman Sachs Group Inc., to withdraw money while barring others, the Wall Street Journal reported today, citing unidentified people familiar with the matter.

Goldman Sachs had $1 billion invested for clients in two Harbinger funds at the end of 2008, three people briefed on the matter said last year.

Asali, who joined the firm in 2009 to oversee global portfolio strategy and portfolio analytics, as well as assume certain risk management duties, was previously co-head of Goldman Sachs Hedge Fund Strategies. He is also vice chairman of Spectrum Brands Holdings Inc. (SPB)

Andrea Raphael, a spokeswoman for New York-based Goldman Sachs, and Lew Phelps, a spokesman for Harbinger, declined to comment.

Falcone has said in the past that allegations of preferential treatment of some clients were “completely and utterly untrue.” He disclosed the loan, which was used to pay personal taxes, in the Special Situation Fund’s March 2010 financial statements.

Paying in Shares

Instead of returning cash to investors, Falcone paid investors by giving them non-tradable shares of LightSquared Inc., his wireless telecommunications venture.

The company faces challenges from makers of global- positioning system devices who say the service will disrupt navigation by cars, boats, tractors and planes. The service caused interference to 75 percent of GPS receivers examined in a U.S. government test, according to a draft summary of results released today.

“Harbinger and its affiliates are disappointed that the staff issued Wells Notices,” the firm said in today’s filing. “If the SEC decides to bring an enforcement action,” they “intend to vigorously defend against it.”

John Nester, a spokesman for the SEC in Washington, declined to comment.

Harbinger told clients in April that the government was looking into whether it had engaged in market manipulation in its trading of the debt securities of an undisclosed firm from 2006 and 2008. Investigators were also examining a potential violation of a rule prohibiting investors from selling short a stock within five business days of a secondary offering and then buying shares in that offering, the firm said then.

Harvard Graduate

Short-sellers bet on a decline in price, borrowing and selling shares with the aim of buying them back later for less to pocket the difference.

The Wells Notices “do not constitute a determination” that the firm has violated any laws, Harbinger said in today’s letter. Rather, the notices reflect “the current views” of the SEC enforcement staff.

Harbinger said the Wells Notices were not addressed to Harbinger Group Inc. (HRG), the publicly traded holding company controlled by Falcone, or any of its subsidiaries, including Spectrum, and did not affect the hedge fund’s investment in LightSquared.

Falcone, a 1984 graduate of Harvard University in Cambridge, Massachusetts, started Harbinger in 2001. Before that, he ran distressed-debt trading at Barclays Capital, the investment-banking unit of London-based Barclays Plc.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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Rogers, BCE Buy Maple Leaf Sports in C$1.32 Billion Deal

By Hugo Miller and Doug Alexander - Dec 10, 2011 4:28 AM GMT+0700

Play Video

Dec. 9 (Bloomberg) -- Jane Rowe, head of private equity for the Ontario Teachers' Pension Plan, George Cope, chief executive officer of BCE Inc., Lawrence Tanenbaum of Kilmer Sports and Nadir Mohamed, chief executive officer of Rogers Communications Inc., speak at a news conference about an agreement by Rogers and BCE to buy a controlling stake in Maple Leaf Sports & Entertainment Ltd. for C$1.32 billion ($1.3 billion.) Canada's two largest phone companies will buy a 75 percent stake in Maple Leaf Sports, owner of the the most valuable team in the National Hockey League, from the teachers pension and Tanenbaum will increase his holding to 25 percent from 20 percent. (Source: Bloomberg)

Rogers Communications Inc. and BCE Inc. (BCE) agreed to buy a controlling stake in Maple Leaf Sports & Entertainment Ltd. in a C$1.32 billion ($1.3 billion) deal to own the most valuable team in the National Hockey League.

Rogers and BCE, Canada’s two largest phone companies, will buy a 75 percent stake in Maple Leaf Sports from Ontario Teachers’ Pension Plan in a cash transaction. Canadian businessman Larry Tanenbaum will increase his holding to 25 percent from 20 percent, according to statements today.

The acquisition fits with BCE’s and Rogers’ strategies of adding content they can sell to subscribers on smartphones, tablets and computers. In addition to the NHL’s Maple Leafs, which have won the Stanley Cup championship 11 times, Maple Leaf Sports owns the National Basketball Association’s Raptors.

“Now you’re getting to people with so many more devices and outlets and ability to access content, the value of that content is going to be more valuable, and that’s what this seems to be a play for,” said Jeff Young, chief investment officer at NexGen Financial Corp., which oversees C$900 million including shares of BCE and Rogers.

Rogers committed C$533 million for a 37.5 percent stake in Maple Leaf Sports, according to a company statement. BCE and its pension fund will also contribute C$533 million for an equal stake. The transaction is expected to close in mid 2012. It gives Maple Leaf Sports, also owner of Toronto FC of Major League Soccer, an enterprise value of C$2 billion.

Rogers fell 0.5 percent to C$36.76 at the close in Toronto. BCE, based in Montreal, climbed 0.3 percent to C$40.74, its highest level since November 2007.

Tanenbaum Stays Chairman

Tanenbaum continues as chairman of Maple Leaf Sports and as a governor of the NHL, NBA and Major League Soccer.

The Maple Leafs are the NHL’s most valuable franchise at about $521 million, Forbes said Nov. 30, up from $505 million a year ago. The Raptors are worth $399 million, placing them 10th out of 30 NBA franchises, Forbes said in January.

Investor Jim Hall and Dvai Ghose, an analyst at Canaccord Genuity in Toronto, expressed skepticism about the value for phone companies to invest in sports teams.

“I have yet to be convinced of the merits of owning or controlling content in the telecom game,” said Hall, manager of the C$820 million Mawer Canadian Equity Fund, which owns both stocks. Enbridge Inc. (ENB), a Calgary-based oil pipeline operator, “doesn’t need to own oil fields and refineries to make money shipping stuff down their pipes. Why do Rogers and BCE?”

Questionable Strategy

Investing in sports is a questionable strategy, said Canaccord’s Ghose, who recommends holding Rogers and BCE.

“They should be spending on what they are there in existence for, which is providing network connectivity to customers, wireline and wireless,” he said.

A sale of the Maple Leafs and Raptors must be approved by the NHL and NBA.

Bell, a BCE unit, will own 28 percent of Maple Leafs Sports, and its pension fund will hold 9.5 percent. BCE Chief Executive Officer George Cope said at a press conference that the company is committed to its investment in the Montreal Canadiens hockey team and that he “will work with the NHL to accommodate their needs.”

The structure of the deal, with Bell’s investment under 30 percent, will probably enable the company to keep the Montreal Canadiens, Maher Yaghi, a Desjardins Securities Inc. analyst, said in a note to investors.

Competition Bureau

The deal, if approved, would also give BCE and Toronto- based Rogers control of the Marlies minor-league hockey club and the Air Canada Centre, which can seat as many as 19,800 spectators.

Canada’s Competition Bureau will review the proposed transaction to determine, like in any merger, “whether they are likely to result in a substantial lessening or prevention of competition,” Alexa Keating, a spokeswoman for the regulator, said in an e-mail.

BCE’s TSN competes with Rogers’ SportsNet channel, and Cope said the stations will share coverage of Leafs and Raptors games.

“Competition on the broadcast side just got a whole lot more intense,” Cope said at the press conference, when asked whether he anticipated regulatory scrutiny.

The CEO said that he became interested in adding sports content after seeing how BCE’s sponsorship of the 2010 Vancouver Winter Olympics spurred viewership on smartphones and tablets.

Canadian Hands

Rogers owns Major League Baseball’s Toronto Blue Jays and the nearby Rogers Centre stadium. CEO Nadir Mohamed said that it’s an “important point” that this deal keeps ownership of Maple Leaf Sports in Canadian hands.

Teachers’, Canada’s third-biggest pension fund said in March that it may sell its majority stake in the NHL and NBA teams after receiving unsolicited expressions of interest. The fund, based in Toronto, then said Nov. 25 it would keep its 80 percent stake in Maple Leaf Sports.

“Less than a week later, we were unexpectedly approached by Rogers and Bell by a new, unsolicited offer,” Jane Rowe, Teachers’ head of private equity, said today at the press conference in Toronto. “It was comprehensive, firm, and it met all of the terms and conditions that we at Ontario Teachers’ considered necessary.”

Rowe declined to say how much Teachers’ made from its investment. Morgan Stanley (MS) advised the pension fund on the sale, and CIBC advised Rogers.

The value of the deal dwarfs other recent acquisitions of professional sports groups. The National Football League’s Jacksonville Jaguars were sold to Pakistan native Shahid Khan, owner of auto-part maker Flex-N-Gate Group for about $750 million last month.

The NHL’s Atlanta Thrashers were sold to Winnipeg, Manitoba-based True North Sports & Entertainment and moved to Winnipeg earlier this year. The sales price was $170 million, including a $60 million relocation fee that was split by the rest of the league, according to ESPN.

To contact the reporters on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net; Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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Web Security Firm Blue Coat Will Be Bought by Thoma Bravo for $1.3 Billion

By Devin Banerjee and Cecile Daurat - Dec 10, 2011 4:28 AM GMT+0700

Blue Coat Systems Inc. (BCSI), a maker of Internet-security software, agreed to be bought by an investor group led by led by Thoma Bravo LLC for about $1.3 billion.

Stockholders will receive $25.81 in cash for each share, Sunnyvale, California-based Blue Coat said today in a statement. That’s a premium of 48 percent over yesterday’s closing price and 52 percent over the 20-day trailing average price before today.

The deal is the fourth-largest Internet-security acquisition since December 2006, according to data compiled by Bloomberg. The average premium of 120 U.S. Internet-security companies acquired since then was 24 percent, the largest being McAfee Inc.’s $7.7 billion sale to Intel Corp. last year, the data show. Blue Coat is Thoma Bravo’s fifth security-technology investment, the firms said in the statement.

“This is a terrific outcome for shareholders,” Jesse Cohn, a portfolio manager at Elliott Management Corp., wrote in an e-mail. The New York-based hedge fund owns 13 percent of the company, he said. “Blue Coat has leading technology in good markets, and we are pleased this compelling value was recognized.”

Blue Coat rose 44 percent to close at $25.11 in New York, the biggest increase in 10 years. The shares fell 41 percent this year before today.

‘Ill Patient’

Founded in 1996, the firm makes software that it says increases Web security and runs faster video applications. The company has struggled this year to maintain sales. In August, it replaced then-CEO Michael Borman with Gregory Clark after reporting an 81 percent drop in first-quarter profit from a year before.

“It was clear over 18 months that the product inefficiencies and lack of execution in the field at Blue Coat were not fixable without an outsider doing a serious operation on this ill patient,” Daniel Ives, an analyst at FBR Capital Markets & Co. in New York, wrote in a note to clients today. “In a very competitive security landscape we believe today’s deal was the right move at the right time.”

The group of buyers, which included the Ontario Teachers’ Pension Plan, made the agreement a day after International Business Machines Corp. said it will buy the Web analytics company DemandTec Inc. for $440 million. On Dec. 3, SAP AG agreed to buy SuccessFactors Inc. for $3.4 billion in cash to boost its Internet-computing, or so-called cloud, offerings.

Software Focus

“Our partnership with Thoma Bravo will assist Blue Coat in more aggressively realizing the opportunities in its two markets, by providing a platform that enables greater focus,” Clark, the CEO, said in the statement.

Thoma Bravo, a private-equity firm with offices in Chicago and San Francisco, focuses on software and business-services investments, according to its website. Those have included Datatel Inc., maker of software for university administrations; VECTORsgi Inc., maker of e-commerce software; and Prophet21 Inc., maker of software for durable-goods distribution companies.

Goldman Sachs Group Inc. (GS) advised Blue Coat and Jefferies Group Inc. advised Thoma Bravo. Thoma Bravo also received financing commitments from Jefferies Finance LLC. The transaction is expected to be completed before April 2012.

To contact the reporters on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net; Cecile Daurat in Wilmington at cdaurat@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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LightSquared Vows 50% Lower Data Bills

By Scott Moritz and Todd Shields - Dec 10, 2011 3:12 AM GMT+0700

LightSquared Inc.’s (S) proposed wholesale wireless network will let retail partners cut customers’ mobile-data costs in half, the company’s chief executive said.

Pricing will begin at $7 a gigabyte for the high-speed Internet service, which now has more than 30 partners including Sprint Nextel Corp. and Best Buy Co. (BBY), LightSquared CEO Sanjiv Ahuja said today in an interview at Bloomberg headquarters in New York. That may help lower monthly bills to about $50 a month from about $100, he said.

“Through our service, phone companies will be able to drop the consumers’ bill by 50 percent,” Ahuja said.

LightSquared, backed by billionaire Philip Falcone, faces challenges from makers of global-positioning system devices who say the service will disrupt navigation by cars, boats, tractors and planes.

U.S. regulators who must approve the service are conducting tests of the service and haven’t announced results. A draft report prepared for U.S. officials said the service caused interference to 75 percent of devices tested recently.

While the promise of a lower-cost mobile service at a time of surging data demand is significant, an even larger issue for LightSquared is whether it can put all the pieces together soon enough, said Jonathan Chaplin, an analyst with Credit Suisse Group AG.

“Seven dollars isn’t bad, but it’s less disruptive than we expected,” said Chaplin, adding that the market rate is about $10 a gigabyte.

FCC Review

Chaplin said he estimates the company has until April to get more cash. “Their real issue -- 100 percent of it -- is time, because they have so much debt,” he said.

LightSquared will be adequately funded through the government’s review period, Ahuja said. “We’ll have capital beyond when we expect FCC clearance to happen,” he said. “That should be the early part of next year.”

The Federal Communications Commission is considering whether to allow Reston, Virginia-based LightSquared to start operations and use airwaves formerly reserved mainly for satellites. The company should be barred from using some airwaves for its planned network to avoid interference with navigation equipment, makers and users of GPS devices have said.

LightSquared, backed by $3 billion from Falcone’s Harbinger Capital Partners hedge fund, this week said tests show that GPS devices from three makers won’t be disrupted by its network. In July, LightSquared said it expects to be able to offer service to 260 million people in the U.S. by the end of 2014, a year earlier than required under its licenses with the FCC.

30 Customers

Separately, Harbinger said today it expects to suspend withdrawals from its hedge fund on Dec. 30 and that it has been notified by the Securities and Exchange Commission that it may be sued by the agency over alleged “violations of the federal securities laws.”

Ahuja named more than 30 customers that have signed on for LightSquared’s service and promised some bigger names once the company gains approval to start operations from the FCC.

Clients range from established carriers including Sprint to startups, such as FreedomPop, a communications venture that lists Skype Technologies SA co-founder Niklas Zennstrom as a backer.

The customer gains signal demand for LightSquared’s service, even as it faces delays amid scrutiny from regulators. The company is building the high-speed network to challenge wholesalers such as Clearwire Corp. (CLWR) and larger phone companies such as Verizon Wireless and AT&T Inc. (T)

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Todd Shields in Washington at tshields3@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net; Michael Shepard at mshepard7@bloomberg.net

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H-P to Turn WebOS Into Open-Source Project

By Aaron Ricadela - Dec 10, 2011 7:01 AM GMT+0700

Hewlett-Packard Co. (HPQ) will turn its WebOS software into an open-source project, aiming to get other hardware makers to embrace the struggling operating system as an alternative to software from Apple Inc. (AAPL) and Google Inc. (GOOG)

WebOS, acquired in last year’s $1.2 billion purchase of Palm Inc., will be offered under a license that lets hardware manufacturers and software developers access its source code and use it freely in products, the Palo Alto, California-based company said today in a statement. Hewlett-Packard will remain active in developing and supporting WebOS.

“The thing we recognized about WebOS is it really is a remarkable platform,” Chief Executive Officer Meg Whitman said in an interview. “It was not the right thing to just shut it down. It shouldn’t be wasted.”

The plan resolves a months-long debate over how to deal with software that drew praise for its innovation when it debuted in 2009, yet failed to help its owners gain market share in mobile devices. Hewlett-Packard will make WebOS available to makers of tablets, smartphones and other devices under a license that requires companies using it to contribute their changes back to the project, company executives said.

The company also plans to set up a “governance committee” of as many as six members, including Hewlett-Packard technicians and outside developers, to approve changes to WebOS code.

No ‘Fractured’ Systems

The move is designed to help prevent fragmentation of the software that would slow its momentum by letting device makers bring incompatible versions to market, Martin Risau, Whitman’s chief of staff, said in an interview.

“We want to do it right,” he said. “We want to make sure WebOS is not going to be fractured.”

The company announced in August that it would stop producing hardware that used the operating system, including Palm Pre phones and the TouchPad tablet.

Whitman considered options for WebOS, including shutting it down and selling the intellectual property, or striking a partnership, she said. Now, Hewlett-Packard itself will benefit from the decision, and will likely release new WebOS-based hardware devices in 2013, she said. The company probably won’t release any more smartphones using the software.

“I think we’re out of the smartphone business,” she said.

Hewlett-Packard’s decision would benefit electronics makers that want alternatives to Google’s Android operating system and Microsoft Corp.’s Windows Phone and planned Windows 8, said Tim Bajarin, president of researcher Creative Strategies Inc.

Google, Microsoft Counterweight

“The hardware developers have been looking for a third OS option, especially for tablets,” he said. “What they really want is a third OS with no strings attached.”

Developers can also write WebOS applications using the HTML5 programming language, Bajarin said.

Now, Hewlett-Packard’s task will be releasing the open- source version of the code in a timely fashion while attracting more interest in the platform.

At the same time, the company is working to replace portions of WebOS’s source code licensed from companies including Microsoft and Oracle Corp. (ORCL) with open-source alternatives, said Sam Greenblatt, chief technology officer for advanced technologies at Hewlett-Packard. For example, the system uses Microsoft digital rights management software and the Berkeley DB database from Oracle, he said.

Sales Shortfalls

WebOS was developed by Palm under its former CEO Jon Rubinstein -- now a Hewlett-Packard executive -- before the computer maker bought Palm in July 2010. The operating system powered Palm smartphones and the TouchPad, which Hewlett-Packard introduced in July of this year.

In February, then-CEO Leo Apotheker said he’d planned to install the operating system on every Hewlett-Packard personal computer. The company also said it would include the software on certain printers.

After disappointing sales, Apotheker pulled the TouchPad and WebOS phones from the market on Aug. 18. That day Hewlett- Packard also announced a $10.3 billion acquisition of software maker Autonomy Corp. and discussed spinning off the PC division. Investors sent the shares tumbling 20 percent the next day, and Apotheker was ousted a month later.

WebOS has been a drag on profit. In fiscal 2011, which ended in October, Hewlett-Packard posted $1.64 billion in expenses related to the decision to stop making WebOS devices.

In a July reorganization, Rubinstein took a new product development job in the PC group. Then in August the company’s WebOS software developers joined a group headed by then-chief technology officer Shane Robison, who has since departed.

Whitman has been revisiting her predecessor’s decisions as she tries to stabilize the company. On Oct. 27, she scrapped Apotheker’s proposal to spin off the company’s $39.5 billion PC division.

Hewlett-Packard gained less that 1 percent to $27.90 at the close in New York. The shares have lost 34 percent this year.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

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

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Microsoft Said to Seek TV Exec for Xbox

By Dina Bass and Ronald Grover - Dec 10, 2011 4:10 AM GMT+0700

Microsoft Corp. is seeking to hire a television executive to develop original shows as part of a drive to expand its Xbox Live game and video service, according to people with knowledge of the company’s plans.

Microsoft has hired Tom Schneider, a partner at Stratis LLC, to conduct the search, said the people, who weren’t authorized to speak publicly. Two former NBC executives, Marc Graboff and Jeff Gaspin, have been approached, they said.

Microsoft, based in Redmond, Washington, is trying to turn the Xbox console into an entertainment hub, rather than mostly a game machine. The company, the world’s largest software producer, is introducing a TV service with programs from almost 40 TV and entertainment suppliers to draw more users to the Web- enabled product.

Original programming would help Microsoft differentiate the service from those offered by competitors including Apple Inc. and Google Inc. (GOOG) Some of the Xbox’s top-selling games were created by Microsoft and the company is looking to replicate that success with program it develops.

The TV service will include content from partners like Time Warner Inc. (TWX)’s HBO, Sony Corp.’s Crackle and the BBC.

Microsoft is only interested in making a hire if it can find the right person and it’s possible no one will be chosen for the job, one of the people said.

Gaspin was chairman of NBC Universal TV Entertainment. He stepped down after Comcast Corp. (CMCSA) took control of NBC in January. Graboff, president of west coast business operations for NBC Entertainment, announced plans to leave last month.

David Dennis, a Microsoft spokesman, declined to comment. Schneider didn’t respond to phone and e-mail requests for comment.

Microsoft rose 1.2 percent to $25.70 at 4 p.m. New York time. The stock has declined 7.9 percent this year.

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Ronald Grover in Los Angeles at rgrover5@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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Cameron Veto Sees U.K. Alone as Europe Pushes for Fiscal Unity

By Gonzalo Vina and Robert Hutton - Dec 10, 2011 7:01 AM GMT+0700

David Cameron found himself alone as the 26 other European Union nations began negotiating the future of the region’s economy. Delivering on a veto threat his predecessors carried with them to Brussels for the past 30 years, Cameron strengthened the hand of members of his Conservative Party who want Britain to pull out of the EU.

It was Conservative Prime Minister Edward Heath who took Britain into an embryonic EU, the European Economic Community, in 1973. His three Tory successors have each battled to maintain influence in Europe while refusing to sign up to the federal dreams of their neighbors.

“We wish them well,” Cameron told reporters after all- night euro-crisis talks in Brussels ended early yesterday. “My judgment was that what was on offer just wasn’t good enough for Britain. It’s better to allow those countries to do their own thing on their own.”

Cameron’s move was greeted with delight and comparisons to wartime leader Winston Churchill by Conservatives at home. Opposition politicians said he was now unable to protect U.K. interests in any treaty agreed upon by the 26 other countries, reaping the harvest of failing to make alliances in Europe during his 19 months in power.

In a clash that may reshape Europe’s balance of power, the 17 euro countries opted to enshrine closer fiscal union in a new treaty that leaves out the U.K. instead of amending EU agreements that date back to the 1950s. Nine non-euro members -- Denmark, Poland, Bulgaria, Hungary, Sweden, the Czech Republic, Latvia, Lithuania and Romania -- indicated they may follow suit.

Financial Services

The trigger was Cameron’s refusal to back a 27-nation pact without ironclad guarantees of a British veto right over future financial regulations. Cameron called them a threat to London’s standing as Europe’s leading financial center.

“It’s not good for us to have Britain stepping away from the mainstream we’ve developed, but it’s not good for Britain either because if it wants to play a central role in Europe, it has to be a part of all the common policies we are developing,” Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels. “A country which is not part of the central piece of policy making is losing influence.”

Briefing reporters on his decision, Cameron twice refused to rule out Britain one day leaving the union altogether. “British membership is in our interest and I have always said that if that’s the case I will support our membership,” he said.

‘Profound Shift’

“There’s been a very profound shift in the Conservative Party from euro-enthusiasm to soft euro-scepticism to hard euro- skepticism,” said Tim Bale, professor of politics at the University of Sussex. “Europe was always going to be the iceberg issue for the Conservatives in government. So much of our trade and so much of our diplomacy is done with and through Europe that it’s difficult to see isolation being in Britain’s interest.”

The EU is the U.K.’s largest market, responsible for 54 percent of its exports last year. Cameron and Chancellor of the Exchequer George Osborne have repeatedly said that a resolution of the euro-zone debt crisis is vital for Britain as they wrestled with their Conservative Party whose priority was ensuring that powers aren’t ceded to Brussels.

At his weekly question session in the House of Commons on Dec. 7, the prime minister was assailed from his own side for assurances that he wouldn’t cede authority to the EU and would grant a referendum on any deal. In October, more than a quarter of his party lawmakers voted in favor of a referendum on British membership of the bloc.

‘Chamberlain-esque’

On Dec. 8, Conservative lawmaker Edward Leigh referred in a debate to Neville Chamberlain, made infamous for striking a deal with Adolf Hitler in the run-up to World War II. He warned Cameron not to return from Brussels “with a kind of Chamberlain-esque piece of paper saying, ‘I have negotiated very, very hard, I have got opt-outs on this and that and I have succeeded.’”

Yesterday, Conservative lawmaker Bill Cash welcomed Cameron’s blocking of an EU-wide treaty, telling Sky News the U.K. was “now embarked on a very serious, responsible path towards renegotiating in a fundamental way the whole of our treaty relationship with the EU. The Germans and the French precipitated this by their demand, throwing down their gauntlet saying we had to do what they wanted.”

The London Evening Standard newspaper reprinted a cartoon it first ran after the fall of France in 1940, showing a British soldier standing on a beach shaking his fist at German bombers and saying “Very well, alone.”

Lethal Issue

Europe has been a lethal issue for Conservative prime ministers since at least 1990, when it led to Margaret Thatcher’s downfall over her refusal to agree to a timetable for joining the single currency. Her successor, John Major, had an official hide under the table at one set of EU talks to advise him as he negotiated an opt-out. That was still not enough to satisfy the most euro-skeptic of his party, who undermined his leadership.

“This is a terrible outcome for Britain because we’re going to now be excluded from key economic decisions that will affect our country in the future,” Ed Miliband, leader of the opposition Labour Party, told Sky News yesterday. “Really what he has done is spent many months not promoting the national interest but more interested in dealing with the splits in his own party. That has served Britain very badly and I fear the consequences this will have for our country.”

To contact the reporter on this story: Gonzalo Vina in Brussels at gvina@bloomberg.net; Robert Hutton in London at rhutton1@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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U.S. Will End Retiree-Health Subsidies to Companies, Unions

By Alex Wayne - Dec 10, 2011 4:27 AM GMT+0700

A $5 billion program to help companies such as AT&T Inc. (T) pay health premiums for retirees under age 65 will end because it’s almost out of money, the U.S. said.

Claims to the reinsurance program filed after Dec. 31 will be rejected, the U.S. said in a notice today. The Obama administration said in February that money for the subsidies would last through the end of fiscal 2012. A total of $4.5 billion has been paid out as of today, the U.S. said.

The program “has significantly benefited employers across the country,” the government said in a statement.

A trust fund for retired members of the United Auto Workers union received $387 million from the program through Dec. 2, more than any other organization. AT&T was paid $214 million and Verizon Communications Inc. (VZ) got $163 million.

Two retirement systems in Ohio for public employees and teachers received a combined $256 million. Similar systems for public employees or teachers in California, New Jersey, Kentucky, New York and North Carolina were also among the top 10 beneficiaries, records show.

Republicans in Congress have criticized the effort as a giveaway of taxpayer dollars to profitable businesses and unions.

Retirees’ Coverage Costs

“This program is a microcosm of the fundamental, underlying problems with the president’s partisan health spending law,” said Antonia Ferrier, a spokeswoman for Senator Orrin Hatch, Republican of Utah, in an e-mail.

Recipients must use money from the program to pay the cost of retired workers’ health insurance, said Bennett Blodgett, a spokesman for the Center for Consumer Information and Insurance Oversight. The agency oversees the program, which was created by the 2010 health-care law.

The government said in its statement that more than 5 million people have benefited from the program.

The percentage of large companies providing early retirees with insurance fell from 66 percent in 1988 to 29 percent in 2009, according to the Kaiser Family Foundation, a nonprofit research organization based in Menlo Park, California.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net

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Amazon’s Price-Checking Promotion Is Attack on ‘Main Street,’ Senator Says

By Danielle Kucera - Dec 10, 2011 4:52 AM GMT+0700

Amazon.com Inc. (AMZN) should end its price- checking promotion because it gives consumers an incentive to gather price data from small retailers and leave stores without spending money, said Senator Olympia Snowe.

The world’s largest online retailer is offering a 5 percent discount to entice users to try a new mobile application that compares prices with physical retailers. The app, called Price Check, allows shoppers to look up Amazon’s prices by scanning products at a store using their phones.

“Amazon’s promotion -- paying consumers to visit small businesses and leave empty-handed -- is an attack on Main Street businesses that employ workers in our communities,” Snowe, a Maine Republican, said in a statement yesterday. “Small businesses are fighting everyday to compete with giant retailers, such as Amazon, and incentivizing consumers to spy on local shops is a bridge too far.”

Amazon is aiming to draw more online purchases from the more than 95 percent of U.S. consumers who still shop in stores, ratcheting up rivalry with traditional retailers. The Seattle- based company estimates revenue will rise to $16.5 billion to $18.7 billion in the fourth quarter -- growth of 27 percent to 44 percent, respectively, compared with a year earlier.

The app is intended for customers who are comparing prices in “major” retail chain stores, Amazon said today in an e- mailed statement, adding that it also includes prices from third-party sellers.

Qualifying Products

“The goal of the Price Check app is to make it as easy as possible for customers to access product information, pricing information, and customer reviews, just as they would on the Web,” Amazon said.

Customers who download the app and enable the location feature will see the 5 percent discount, or as much as $5 off, on as many as three qualifying products, including electronics, toys, music, sporting goods and DVDs, the company said in a statement Dec. 6.

Oren Teicher, chief executive officer of the American Booksellers Association, said that his organization was “disappointed” by the app, according to a statement posted yesterday on its website.

“We could call your $5 bounty to app-users a cheesy marketing move and leave it at that,” Teicher said. “In fact, it is the latest in a series of steps to expand your market at the expense of cities and towns nationwide, stripping them of their unique character and the financial wherewithal to pay for essential needs for schools, fire and police departments, and libraries."

Amazon rose 1.3 percent to $193.03 at the close in New York. The shares have gained 7.2 percent this year.

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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Stocks Rise on Debt Plan, U.S. Confidence

By Stephen Kirkland and Inyoung Hwang - Dec 10, 2011 4:30 AM GMT+0700

Stocks climbed, sending the Standard & Poor’s 500 Index up for the week, Treasuries fell and the euro rose as Europe set plans to boost its rescue fund and U.S. consumer confidence beat forecasts.

The S&P 500 climbed 1.7 percent to close at 1,255.19 at 4 p.m. in New York, leaving it up 0.9 percent for the week. The Stoxx Europe 600 Index added 1.2 percent and the euro increased 0.3 percent to $1.3375. Ten-year Treasury yields rose nine basis points to 2.07 percent. The 10-year Italian bond yield fell 10 basis points to 6.36 percent, reversing a 23-point increase. The S&P GSCI Index of commodities added 0.2 percent, reversing earlier losses, as lead, silver and copper rallied.

European leaders holding all-night talks in Brussels added 200 billion euros ($267 billion) to their crisis-fighting fund and tightened anti-deficit rules, an accord hailed by European Central Bank President Mario Draghi as a “very good outcome.” A gauge of U.S. consumer confidence climbed to a six-month high as Americans’ outlook improved.

“Things are incrementally getting resolved in Europe -- not out of the woods but at least we have some sort of framework,” Jeffrey Schwarte, a money manager who helps oversee about $231 billion in Des Moines, Iowa, at Principal Global Investors, said in a telephone interview. “It’s challenging over there. But if you look at the underlying data in the U.S., it’s actually very strong relative to other developed markets.”

Struggling for Gain

The S&P 500 has struggled to stay above its 2010 closing level of 1,257.64 since rising above it during the last week of October. The index has shown a year-to-date gain during 18 sessions since Oct. 27, including today, only to later turn lower for 2011. It ended today down 0.2 percent for the year.

The index has rebounded 14 percent from its low for the year on Oct. 3 as better-than-forecast U.S. economic data helped alleviate concern the world’s largest economy would relapse into a recession. The Citigroup Economic Surprise Index, which measures whether data is beating or missing estimates, is near its highest level since March after rebounding from an almost three-year low in June.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for December rose to 67.7 from a final November reading of 64.1. The gauge was projected to rise to 65.8, according to the median forecast of 73 economists surveyed by Bloomberg News.

Goldman Sachs Group Inc. economists increased their fourth- quarter U.S. economic growth tracking estimate to 3.4 percent from 2.9 percent following Commerce Department data showing the U.S. trade deficit shrank 1.6 percent to $43.5 billion in October, smaller than projected, from $44.2 billion in September.

Market Leaders

Financial, energy and industrial companies led the S&P 500’s advance today, with each group (SPXL1) rising more than 2 percent. Citigroup Inc., JPMorgan Chase & Co. and Bank of New York Mellon Corp. climbed at least 2.8 percent to pace gains in 22 of 24 stocks in the KBW Bank Index, which rallied 2.7 percent.

General Electric Co. rose 3.3 percent to help lead the Dow Jones Industrial Average (INDU) up 186.56 points after boosting its quarterly dividend to 17 cents a share. Cooper Cos. jumped 17 percent, the most in three years, after the maker of contact lenses forecast earnings that topped estimates. DuPont Co. slid 3.2 percent after cutting its full-year forecast.

The S&P GSCI Index recovered from an earlier 1 percent drop led by agricultural commodities on signs of increasing supplies. Crude oil rose 1.1 percent to $99.41 a barrel in New York, recovering from a 1 percent drop earlier.

Cocoa fell for a 12th day in the longest slump in at least 50 years on signs of growing supplies. Bean arrivals at Ivory Coast ports totaled 428,200 metric tons from the start of the season through to Dec. 4, up 16 percent from a year earlier, Natixis Commodity Markets Ltd. said in a report e-mailed yesterday.

European Stocks

Four stocks gained for each that declined in the Stoxx 600. Intesa Sanpaolo SpA surged 7.9 percent to lead banks to the biggest gain among 19 industries after saying that European Banking Authority tests showed the Italian lender doesn’t need to raise capital. Alcatel-Lucent SA, France’s largest telecommunications-equipment supplier, climbed 7.1 percent as Sanford C. Bernstein & Co. upgraded the shares.

Italian two-year notes erased earlier losses, with the yield falling 28 basis points to 5.96 percent, as the ECB bought the nation’s debt, according to three people with knowledge of the trades, who declined to be identified because the transactions are confidential. The yield earlier jumped as much as 40 basis points. A spokesman at the ECB in Frankfurt declined to comment.

Europe’s blueprint for a closer fiscal union to save the single currency left pressure on central bankers to address investor concerns that Italy and Spain would succumb to the two- year-old financial crisis. While ECB President Draghi hailed the accord, investors urged him to expand his bond-purchase program to fight the debt crisis.

‘Dramatic Action’

“The European Central Bank is going to be forced, I think, to take more dramatic action,” Stuart Eizenstat, a former undersecretary of State and deputy Treasury secretary under President Bill Clinton, told Bloomberg Television. “And now that they have this fiscal pact in place, they’ve got the cover to do so. So really this is the time to step up and say to the markets we’re going to stand behind our member states’ sovereign debt.”

Belgian 10-year yields fell 12 basis points, while Spanish yields were seven basis points lower. German bunds reversed gains, sending the yield up 13 basis points to 2.15 percent after it earlier fell to 1.98 percent.

The MSCI Emerging Markets Index slipped 1.2 percent and lost 2.6 percent in the week. The Hang Seng China Enterprises Index sank 3.2 percent in Hong Kong, India’s Sensex slipped 1.7 percent and South Korea’s Kospi Index (KOSPI) slumped 2 percent. Russia’s Micex Index (INDEXCF) declined 4.1 percent before a demonstration tomorrow in Moscow to protest alleged ballot-box stuffing in Dec. 4 elections.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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