HTC to Sell Back Stake in Beats Electronics for $265 Million

HTC Corp. (2498), the Taiwanese smartphone vendor whose stock has plunged 90 percent since 2011, is selling its remaining stake in headphone maker Beats Electronics LLC for $265 million.

HTC will close the sale of its 24.84 percent stake in the closely held company in the fourth quarter, and it expects a NT$2.52 billion ($85 million) pretax profit, according to a statement to Taiwan’s stock exchange. Beats, founded by music producer Jimmy Iovine and rapper Dr. Dre, also will repay a $150 million promissory note, plus accrued interest.

The deal comes two years after HTC took a 51 percent stake in Beats for $300 million and started using the Santa Monica, California-based company’s sound technology. HTC since has struggled to compete with devices from Samsung Electronics Co. and Apple Inc., with its market share falling to less than 3 percent of the $280 billion smartphone industry.

“For HTC it puts more cash in the bank, and they need cash now that they have turned operating cash flow negative,” said Jean-Louis Lafayeedney, an analyst at JI Asia in Hong Kong. “Investors have been asking HTC to shed assets and get cash back to help them regain profitability.”

Carlyle Investment

Shares of the Taoyuan City-based maker of the HTC One touched an almost eight-year low this month after the company signaled it may post its first quarterly loss since at least 2008 on a consolidated basis. The stock drop has left the smartphone maker trading at a 40 percent discount to sales, according to data compiled by Bloomberg.

Photographer: Maurice Tsai/Bloomberg

A customer tries out a HTC Corp. One X+ smartphone with a pair of Beats Electronics LLC headphones at one of the company's stores in Taipei. Close

A customer tries out a HTC Corp. One X+ smartphone with a pair of Beats Electronics LLC... Read More

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Photographer: Maurice Tsai/Bloomberg

A customer tries out a HTC Corp. One X+ smartphone with a pair of Beats Electronics LLC headphones at one of the company's stores in Taipei.

Separately, Beats said Carlyle Group LP will make a minority investment, with the deal expected to close in the fourth quarter. The terms weren’t disclosed.

Beats’ technology has been used in Hewlett-Packard Co. computers and Chrysler Group LLC cars. The headphone maker last year purchased the MOG music-streaming service to add high-quality soundtracks and playlists to its devices.

HTC, the first maker of phones using software from Google Inc., was a contract manufacturer before it began promoting its own brand in 2006. The company had a short-lived reign at the top of the U.S. market in the third quarter of 2011, when it accounted for 24 percent of smartphone shipments, according to researcher Canalys.

HTC’s share of the global smartphone market fell to 2.8 percent in the second quarter, from 5.8 percent a year earlier, according to data compiled by Bloomberg. The company enlisted actor Robert Downey Jr. to promote its smartphone brand in a two-year global marketing deal worth about $12 million, two people with knowledge of the plans said in June.

The company in February 2012 said it had “dropped the ball” on products, pointing to weaknesses in design and engineering. The HTC One, which was supposed to herald a reversal of fortune, has so far failed to stop a slide in the company’s sales since the phone’s introduction was delayed to the same timeframe as Samsung’s flagship Galaxy S4.

To contact the reporters on this story: Yu-Huay Sun in Taipei at ysun7@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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