Economic Calendar

Friday, March 23, 2012

LinkedIn Chairman Hoffman Sells Facebook Stock Before IPO

By Zijing Wu and Douglas MacMillan - Mar 23, 2012 4:26 AM GMT+0700

Reid Hoffman, co-founder and chairman of LinkedIn Corp. and an early investor in Facebook Inc. (FB), plans to sell some of his shares in the world’s largest social network prior to its initial public offering this year.

“I am selling a minority of my position as part of a general diversification strategy, but holding onto the majority of my stock,” Hoffman said in a telephone interview.

LinkedIn Executive Chairman and co-founder Reid Hoffman at the Web 2.0 Expo on March 30, 2011 in San Francisco. Photographer: Justin Sullivan/Getty Images

Hoffman participated in Facebook’s seed funding round in 2004, along with Peter Thiel and Mark Pincus. He later invested in social-gaming leader Zynga Inc. and became a partner at Menlo Park, California-based venture capital firm Greylock Partners.

Facebook, which filed in February to raise as much as $5 billion in an IPO, may be valued at as much as $100 billion in the offering, people with knowledge of the matter said earlier this year.

While Hoffman’s stake in Facebook isn’t disclosed in the company’s prospectus, the website Who Owns Facebook estimates he owns 0.5 percent, or about $500 million, based on a valuation of $100 billion.

The trading of private-company shares has accelerated in recent years, spurring the U.S. Securities and Exchange Commission to examine whether the trades expose investors to fraud because the companies aren’t required to disclose financial data. Last week, the U.S. regulator settled with SharesPost Inc. to resolve claims that the online marketplace acted as an unregistered broker of shares.

Hoffman is the biggest shareholder of LinkedIn (LNKD), with stock valued at about $1.9 billion following its IPO last year.

Jonathan Thaw, a spokesman for Menlo Park-based Facebook, declined to comment on the stock sale.

To contact the reporters on this story: Zijing Wu in London at; Douglas MacMillan in San Francisco at

To contact the editor responsible for this story: Tom Giles at


Credit Suisse VIX Note Tumbles to Record-Low Price

By Nikolaj Gammeltoft - Mar 23, 2012 3:36 AM GMT+0700

A Credit Suisse Group AG (CSGN) security tracking the benchmark measure of U.S. options prices plunged to an all-time low, reversing ground after trading at a record premium to its underlying assets the last four days.

The VelocityShares Daily 2x VIX Short-Term ETN (TVIX), or TVIX, retreated 29 percent to $10.20 at 4 p.m. New York time, on volume that was 2.6 times the three-month average. Credit Suisse’s exchange-traded note closed at $14.43 yesterday, or 89 percent above its so-called indicative value, after falling 86 percent from its Oct. 3 peak as the Standard & Poor’s 500 Index rose 28 percent to the highest level since May 2008.

The gap between the security’s price and the value of the index it tracks has widened since Credit Suisse suspended issuance of new shares, causing a supply shortage amid record demand for volatility products that provide a hedge against U.S. equity losses. Short sellers may be accelerating bets against TVIX today on speculation Credit Suisse will permit issuance of more shares, said WallachBeth Capital’s Chris Hempstead.

“People are waiting for Credit Suisse or VelocityShares to come out and say what’s going to happen,” Hempstead, director of exchange-traded-fund execution services at WallachBeth in New York, said in a phone interview. “The trading community believes that they will be able to create these shares again in the near future, and if that’s the case then that’s why they are shorting it.”

Market Cap Surges

Katherine Herring, a spokeswoman for Credit Suisse in New York, declined to comment. Her company suspended issuance of TVIX shares after its market value more than quadrupled this year to almost $700 million, data compiled by Bloomberg show. Its market capitalization has since plunged to $415.4 million.

The VelocityShares ETN aims to produce twice the daily return of the S&P 500 VIX Futures Index, which tracks a trading strategy involving futures on the Chicago Board Options Exchange Volatility Index. The VIX (VIX), as the CBOE gauge is known, is used as a benchmark measure of U.S. equities derivatives and measures the cost of protection from losses in U.S. stocks. It rose 2.9 percent today.

ETNs are unsecured bank debt backed by their issuer’s credit, unlike exchange-traded funds that hold assets. Banks create and redeem shares of ETNs based on the level of demand for the securities. That demand usually doesn’t affect the price since the ETNs track the performance of an index.

Credit Suisse’s decision to halt new issuance of TVIX shares coincided with a period in which the ETN began moving independently of its underlying assets. The S&P 500 VIX Futures Index lost 32 percent between Feb. 21, the day of the suspension, and yesterday. That was more than twice the decline in the ETN.

Bigger Premium

The faster decrease in the underlying index contributed to a widening in the premium of the TVIX to its underlying asset. The gap reached a record 36 percent on March 16 and then expanded to 62 percent, 78 percent and 89 percent in the next three days, according to data compiled by Bloomberg.

“People are likely shorting the TVIX and creating the underlying portfolio by buying the VIX futures to hedge,” Michael McCarty, managing partner at Differential Research LLC in Austin, Texas, said today in a phone interview. “That will cause the premium to contract.”

Demand to protect against losses in equities pushed up the number of shares available for trading to records this week in four of the five largest exchange-traded products that rise when U.S. stock volatility increases, data compiled by Bloomberg show. For the iPath S&P 500 VIX Short-Term Futures ETN (VXX), the biggest, outstanding stock reached 113.8 million yesterday, up 80 percent since March 12 and more than fivefold since Dec. 30.

TVIX trading volume surged to 29.7 million shares today, the most since Feb. 17 and more than twice the three-month average, according to data compiled by Bloomberg.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at

To contact the editor responsible for this story: Nick Baker at


BlackBerry Loses Top Spot to Apple at Home: Corporate Canada

By Hugo Miller - Mar 23, 2012 3:21 AM GMT+0700

Canada’s love affair with the BlackBerry is waning.

Research In Motion Ltd. (RIM) has been ousted from the top spot for smartphone shipments in its home market for the first time, trailing Apple (AAPL) Inc.’s iPhone.

RIM, based in Waterloo, Ontario, shipped 2.08 million BlackBerrys last year in Canada, compared with 2.85 million units for Apple, data compiled by IDC and Bloomberg show. In 2010, the BlackBerry topped the iPhone by half a million, and in 2008, the year after the iPhone’s debut, RIM outsold Apple by almost five to one.

BlackBerry, one of the biggest consumer brands to emerge from Canada, had enjoyed more loyalty among locals who embraced its made-in-Canada roots. BlackBerry’s loss of domestic preeminence shows the iPhone’s user-friendly features and wealth of apps trump other considerations, said Paul Taylor, a fund manager at BMO Harris Private Banking in Toronto.

“For RIM, in its home market, to lose that No. 1 position to iPhone is strategically important,” said Taylor, who manages about $15 billion in assets, including RIM and Apple shares. “It does identify, even with a home-country bias, how consumers are responding to the greater functionality of the iPhone.”

To halt a sales slump that’s spreading north from the U.S., Thorsten Heins, RIM’s new chief executive officer, has vowed to do something “dramatically different.” The BlackBerry 7 phones introduced last year have better Web browsers and touch-screen navigation than older models and the BlackBerry 10 devices due out this year will represent further improvement, Heins said.

Losing the Way

Sales in Canada, which account for about 7 percent of RIM’s revenue, fell 23 percent in the fiscal third quarter from a year earlier as U.S. sales tumbled 45 percent. That dragged worldwide revenue down 5.9 percent, offsetting rising emerging-market sales.

While RIM was once a hotbed of innovation, it didn’t invest enough in promoting its devices once the iPhone arrived, said Alfred DuPuy of Interbrand, a research firm.

“They got so good at innovation they just expected the product to sell itself,” said DuPuy, head of the firm’s Toronto office. “From a brand perspective, they just lost their way.”

BlackBerry slipped two spots to 54th in Interbrand’s October 2011 ranking of the world’s top 100 brands as Apple climbed nine spots to eighth.

“The challenge for Mr. Heins is to take that iconic brand and products that are reasonably competitive and ensure that they do get appropriate attention from the average consumer,” BMO Harris’s Taylor said. “That’s the challenge: to reverse the negative sentiment that has developed.”

Betting on Decline

Market-share losses, a series of marketing missteps and product delays sent the stock down 75 percent last year and RIM today closed down 91 percent from its mid-2008 record. That hasn’t stopped investors from betting on further declines. Short interest (RIMM) in RIM reached an eight-year high this month.

RIM will probably say fourth-quarter profit fell by more than half to 82 cents a share when it reports results March 29, according to a Bloomberg survey of analysts. Sales probably dropped 18 percent to $4.53 billion, analysts predict. RIM said in December sales would be $4.6 billion to $4.9 billion.

By contrast, Apple’s fourth-quarter profit more than doubled to $13.1 billion -- almost triple RIM’s sales -- as revenue surged 73 percent to $46.3 billion.

RIM declined 1.9 percent to $13.78 at 4 p.m. in New York and Apple fell 0.5 percent to $599.34. Apple has gained 48 percent this year and soared almost six-fold since 2009.

Heidi Davidson, a spokeswoman for RIM, declined to comment, citing a quiet period ahead of earnings.

Loyal Customers

Still, many of Canada’s banks and the federal government remain loyal to RIM devices. Royal Bank of Canada, the country’s largest bank, only issues BlackBerrys, said Katherine Gay, a spokeswoman for the Toronto-based bank. Bank of Nova Scotia and Bank of Montreal do the same. Toronto-Dominion Bank (TD), which issues BlackBerrys to its staff, is assessing the policy and allows employees to use personal Apple and Android devices for corporate e-mail, said Dave Codack, head of employee technology.

BlackBerry still has an edge over the iPhone in some emerging markets. In the Middle East and Africa, RIM shipped 8.3 million handsets to Apple’s 2.5 million iPhones last year. In Saudi Arabia, teenagers have embraced RIM because they can flirt using its free BlackBerry Messenger instant messaging, avoiding local religious police who restrict interaction between unmarried men and women.

In Latin America, RIM outsells Apple by an even larger margin, with 10.6 million BlackBerrys shipped versus 2.1 million iPhones in 2011, according to IDC. Venezuelan President Hugo Chavez has dubbed his BlackBerry and Twitter account his “secret weapon.”

More Affordable

For Venezuelans, a no-frills BlackBerry Curve is more affordable than the iPhone because Latin American carriers don’t typically subsidize the cost of devices in exchange for multiyear contracts the way North American operators do. That price advantage has helped RIM expand its base of 75 million subscribers worldwide.

Local concerns about Canada’s technology sector grew after Nortel Networks Corp. (NRTLQ), once North America’s largest phone- equipment maker, filed for bankruptcy in 2009. Nortel, which helped incubate dozens of startups in its heyday, was broken up and its businesses and patents sold to rivals including Ericsson AB and Apple.

That collapse put more pressure on RIM, which had already overtaken Nortel to become Canada’s biggest technology company, to lead the industry’s expansion in the country.

Pitched to Carriers

RIM’s early growth was due in part to the way former co-CEO Jim Balsillie persuasively pitched the BlackBerry to wireless carriers, said Shaw Wu, an analyst with Sterne Agee & Leach Inc. As consumers increasingly choose smartphones for their range of apps, and more companies allow employees to bring their own devices to work and fewer issue BlackBerrys, RIM risks being left behind by the iPhone, Wu said.

“RIM in the past did really well as carriers pushed the product and that’s what sold,” said Wu, who is based in San Francisco and rates RIM the equivalent of a hold. “Now you get the opposite, it’s not what the carriers push but what customers want and customers are choosing iPhones -- even in Canada.”

To contact the reporter on this story: Hugo Miller in Toronto at

To contact the editor responsible for this story: Peter Elstrom at


Facebook Is Said to Buy 750 IBM Patents to Boost Defenses

By Brian Womack - Mar 23, 2012 5:48 AM GMT+0700

Facebook Inc. (FB) acquired 750 patents from International Business Machines Corp. (IBM), adding intellectual property that may help it counter allegations of patent infringement, a person with knowledge of the transaction said.

The patents cover various technologies such as software and networking, said the person, who asked not to be identified because the deal hasn’t been made public. The acquisition would swell the size of Facebook’s portfolio, which includes at least 56 issued patents and 503 filed U.S. patent applications.

Facebook. Photogrpher: Frank May/DPA/Landov

Facebook, the world’s biggest social-networking service, is bolstering its legal defenses amid a standoff with rivals that have broader intellectual property portfolios. Yahoo! Inc. (YHOO) sued Facebook this month, accusing it of infringing patents covering critical website functions. Facebook may have shelled out hundreds of millions of dollars for the IBM patents, said Erin- Michael Gill, a managing director at MDB Capital Group LLC.

“This is a very big deal,” said Gill, who is chief intellectual property officer at MDB, an investment bank focused on intellectual property. While it’s not clear how strong the patents are, “Facebook is now where it’s supposed to be.”

The Yahoo suit involves patents covering Internet privacy, advertising and information sharing. Sunnyvale, California-based Yahoo asked for an order barring Facebook from infringing the 10 patents. It’s seeking triple damages.

Jonathan Thaw, a spokesman for Menlo Park, California-based Facebook, declined to comment, as did Ed Barbini, a spokesman for IBM.

Earlier Deals

Facebook already has been acquiring patents from other holders, including early social-networking site Friendster and computing company Hewlett-Packard Co. (HPQ), according to the U.S. Patent & Trademark Office. Yahoo, Google Inc. and Microsoft Corp. all have at least 1,000 patents, according to MDB, based in Santa Monica, California.

Facebook’s IBM deal could help assuage concerns that the company lacks the intellectual property it needs, Gill said. The social network filed for an initial public offering last month, increasing investor scrutiny of the business.

Facebook, which had almost $4 billion in revenue last year, announced earlier this month that it set up a new credit line of $5 billion, replacing a $2.5 billion revolving line, that will be used for working capital and other general corporate purposes. The funds also will help Facebook cover the potential legal costs of patent litigation with Yahoo, according to a person familiar with the matter.

Record IPO

Facebook also had 33 corresponding patents and 149 filed applications in foreign countries as of the end of last year, according to the IPO filing. The company is seeking to raise $5 billion in the offering, making it the largest Internet IPO on record.

Facebook expects more patent lawsuits in the future, according to the filing.

“We expect the number of patent and other intellectual property claims against us to grow,” the company said in the Feb. 1 document, prior to Yahoo’s actions. “We may introduce new products, including in areas where we currently do not compete, which could increase our exposure to patent and other intellectual property claims.”

Already, Facebook ranked No. 28 on the list of companies most frequently targeted in patent cases last year, with 22 suits, according to That’s more than companies such as Cisco Systems Inc. and Yahoo.

‘Weapons in Arsenal’

“They need to have some weapons in their own arsenal,” Thomas Scott, a lawyer at Goodwin Procter LLP in Washington, said in an interview last week.

Acquired patents made up $51 million of Facebook’s goodwill and intangible assets in 2011, up from $33 million in 2010, according to Facebook.

IBM, meanwhile, has been offering portions of its patent hoard to Internet companies. The Armonk, New York-based computer-services giant has made a series of intellectual- property deals with Google (GOOG) over the past year.

IBM continues to add to its patent trove, receiving 6,180 new patents last year. The company has topped the list of U.S. patent recipients for 19 straight years.

To contact the reporter on this story: Brian Womack in San Francisco at

To contact the editor responsible for this story: Tom Giles at


Etch A Sketch Maker Capitalizes After Being Drawn Into Race

By Chris Christoff and Matt Townsend - Mar 23, 2012 5:22 AM GMT+0700

Mitt Romney didn’t make Etch A Sketch a playtime fixture. Generations of nimble-fingered budding artists did that.

His campaign did manage to make the toy that Ohio Art Co. (OART) released in 1960 a central political metaphor when a spokesman compared the Republican presidential candidate’s views to the erasable drawing pad.

Rick Santorum, right, hands an Etch A Sketch to a staff member on March 22, 2012, in San Antonio. Photographer: Eric Gay/AP Photo

March 22 (Bloomberg) -- Carol Dean, manager of Creative Minds, talks with Bloomberg's Chris Christoff about Etch A Sketch sales. Creative Minds is located in Bryan, Ohio, home of Ohio Art Co. which makes Etch A Sketch. (Source: Bloomberg)

An Etch A Sketch toy made by Ohio Art Co. Source: Ohio Art Co. via Bloomberg

The mention during a CNN interview -- and ensuing storm of rivals’ mockery and social-media reiteration -- prompted a flood of attention. In its 52 years, nothing spread the name Etch A Sketch so fast and wide, said Martin Killgallon, senior vice president for marketing and product development.

“If you went out and tried to buy this kind of media coverage, it would be impossible,” Killgallon, 36, said in a telephone interview. “I don’t know how to measure it.”

Nicole Gresh, spokeswoman for the Bryan, Ohio-based toymaker founded in 1908, said she hadn’t had so many calls since June. That’s when Lyons, Colorado, held a Sketch-A-Palooza to set a Guinness Book of Records mark for simultaneous sketching.

The red, plastic tablet, a mainstay of U.S. playrooms and Ohio Art’s best-selling product through last year, allows children to use knobs to control a line’s horizontal and vertical progress. Shake the gizmo and the picture disappears, leaving a clean slate for a new creation.

Franco-American Fun

The toy was invented by Andre Cassagnes in the late 1950s. The French electrician’s original version, called the Telecran, used a joystick, glass and aluminum powder. Ohio Art then bought the rights. It sells the toy for $17.99.

Etch A Sketch’s star turn began yesterday, when Romney aide Eric Fehrnstrom was asked on CNN whether he was concerned that the candidate was being forced by Republican opponents to take extreme positions during the primary that might alienate moderates in a race against President Barack Obama.

“You hit a reset button for the fall campaign,” Fehrnstrom said. “Everything changes. It’s almost like an Etch A Sketch. You can kind of shake it up, and we start all over again.”

The statement resounded in the political world -- and beyond. Tim George, a Columbus, Ohio, artist whose medium is the Etch A Sketch, said he has drawn all 44 U.S. presidents.

Get Scribbling

“I haven’t drawn any of the Republican candidates yet because I was kind of waiting until they narrow it down to one,” George, 60, said in a telephone interview. “It looks like I’ll be drawing Romney, though, at some point. In fact, I wish I had it done now.”

At the FAO Schwarz toy store in midtown Manhattan -- which displays a prototype Etch A Sketch dating from 1959 -- shopper and father Cal Elcan said the plaything is “timeless.”

“We’ve all played with an Etch A Sketch before -- every one of us,” said the tourist from Nashville, Tennessee.

Alexis Elcan, 9, said she finds twiddling the knobs more challenging than a newfangled computer drawing game.

“They’re weird,” she said. “You have to be really good at them.”

Ohio Art, which manufactures the plaything in China, employs about 100 people at its Toy Street facility in Bryan (12939MF), including sales and design staffs, Killgallon said. The town of about 11,500, dominated by the county courthouse’s clock tower, is a capital of childhood delights: It is also home of Spangler Candy Co., maker of Dum Dums lollipops.

Divine Plug

Ohio Art competes in a field dominated by Mattel Inc. (MAT) and Hasbro Inc. (HAS), the world’s largest toymakers, with combined sales of more than $10 billion. They spend millions on advertising and marketing, and Hasbro even owns part of a cable television station to help market its toys.

“It’s virtually impossible to get attention,” said Michael Greenberg, chief executive of Chester, New Jersey-based PlayWow International, a small manufacturer that tries to garner publicity by donating its inflatable toys. “Something like this is a gift from God.”

Fehrnstrom’s free publicity might be worth tens of millions to Ohio Art, according to Jordan Zimmerman, founder of an eponymous advertising firm whose clients include Papa John’s International Inc. (PZZA) and Office Depot Inc. (ODP)

“It will help resurrect the brand and drive sales,” said Zimmerman, who’s based in Fort Lauderdale, Florida. “If they are smart, they will parlay this.”

Surprise Gift

This gift of free advertising comes after sales in the arts-and-crafts category, which includes Etch a Sketch, declined 1 percent to $2.7 billion last year, according to NPD Group. Total revenue in the U.S. toy industry fell 2 percent to $21.2 billion, the researcher said.

Shares of Ohio Arts, which is thinly traded, more than doubled to $9.65 after three transactions totaling 800 shares at the close in New York’s over-the-counter market.

It’s too early tell whether sales will increase, Ohio Art said.

“It’s a pop culture icon and it’s nice to be part of the discussion,” Killgallon said. “One thing we’d like to do with all this publicity is to try to find a way to turn it into a positive and look at some sort of get-out-the-vote campaign.”

Killgallon said he’s been asked whether Etch A Sketch leans toward Democrats or Republicans.

“Etch A Sketch has right- and left-hand knobs,” he said. “We speak to both parties. And together we can draw circles.”

To contact the reporters on this story: Chris Christoff in Bryan at; Matt Townsend in New York at

To contact the editor responsible for this story: Robin Ajello at