Half stake of HTC Corp. sold back to the Beats audio firm

HTC phones

HTC phones

The share rates of HTC Corp., the smart phone maker from Taiwan, have fallen by as much as 4% as the reports released on Monday state. The founders of the audio technology firm called Beats Electronics have raised concerns over the strategy of HTC Corp., by means of which they have sold half of their holding back to the audio firm Beats.

The steps taken by HTC:

The Taiwan based company has bought 50.1% of the audio firm Beats Electronics, founded by a US music producer and rapper named Dr. Dre. The deal was made for as much as 309 million dollars the month of August previous year. The idea of HTC behind the deal was to differentiate their phones and enhance their branding in the midst of the rising competition in the markets. But according to a statement made by HTC they have sold back 25% to the founder of Beats for nearly 150 million dollars. But it will definitely work closely with the producer of the high end speakers and headphones.

The market opinion:

According to a research report developed by Morgan Stanley, the announcement made by HTC to cut back their investment in Beats is really very puzzling. He also added in his statement that the whole structure of the deal starting from the acquisition to the disposal does not really make much of a financial or strategic sense to the shareholders of HTC without the disclosure of any further details. Reducing their holdings from more than 50% to nearly 25.57% shows the separation of HTC from the operations of Beats. What this possibly imp[lies is the fact that the two companies have not had much of a synergy between themselves from the beginning itself. In spite of this sell back HTC will remain as the major shareholder of Beats with 25.1% in their possession, while the remainder rests in the hands of the founders of Beats. They hold 25.57% of voting rights of Beats and also use their technology in some of its latest phones belonging to the One series. A statement made by HTC reveals the fact that the sale of the shares provides a lot more flexibility to Beats for a worldwide expansion while they maintain a major stake for HTC and a commercial exclusivity in mobiles.

The market scenario:

The market shares of HTC had fallen by 3.83% while the market broader displayed a fall by 2.11%. According to Henry Chen, the KBC Concord Asset Management Investment and Research Manager, a fierce level of competition from the Galaxy phones of Samsung could well be pushing HTC towards a much more centralized conservative approach to their business. HTC in a separate statement stated the fact that they had agreed on lending Beats 6.74 billion Taiwanese dollars for a period of one year that calculated an interest rate of LIBOR+1.5 percent to LIBOR+7.5 percent. The profit of HTC got more than halved in the second quarter as the company struggled to regain the rate of their market shares that they lost to Apple and Samsung Inc.

Jay Raol

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