In Venture Capital Deals, Not Every Founder Will Be a Zuckerberg

It’s the dream of entrepreneurs to sell their company for millions of dollars. But the dirty secret of venture capital is that the dream can be dashed as the venture capitalists make millions in a sale, leaving the founders with nothing.

A recent Delaware court case arising from the 2011 sale of Bloodhound Technologies illustrates how this happens.

Bloodhound was founded in the mid-1990s by Joseph A. Carsanaro to create fraud-monitoring software for health care claims. After several years of going it alone with a handful of colleagues, Mr. Carsanaro was able to raise Bloodhound’s first venture capital round for $1.9 million in 1999, followed by a second $3.1 million round in 2000.

When the Internet bubble burst, the company underwent rocky times. It was then that the venture capitalists seized control. Mr. Carsanaro was pushed out as chief executive. By 2000, he was gone from the company, as were four other members of his founding team.

For the next decade, Bloodhound recovered and slowly grew, raising seven more rounds of financing. In April 2011, the company was sold for $82.5 million. It was a time for Mr. Carsanaro and his founding team to celebrate their millionaire status.

But venture capital investments are structured to ensure that the venture capitalists are paid before founders and employees. When venture capitalists invest, they typically demand preferred shares that accrue a yearly dividend of about 8 percent. The dividend goes unpaid until the company is sold. In a sale, the original amount and the interest all come due. It must be paid out before the common shares, which are typically held by the founders and other employees.

The requirement that the venture capitalist be paid first, and with interest, can sometimes hit founders and employees in a brutal manner, as Mr. Carsanaro and his colleagues discovered.

The venture capitalists took almost all of the sale price. Bloodhound also paid a $15 million bonus to its current management team. The five founders of Bloodhound were paid in total less than $36,000. One received all of $99.

There is not much information on payouts to founders and employees when a company backed by venture capital is sold. But from the few studies on the subject, it appears that the situation involving Bloodhound is all too common.

The most recent study, by Profs. Brian J. Broughman and Jesse M. Fried, found that among a sample of venture capital deals, the common investors in roughly half the cases were entitled to nothing when the company was sold, even when the sale was for tens of millions. And in all but one instance, the majority of the sale proceeds went to the venture capitalists and other holders of preferred shares.

An unpublished study by Shikhar Ghosh at the Harvard Business School found that three out of four companies backed by venture capital did not return the investment. Again, it is in these cases where the founders and employees typically are entitled to receive no payment.

For those entrepreneurs who think they will be the next Mark Zuckerberg and ride their company to riches, think again. A number of studies have found that most chief executives of companies that take venture capital investments end up being replaced.

These are the successful businesses. The rule of thumb among venture capitalists is that some 20 percent to 30 percent of companies fail, returning nothing to any investor, including the venture capitalists.

The Bloodhound case is a reminder that the founders of start-ups backed by venture capital often end up nothing like Mr. Zuckerberg. Instead, they find themselves thrown out and without significant profits even if their company is sold.

Venture capitalists will argue that this is the price to pay to get their money and services. Cash is king, and in order to survive, venture capitalists will demand a high price and return.

Yet entrepreneurs can protect themselves. Professors Broughman and Fried found in their study that founders who negotiated greater control rights ended up receiving on average $3.7 million more. They did this even when the common shareholders were not entitled to a dime. By negotiating board seats or other representation, the founders were able to ensure that a sale happened only with their approval and a demand for some payment in return.

In other words, the rights negotiated by entrepreneurs when taking venture capital money really matter. Many entrepreneurs are so excited to get money that they don’t push for such rights or just don’t know to ask. Yet those who negotiate to keep a say in their company have a future, while those who don’t are more likely to be tossed aside. And it can be that this happens even in lucrative situations. Remember that Mr. Zuckerberg would have been forced by his venture capital investors to sell Facebook had he not kept control.

In the case of Bloodhound, its founders were pushed out of the company about eight years before the sale. During that time, they lacked control or ability to stop the venture capitalists from financing the company on the venture capitalists’ terms. The only substantial communication the founders had after they left was when they found out that the company had been sold for a huge price and that they would receive almost nothing.

The five founders sued in Delaware court, claiming that Bloodhound’s board and the venture capitalists had structured later rounds to favor themselves and dilute the payout of the founders. In a motion, the defendants countered that they acted fairly and that the plaintiffs’ claims were untimely because they were brought years later.

J. Travis Laster, vice chancellor of the Delaware Chancery Court, found that the claims that the venture capitalist had favored themselves to the detriment of the founders could be a viable claim claim if the facts they stated were true.

If Bloodhound’s founders are successful in their lawsuit, the case could change practices. It might require boards that take venture capital money to consider the founders and their interests before taking the next round. This could force boards to lean against diluting the payout of the founders and employees to avoid litigation.

Yet even if Bloodhound’s founders prevail, other entrepreneurs will sometimes find that their company is sold with nothing going to them. The sad reality is that there are times when the price demanded by the venture capitalists for the company to survive means that the founders will lose. Let’s face it, sometimes the company survives only because of that money and the skill and effort that the venture capitalists put in. This may have been the case in Bloodhound.

But the Bloodhound case publicizes this practice and will perhaps push boards to think harder before the founders are discarded. This may foster caution among venture capitalists, but the only thing that will truly save entrepreneurs is negotiating harder in the beginning. They may otherwise find themselves like the Bloodhound founders, left with nothing.

SoftBank Chief Is Defiant as Dish Challenges His Bid for Sprint

Earlier this month, Charles W. Ergen’s Dish Network made a bold bid to pre-empt Softbank’s $20 billion bid for Sprint Nextel with his own offer.

But SoftBank‘s outspoken chief executive, Masayoshi Son, argued on Tuesday that his proposal will prevail â€" unmodified.

It is the first time that the Japanese telecommunications mogul has spoken out since Dish surprised many with a $25.5 billion offer for Sprint, setting up a battle for the country’s third-biggest cellphone service provider.

Dish has argued that its cash-and-stock bid for all of Sprint, valued at $7 a share, would create a new wireless titan whose phone, data and video services would rival those from Verizon Wireless and AT&T.

For now, Mr. Son insists that his earlier proposal, a two-step process that would leave 30 percent of Sprint publicly traded, is straightforward and can be closed by mid-July. (The first part of the process, in which SoftBank invested $3.1 billion in the American company to keep it afloat, has already been competed.)

“Charlie’s proposal does not provide any new cash into the company, and it provides heavy burden of debt,” Mr. Son said in a telephone interview. “I believe our deal will go through.”

Mr. Son insisted that he was not surprised by the arrival of Mr. Ergen, who has publicly amassed a cash hoard that many assumed would finance some sort of acquisition. Though Dish had already made a play for Clearwire, he said he guessed that the satellite TV company had even bigger ambitions.

“My guess was right,” he said.

He repeatedly attacked Dish’s bid as unworkable and his rival’s numbers as misleading. By his own reckoning, factoring in both cost savings and potential costs like delays, SoftBank’s offer was worth $7.65 a share, while Dish’s was valued at $6.31.

Chief among Mr. Son’s criticisms was the amount of debt that the interloping offer would pile on to Sprint, which he estimated at $50 billion. In a long presentation to SoftBank’s shareholders, Mr. Son argued that his proposal would increase Sprint’s debt by three times, while Dish’s would do so by nearly six times.

“It would be prohibitively high debt,” he said.

While Dish has proudly trumpeted the amount of wireless spectrum the combined company would control, Mr. Son argued that the holdings would be wastefully excessive and expensive to maintain. And it would still require spending what he estimated was $6 billion to upgrade Sprint’s network.

And Mr. Son contended that Mr. Ergen, a wily deal maker whose net worth Forbes estimates is more than $10 billion, is an amateur when it comes to the mobile industry. By contrast, he pointed repeatedly to SoftBank’s own rise over the last seven years to become one of Japan’s three biggest wireless companies.

Still, much of SoftBank’s hopes are tied to Sprint’s bid to buy the remainder of Clearwire, an offer that has drawn signfiicant shareholder opposition.

Mr. Son dismissed concerns about the proposal’s fate, saying that Sprint has not signaled any desire or need to raise its current offer of $2.97 a share. The company can’t raise its bid without the blessing of its benefactor, SoftBank.

In the worst case scenario, Sprint will raise its ownership in Clearwire to about 65 percent from 50 percent through agreements to buy out partners in the company, including Intel and Brighthouse.

Speaking of dissident investors who think Sprint’s offer is too low, Mr. Son said, “They can stay as shareholders for however long they want. We are happy with just 65 percent.”

Apple Raises $17 Billion in Record Debt Sale

With a $145 billion cash hoard, Apple could acquire Facebook, Hewlett-Packard, and Yahoo â€" and still have more than $10 billion left over.

Despite its uncommonly flush balance sheet, Apple borrowed money on Tuesday for the first time in nearly two decades. In a record-sized bond deal, the company raised $17 billion, according to a person briefed on the deal, paying interest rates that rival those of debt issued by the United States Treasury.

Apple’s corporate-finance maneuver raises a riddle: Why would a company with so much cash even bother to issue debt?

The answer has a lot to do with the frenzied state of the bond markets. Companies are issuing hundreds of billions of dollars in debt to exploit historically low interest rates and strong investor demand for bonds as an alternative to money market funds and Treasury bills that paying virtually nothing.

“If you look at these big companies like Apple and Microsoft doing these big, low-cost bond offerings, it’s a way for them to raise money in an effort to create better returns for their shareholders,” said Steven Miller, a credit analyst at S&P Capital IQ. “The bond markets are practically begging these corporations to issue debt because of how cheap it is to raise money.”

But Apple’s move also reflects the challenges of a highly successful business with a flagging stock price. In an effort to assuage a growing chorus of concerned and disappointed Apple investors, the company is issuing bonds to help fund a $100 billion payout to its shareholders. It will distribute most of that amount over the next two and a half years in the form of paying increased dividends and buying back its stock.

While Apple’s shareholders and analysts welcome the company’s financial tactics, they say that the maker of iPhones, iPads, and Macs must continue to innovate and fend off increasing competition.

“This is a substantial return of cash and it’s the right thing to do on many levels,” said Toni Sacconaghi, an analyst at Bernstein Research. “But, ultimately, the company has to execute. This is no substitute for that.”

By raising cheap debt for the shareholder payouts, Apple will also avoid a potentially big tax hit. About two-thirds of Apple’s cash â€" about $102 billion â€" sits overseas in lower-tax jurisdictions. If it returned some of that cash back to the United States to reward its investors, the company could have significant tax consequences.

“We are continuing to generate significant cash offshore and repatriating this cash would result in significant tax consequences under current U.S. tax law,” said Peter Oppenheimer, Apple chief financial officer, during an earnings call last week.

In some ways, Tuesday’s bond issue was made necessary by Apple’s tax strategies.

“They have been so successful with their tax planning that they’ve created a new problem,” said Martin A. Sullivan, chief economist at Tax Analysts, a publisher of tax information. “They’ve got so much money offshore.”

The $17 billion debt sale by Apple is the largest on record, surpassing a $16.5 billion deal from the drugmaker Roche Holding in 2009. Apple joins a parade of large companies issuing debt with astonishingly low yields. Last week, the shoe company Nike sold bonds that mature in ten years that yielded only 2.27%. Last July, Bristol-Myers, the drugmaker, issued five-year debt yielding 1.06 percent. In November, the software provider Microsoft set the record for the lowest yield on a five-year bond, issuing the debt at 0.99 percent.

Despite its $145 billion cash pile, the credit-ratings agencies did not award Apple their coveted triple-A rating, citing increased competition and a concern that its future product offerings could disappoint. Moody’s Investors Service gave the company its second-highest rating, AA1, as did Standard & Poor’s, rating the company AA+. (The four companies awarded the highest credit ratings by both Moody’s and S.&P. are Microsoft, Exxon Mobil, Johnson & Johnson, and Automatic Data Processing.)

“There are inherent long-run risks for any company with high exposure to shifting consumer preferences in the rapidly evolving technology and wireless communications sectors,” wrote Gerald Granovsky, a Moody’s analyst.

Apple’s less-than-perfect rating did not drive away bond investors on Tuesday. The offering generated investor demand well in excess of the $17 billion raised, according to person briefed on the deal. Goldman Sachs and Deutsche Bank led the sale of the issuance.

Desperate for returns in a yield-starved world, all types of investors â€" including individual, pension funds and mutual funds â€" are snapping up corporate debt. The demand appears to be insatiable: this year, through last Wednesday, a record $55 billion has flowed into mutual funds and exchange-traded funds that invest in corporate debt with high-quality ratings, according to the fund data provider Lipper.

The last time Apple sold debt was in 1996, when the Internet was in its infancy and sales of Apple’s niche computers were struggling. Facing an uncertain future and struggling with a weak balance sheet, Apple sported a junk credit rating and was paying 6.5 percent on its debt.

Video: The Art of the Leak

The Times’s Andrew Ross Sorkin and Peter Lattman discuss the strategic use of leaked information in deal-making.

Onwards, Not Upwards, for UBS

The new-look UBS is starting to deliver. The first full quarter of the strategy announced on Oct. 29 has broadly answered the Swiss bank’s critics. UBS shone in trading and capital markets financing, returning to its traditional strength in equities. Investment bank stability helped the wealth-management business, too.

UBS’s Tier 1 Basel III capital ratio of 10.1 percent conveys more solidity than most rivals. Wealthy individuals have noticed. Having flatlined for quarter after quarter, the growth rate for net new money ticked into double digits in Asia, Latin America, Africa and Eastern Europe. The biggest rise in growth came from ultra high-net worth investors.

The investment bank’s back-to-basics strategy is also showing early signs of promise. Pretax profit in the division doubled to just shy of 1 billion Swiss francs from a year ago, driven largely by equity trading and financing. UBS also held up well against its peers in foreign exchange and rates â€" the main areas of fixed income trading the bank has stuck with amid a general retreat from that business.

The snag is that this is pretty much priced in. UBS shares are trading at 1.2 times book value after a 37 percent rise in shares since the end of October. While its strategy is looking increasingly convincing, UBS has yet to prove it can make the kind of returns to justify that.

The revamp is far from done and won’t proceed in a straight line. A 5 billion franc rise in investment banking risk-weighted assets, to 69 billion francs, is still within the bank’s own self-imposed limit of 70 billion francs. But any further increase would raise questions about its commitment to dialing down risk. There is still the potential for losses from the winding-down of UBS’s sizable noncore portfolios.

Cost pressures in investment banking also persist. Andrea Orcel, the head of the business, has had to open the checkbook to secure top talent after UBS’s recent troubled history. In time, it might turn the tide in mergers and acquisitions, where revenue was down 33 percent, to 114 million Swiss francs, year over year. The bank’s United States advisory business needs particular attention after defections over many years to large competitors and boutiques like Centerview, Jefferies and Moelis.

UBS is moving on from the days of multibillion-dollar write-downs. Investors - and potential recruits - may see a virtuous circle starting to form. But management will need to post a string of decent quarterly results to give the shares another leg up.

Dominic Elliott is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

During Earnings Season, European Banks Show Signs of Health

Despite persistent unemployment, malaise and continuing debt problems, one sector in Europe seems to be benefiting: European banks.

After years of painful job cuts and moves to make portfolios less risky, several large European institutions reported strong first-quarter results in recent days, helped by cost cutting and better performance of major units.

On Tuesday, Switzerland’s UBS and Lloyds Banking Group of Britain surprised investors by reporting better than expected earnings for the first quarter of this year, sending their shares up.

European lenders certainly continue to confront the broad economic challenges like the burden of the euro zone debt and pressure from regulators to strengthen their capital reserves. But there have been signs that some of the bigger banks are returning to health.

For instance, UBS on Tuesday reported a first-quarter profit of 988 million Swiss francs ($1 billion). Those results were down slightly from 1 billion francs in the period a year earlier, but far exceeded the 412 million francs predicted by analysts surveyed by Bloomberg News.

Sergio P. Ermotti, the chief executive, said in a statement that he was very pleased with the performance. He cautioned that it was “too early to declare victory,” but said the earnings showed the company’s “business model works in practice.”

Royal Bank of Scotland, BNP Paribas of France and Britain’s HSBC are among the banks still scheduled to report first-quarter figures in the coming days. But so far, the first-quarter results paint a somewhat encouraging picture of banks that managed to limit losses from bad loans linked to the credit crisis, reduce costs and to return to their core banking operation: credit and mortgages for some and wealth management for others.

Some investors caution that the continuing difficulties in the euro zone and weak demand for loans mean that many European banks remain in trouble despite relatively good earnings in the first quarter.

“They are doing their utmost to have a decent banking model and the numbers across the board were very good but going forward we now have the issue of where the growth is going to come from,” Florian Esterer, a fund manager at Main First Group in Zurich, said.

Still, European banks are actively taking steps to address their woes. That includes slashing costs in the wake of changing regulations and the sluggish European economy. Deutsche Bank, which reported earnings Monday, said first-quarter profit rose as cost-cutting offset a decline in revenue from investment banking.

UBS, meanwhile, has been eliminating 10,000 jobs, reduce bonus payments, scale back its investment banking trading business and focus more on its successful wealth management operation. Those steps helped UBS’s first-quarter results. Net new money at its global wealth management business was 23.6 billion francs in the first quarter, compared with 10.9 billion francs in the period a year earlier. Pretax profit at wealth management outside the Americas fell 28 percent, to 664 million francs, while earnings at wealth management in the Americas rose 19 percent, to 251 million francs.

UBS also joined other banks, including Swiss rival Credit Suisse and Barclays of Britain, in benefiting from higher revenue at its investment banking operation. At Credit Suisse, pretax profit in its investment banking division rose 43 percent, the bank said last week. Barclays, which also reported earnings last Wednesday, said pretax profit for its investment bank rose 11 percent in the quarter.

Analysts also say that European banks are starting to dig out from the fallout from numerous financial scandals that have hurt their reputations.

For instance, UBS has sought to rebuild trust among clients after it uncovered a $2.3 billion trading loss in 2011 connected with the activities of a former trader, Kweku M. Adoboli, who has since been sentenced to seven years in jail. In December, UBS said it would pay $1.5 billion in fines to settle a case related to the manipulation of the London interbank offered rate, or Libor.

Many of the other large European banks have also been ensnared in the rate rigging scandal. Deutsche Bank alone has set aside 2.4 billion euros to cover the potential cost of proceedings that include a tax evasion probe in Germany and an international investigation into accusations its employees and those at other investment banks colluded to fix benchmark interest rates.

While the banks will continue to address such issues, there is a cautious optimism now about bank performance.

“There are still some headwinds but banks are pretty much there when it comes to reaching the right level of capital and that is helpful,” Cormac Leech, an analyst at Liberum Capital, said. “There is a new appetite for banks among investors. There’s a confidence that wasn’t there two years ago.”

Mark Scott and Jack Ewing contributed reporting.

Deutsche Bank Shares Rise as Bank Executives Look Past Financial Crisis

FRANKFURT â€" Deutsche Bank’s decision to issue $3.65 billion in new stock is an attempt to squelch once and for all the bank’s reputation as one of Europe’s riskiest and least capitalized lenders, top managers said. The move was not, they insisted, a response to pressure from regulators in Europe or the United States.

“It was our decision,” Anshu Jain, co-chief executive of Germany’s largest bank, said during a conference call with analysts on Tuesday. “There was no gun to the head.”

The move drew sustained applause from investors. Deutsche Bank shares rose 7 percent in Frankfurt trading on Tuesday on expectations that the share sale will clear the way for higher dividend payments, even though an increase in the number of shares lowers each shareholder’s cut of profits.

Deutsche Bank, based in Frankfurt, has long faced criticism that its capital buffers were too small and that it carried too much risk from derivatives and other volatile investment banking products.

But since taking over last year Mr. Jain and the other co-chief executive, Jürgen Fitschen, have been hoarding profit and selling assets to raise the proportion of capital to money at risk. The sale of new shares, announced Monday, will boost capital still further.

Mr. Jain and Stefan Krause, the bank’s chief financial officer, portrayed the share issue as a turning point that will set the stage for the bank to focus less on the baggage left over from the financial crisis and more on growth and profit.

“We could see where a capital raise would bring us to the point where the capital issue was off the table,” Mr. Jain said.

European banks have as a rule taken longer to put the financial crisis behind them than American banks. The European lenders have had to deal with the burden of the euro zone debt, but also faced less pressure from regulators to confront their problems. Lately, though, there have been signs that some of the bigger banks are returning to health. UBS, the Swiss bank, reported first quarter profit of $1 billion Tuesday, slightly lower than a year earlier but much better than analyst estimates.

Mr. Krause said during the conference call with analysts that the decision to sell new shares was also not a response to plans by the Federal Reserve to require American units of foreign banks to hold more capital, a move that would affect Deutsche Bank because of its large presence in America.

Investors seemed to buy the optimistic scenario sketched by the Deutsche Bank executives. Some analysts were more cautious, noting that Deutsche Bank still faces an array of legal proceedings that could be costly to resolve, as well as uncertainty in the European economy, which is stuck in recession. The bank has set aside 2.4 billion euros to cover the potential cost of proceedings that include a tax evasion probe in Germany and an international investigation into accusations that employees of Deutsche Bank and other investment banks colluded to fix benchmark interest rates.

“Whilst we still see risks from litigation, regulation and the macro environment, the strengthened capital position should put the group in a better position to deal with these challenges going forwards,” analysts at Credit Suisse wrote in a note to clients. The Swiss bank upgraded Deutsche Bank shares to neutral, from underperform.

The new shares will count toward Deutsche Bank’s capital reserves, the money banks set aside to absorb losses in a crisis. The new capital will allow Deutsche Bank to rank near the top among large European banks in the size of its reserves, rather than near the bottom, and to comfortably meet new regulatory requirements.

Stock investors Tuesday were also rewarding Deutsche Bank for an increase in profit reported Monday after Frankfurt trading had closed. Net profit in the first quarter of 2013 rose to 1.66 billion euros ($2.16 billion), up nearly 18 percent from 1.41 billion euros a year earlier. Though revenue was nearly flat, rising 2 percent to 9.4 billion euros, the bank was able to cut costs.

Mr. Krause said on the conference call that the bank expected to save about 1 billion euros over the full year.

Turnover at JPMorgan

The departure of yet another JPMorgan Chase executive, Frank J. Bisignano, has heightened concerns about persistent executive turnover and raised questions about who might succeed Jamie Dimon, the bank’s chief executive and chairman, Susanne Craig and Jessica Silver-Greenberg write in DealBook.

It is a precarious time for Mr. Dimon, just weeks before the results of a shareholder vote on whether to split the chief executive and chairman roles. “With voting now under way, the bank had hoped to keep a low profile, according to people briefed on the matter but not authorized to speak on the record.” But some are concerned about the string of executive departures in the last four years, among them William Winters, Heidi Miller, Steven Black, Charles Scharf, William Daley and Jay Mandelbaum. “While people close to the chief executive say he is not worried about the executive turnover, others wonder if the many reshufflings at the top point to a larger problem within the bank,” DealBook writes.

The turnover is a reminder of unfinished business at JPMorgan in the wake of a huge trading loss last year. “The trading debacle, however, explains only part of the executive exodus.” Lost track of all the executives who have moved on? Here are some of the most notable departures of recent years.

UBS EARNINGS BEAT FORECASTS  |  UBS on Tuesday said its earnings in the first quarter fell 5 percent, to 988 million Swiss francs ($1 billion) from 1 billion francs in the period a year earlier, helped by strength in wealth management and investment banking. Analysts surveyed by Bloomberg News had predicted earnings of 412 million francs. Sergio P. Ermotti, the chief executive, said in a statement that he was “very pleased,” adding that it was “too early to declare victory” but that the results showed the company’s “business model works in practice.”

THE ART OF THE LEAK  |  An academic study highlights the dark art of leaking deals, Andrew Ross Sorkin writes in the DealBook column. According to the study, conducted by the Cass Business School in London, and commissioned by Intralinks, a provider of electronic data rooms for deal makers, leaks often reward sellers, with buyers of companies in leaked deals paying an average premium of 18 percentage points over deals that were not leaked. At the same time, leaked deals were 9 percent less likely to close than those kept under wraps.

The number of leaks has declined in recent years, according to the study. Mr. Sorkin writes: “With so few deals these days, everyone involved in a transaction â€" management, boards, bankers, lawyers, accountants, public relations professionals, consultants and other fixers â€" are reluctant to leak and risk their fees, many of which are typically contingent on a deal’s completion.”

START-UPS TAKE ROOT IN BERLIN  |  “More than two decades after the fall of the Berlin Wall, the German capital has gone from a cold war relic to one of the fastest-growing start-up communities,” DealBook’s Mark Scott writes. “With the new wave of entrepreneurs, Berlin, once viewed as the poor relation to Germany’s main business centers, like Frankfurt and Hamburg, is improving its ranking in the country’s economic hierarchy.”

But by the standards of Silicon Valley, Berlin is still a backwater. A lack of early stage financing has hampered companies’ growth, and entrepreneurs say high-quality programmers are hard to find. Berlin is also trying to overcome its reputation for copying American business models. “Berlin isn’t proven yet. It’s much like a start-up in that way,” said Alex Ljung, the co-founder of SoundCloud, a music Web site backed by the American venture capital giant Kleiner Perkins Caufield & Byers.

ON THE AGENDA  |  Avon Products, Pfizer and Sirius XM Radio report earnings before the market opens. IAC/InterActiveCorp and Office Depot report results on Tuesday evening. The Standard & Poor’s/Case-Shiller Home Price Index is out at 9 a.m. The Bloomberg Washington Summit features speakers including Gary Gensler, chairman of the Commodity Futures Trading Commission. The Federal Reserve’s policy-making committee meets. Stephen A. Schwarzman of the Blackstone Group is on Bloomberg TV at 2:15 p.m. Howard Marks of Oaktree Capital is on CNBC at 3:40 p.m.

RUBENSTEIN’S LATEST GIFT  |  David M. Rubenstein, co-founder and co-chief executive of the Carlyle Group, who is known for his collection of rare Americana, is sharing an item in that collection with Americans around the world, according to GalleristNY. Mr. Rubenstein is donating reproductions of the 1823 Stone Declaration of Independence â€" which was commissioned by John Quincy Adams in 1820 â€" to each United States embassy. The version Mr. Rubenstein owns is currently on loan to the State Department’s Diplomatic Reception Rooms.

Mergers & Acquisitions »

Best Buy Sells Stake in European Venture  |  Best Buy agreed on Tuesday to sell its 50 percent stake in a European joint venture to its British partner, Carphone Warehouse, for around $775 million in cash and stock. The American retail giant is pulling back from Europe after a five-year effort to expand across the Continent, whose economy continues to struggle from lackluster growth. DealBook »

Chief of Occidental Petroleum to Stay Through 2014  |  “Bowing to investor pressure, Occidental Petroleum on Monday announced that its chief executive, Stephen I. Chazen, would continue to serve in his position, but only through the end of 2014 to help find a successor,” The New York Times reports. NEW YORK TIMES

Telefonica to Sell Assets in Central America for $500 Million  | 
REUTERS

Consolidation in Travel Sites  |  “The online travel search business is consolidating, as two of the biggest online travel agencies, Priceline.com and Expedia.com, buy smaller search engines,” The New York Times reports. NEW YORK TIMES

Bow Tie Cinemas to Buy 41 Clearview Movie Theaters  |  Bow Tie, a family owned theater operator, is buying 41 Clearview movie theaters from Cablevision for an undisclosed amount. ASSOCIATED PRESS

How a Fiat-Chrysler Merger Could Work  |  Sergio Marchionne has long envisioned a fully integrated Fiat-Chrysler as the first step in a continuing consolidation designed to squeeze out the excess capacity that plagues the car industry, particularly in Fiat’s home market, Rob Cox of Reuters Breakingviews writes. REUTERS BREAKINGVIEWS

Auxilium to Buy Actient Pharmaceuticals  |  Auxilium Pharmaceuticals agreed on Monday to buy Actient Pharmaceuticals, a maker of specialty urology products like treatments for erectile dysfunction, for $585 million in cash. DealBook »

INVESTMENT BANKING »

Lloyds’ Profit Surges to $2.3 Billion  |  The Lloyds Banking Group said first-quarter net income rose sharply, to $2.3 billion, as the bank continued to reduce costs and shed assets. DealBook »

Most Banks Could Still Profit Under Tough New Overhaul Proposal  |  Most banks would still prosper under a tough new piece of financial overhaul legislation introduced in the Senate last week. DealBook »

Deutsche Bank Posts a Profit and Agrees to Raise Its Capital Reserves  |  Deutsche Bank, which posted an 18 percent increase in profit for the first quarter, said it would sell $3.65 billion in new shares to bolster its capital reserves. DealBook »

Michele Davis to Join Morgan Stanley  |  Michele Davis, a former Treasury official during the financial crisis, has been named to run the corporate communications department at Morgan Stanley. DealBook »

Goldman and Deutsche Bank Seen Helping Apple Bond Sale  |  Goldman Sachs and Deutsche Bank have been setting up phone interviews with fixed-income investors in advance of a potential debt sale for Apple, Bloomberg News reports citing a person familiar with the offer. It would be Apple’s first bond issuance since 1996. BLOOMBERG NEWS

Apple and the Debt Market  |  With an expanded budget for dividends and stock buybacks, Apple could be on track to borrow nearly $20 billion a year, putting the company in the same issuance ballpark as huge global banks, Agnes T. Crane of Reuters Breakingviews writes. REUTERS BREAKINGVIEWS

PRIVATE EQUITY »

In France, Private Equity Slump Underscores Economic Trouble  |  Reuters writes: “A collapse of private equity investment this year seems increasingly emblematic of France’s deep-seated economic problems and how hard it may prove to change a vicious cycle of poor growth and weakened companies.” REUTERS

HEDGE FUNDS »

Herbalife Profit Beats Estimates  |  Herbalife, the nutritional supplements company at the center of a fight among Wall Street titans, reported first-quarter profit that beat analysts’ expectations and raised its earnings forecast for the year. BLOOMBERG NEWS

Fannie Mae Shareholders Push for Privatization  |  Paulson & Company and other hedge funds “are pushing Congress to abandon plans to liquidate” Fannie Mae and Freddie Mac, Bloomberg News reports. BLOOMBERG NEWS

Financiers’ Charity Gala Goes the Way of Canapés  |  Ark, the children’s charity founded by the hedge fund manager Arpad A. Busson, is no longer holding its $15,500-a-ticket fund-raiser that had become an annual fixture for London’s top hedge fund managers and celebrities. DealBook »

I.P.O./OFFERINGS »

Russian Bank Sells Shares in $3.3 Billion Offering  |  VTB, Russia’s second-largest bank, said it had found buyers for all the shares it intended to place in a $3.3 billion secondary stock offering. DealBook »

VENTURE CAPITAL »

Alibaba Buys a Stake in China’s Twitter  |  The e-commerce giant Alibaba agreed on Monday to pay $586 million for an 18 percent stake in the Sina Corporation’s Weibo, the most popular of China’s microblogging services. DealBook »

Breyer of Accel Partners Plans to Leave Dell’s Board  | 
ALLTHINGSD

LEGAL/REGULATORY »

Level Global to Pay $21.5 Million to Settle S.E.C. Case  |  The defunct hedge fund founded by David Ganek and Anthony Chiasson has agreed to pay more than $21.5 million in fines and penalties to resolve its role in the government’s insider trading investigation. DealBook »

Stock Sales by Corporate Directors Under Scrutiny  |  The Wall Street Journal reports: “Federal prosecutors launched a criminal investigation into whether corporate directors misused government-sanctioned trading plans to sell company shares for investment funds they run.” WALL STREET JOURNAL

With Unemployment Still High, Fed Seen as Unlikely to Do More  | 
NEW YORK TIMES

In Cyprus, Blaming Europe’s Central Bank  | 
NEW YORK TIMES

Credit Ratings Settlement Said to Be Worth $225 Million  |  A recent settlement that resolved lawsuits against Standard & Poor’s, Moody’s and Morgan Stanley ” will cost the three companies a total of about $225 million, according to a person familiar with the matter,” The Wall Street Journal reports. WALL STREET JOURNAL

Ralph Lauren Case Shows the Benefits of Cooperation  |  The Ralph Lauren Corporation’s settlement of an investigation into foreign bribery is a powerful example of the incentive for companies to turn themselves in rather than even hint at fighting the government, Peter J. Henning writes in the White Collar Watch column. DealBook »

Second Thoughts About the S.E.C.’s Whistle-Blower Program  |  The Securities and Exchange Commission’s whistle-blower program sounds great, in theory, but there are several ways its success may harm the agency, writes David Zaring, assistant professor of legal studies at the Wharton School of Business at the University of Pennsylvania. DealBook »

Kodak Spinoffs Clear the Path for Emergence From Bankruptcy  |  Instead of selling just its document imaging operation to Brother, Kodak will instead spin off the unit, along with its personal imaging arm, to its British pension plan. DealBook »

Best Buy Sells Stake in European Venture

(Thomson Reuters ONE via COMTEX) --MINNEAPOLIS - April 30, 2013 - Best Buy Co., Inc. (NYSE:BBY), the leading authority and destination for technology products and services, today announced that it has entered into a definitive agreement for the sale of its 50 percent interest in Best Buy Europe, the joint venture it created in 2008 with Carphone Warehouse Group plc (CPW). The sale price of GBP 500 million (approximately $775 million as of April 29, 2013) is comprised of GBP 420 million in cash and GBP 80 million in CPW stock subject to a 12-month lock-up restriction. During the lock-up period, however, both parties have agreed that CPW will be able to place the CPW shares on behalf of Best Buy at or above the issue price, with any additional proceeds above the issue price being retained by CPW. If, at the end of the lock-up period, the sum of the total proceeds received by Best Buy from sales of the CPW shares by CPW plus the market value of any remaining shares is less than GBP 64 million (approximatel $99 million), CPW will pay such deficiency to Best Buy.

In conjunction with the transaction, Best Buy has agreed to pay CPW GBP 29 million (approximately $45 million as of April 29, 2013) in satisfaction of obligations under existing agreements, including the parties' Global Connect partnership, which will be terminated at closing.

The boards of directors of both companies have approved this transaction. All directors of CPW have also signed letters of commitment to vote their shares in support of the transaction. The transaction is subject to approval by the shareholders of CPW, but is not subject to any closing conditions in respect of financing. The transaction is expected to close by the end of June 2013.

Beginning in the first quarter of fiscal 2014, Best Buy intends to report the results of the Best Buy Europe joint venture in discontinued operations, including an estimated non-cash asset impairment charge of approximately $200 million, associated with accumulated foreign currency translation losses that will be written off at the time of closing.

Prior to entering into this agreement, U.S. GAAP revenues for Best Buy Europe in fiscal 2014 were expected to be in the range of $5.5 to $5.6 billion. Adjusted (non-GAAP) diluted earnings per share were expected to be immaterial.

"After reviewing the business and spending time with our partners, we concluded that the timing and economics were right to enter into this agreement with CPW," said Hubert Joly, president and chief executive officer of Best Buy. "This transaction allows us to 1) simplify our business; 2) substantially improve our Return on Invested Capital, one of the five pillars of our Renew Blue transformation; and 3) strengthen our balance sheet," added Joly.

"Each international market is different and the sale of our European operations should not suggest any similar action in our other international businesses," said Joly.

Best Buy formed the Best Buy Europe joint venture with CPW in June 2008. The joint venture operates stores in eight countries. Additional details on this transaction are available in the Company's Form 8-K, to be filed this morning.

Forward-Looking and Cautionary Statements:

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that reflect management's current views and estimates regarding future market conditions, company performance and financial results, business prospects, new strategies, the competitive environment and other events. You can identify these statements by the fact that they use words such as "anticipate," "believe," "assume," "estimate," "expect," "intend," "project," "guidance," "plan," "outlook," and other words and terms of similar meaning. Factors that could cause such differences include: uncertainties regarding the expected benefits from and effects of the transaction; risks associated with CPW's ability to obtain shareholder approval of the transaction, the parties' ability to satisfy the other conditions and terms of the transaction, and to execute the transactionin the estimated time frame, if at all; and other risks and uncertainties, including those detailed from time to time in the registrant's periodic reports (whether under the caption Risk Factors or Forward-Looking Statements or elsewhere). The registrant assumes no obligation to revise or update any forward-looking statement, except as otherwise required by law.

Investor Contacts:

Bill Seymour

(612) 291-6122 or Bill.seymour@bestbuy.com

Mollie O'Brien

(612) 291-7735 or Mollie.obrien@bestbuy.com

Media Contacts:

Matt Furman

(612) 231-3993 or Matt.furman@bestbuy.com

Amy von Walter

(612) 291-4490 or Amy.vonwalter@bestbuy.com

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

The owner of this announcement warrants that:

(i) the releases contained herein are protected by copyright and other applicable laws; and

(ii) they are solely responsible for the content, accuracy and originality of the

information contained therein.

Source: Best Buy PR via Thomson Reuters ONE

HUG#1697677

Lloyds’ Profit Surges to $2.3 Billion

LONDON - Lloyds Banking Group reported a large jump in its first quarter net profit on Tuesday as the British bank continued to reduce costs and sheds assets to increase its profitability.

Lloyds, which is 39 percent owned by the British government after receiving a bailout during the financial crisis, said earnings in the first three months of the year rose to £1.5 billion ($2.3 billion), compared to a £5 million loss in the same period in 2012.

The earnings beat analysts’ estimates, and were driven by higher revenues across the firm’s main retail banking business, falling costs as the bank sold assets and a reduction in money set aside to cover delinquent mortgages, according to a company statement.

“We made substantial progress again in the first quarter,” the chief executive, António Horta-Osório, said in a statement.

Shares in the British bank rose almost 5 percent in early morning trading in London on Tuesday.

Lloyds added that it had not made further provisions for the inappropriate selling of financial products. Lloyds and other local lenders have been forced to pay out billions of pounds in recent years after they sold insurance products to British customers who did not require them.

As British regulators push banks to shore up their capital positions, Lloyds also has been actively increasing its reserves through a series of recent disposals.

On Monday, Lloyds offloaded its Spanish unit to the Spanish lender Banco Sabadell. Lloyds also is planning the initial public offering of part of its branch network as part of the conditions of its government bailout in 2008. The firm made a £394 million profit last month from selling a 20 percent stake in the wealth management firm St. James’s Place.

In March, regulators said British financial institutions combined would have to raise a further £25 billion in capital. Many analysts expect Lloyds will have to raise additional funds, though the firm said on Tuesday that it was still waiting to receive guidance from the local authorities.

The bank’s core Tier 1 ratio, a measure of the ability to weather financial shocks, remained flat, at 8.1 percent, under the accountancy rules known as Basel III.

During the first quarter of the year, Lloyds said it had continued to reduce its costs and cut the amount of money set aside to cover delinquent loans.

Impairment charges in the first quarter fell 40 percent, to £1 billion, compared to the same period in 2012, while Lloyds’ non-core assets fell 6 percent, to £92.1 billion, over the last three months.

Lloyds’ Profit Surges to $2.3 Billion

LONDON - Lloyds Banking Group reported a large jump in its first quarter net profit on Tuesday as the British bank continued to reduce costs and sheds assets to increase its profitability.

Lloyds, which is 39 percent owned by the British government after receiving a bailout during the financial crisis, said earnings in the first three months of the year rose to £1.5 billion ($2.3 billion), compared to a £5 million loss in the same period in 2012.

The earnings beat analysts’ estimates, and were driven by higher revenues across the firm’s main retail banking business, falling costs as the bank sold assets and a reduction in money set aside to cover delinquent mortgages, according to a company statement.

“We made substantial progress again in the first quarter,” the chief executive, António Horta-Osório, said in a statement.

Shares in the British bank rose almost 5 percent in early morning trading in London on Tuesday.

Lloyds added that it had not made further provisions for the inappropriate selling of financial products. Lloyds and other local lenders have been forced to pay out billions of pounds in recent years after they sold insurance products to British customers who did not require them.

As British regulators push banks to shore up their capital positions, Lloyds also has been actively increasing its reserves through a series of recent disposals.

On Monday, Lloyds offloaded its Spanish unit to the Spanish lender Banco Sabadell. Lloyds also is planning the initial public offering of part of its branch network as part of the conditions of its government bailout in 2008. The firm made a £394 million profit last month from selling a 20 percent stake in the wealth management firm St. James’s Place.

In March, regulators said British financial institutions combined would have to raise a further £25 billion in capital. Many analysts expect Lloyds will have to raise additional funds, though the firm said on Tuesday that it was still waiting to receive guidance from the local authorities.

The bank’s core Tier 1 ratio, a measure of the ability to weather financial shocks, remained flat, at 8.1 percent, under the accountancy rules known as Basel III.

During the first quarter of the year, Lloyds said it had continued to reduce its costs and cut the amount of money set aside to cover delinquent loans.

Impairment charges in the first quarter fell 40 percent, to £1 billion, compared to the same period in 2012, while Lloyds’ non-core assets fell 6 percent, to £92.1 billion, over the last three months.

UBS Records $1 Billion First Quarter Profit

LONDON - UBS earnings for the first quarter beat analyst forecasts on Tuesday, helped by stronger performances at its wealth management and investment banking operations.

Profit fell 5 percent to 988 million Swiss francs ($1 billion) from 1 billion francs in the first quarter of last year. A group of analysts surveyed by Bloomberg News had predicted earnings of 412 million francs.

Sergio P. Ermotti, the chief executive, said in a statement that he was “very pleased” with the performance. He added that it was “too early to declare victory,” but that the earnings showed the company’s “business model works in practice.”

UBS announced a far-reaching overhaul of its business in October to adjust to tighter regulation and the impact of a sluggish European economy. The bank started to cut 10,000 jobs, reduce bonus payments, scale back its investment banking trading business and focus more on its successful wealth management operation.

It also sought to rebuild trust among clients and investors after its involvement in some recent scandals. The bank uncovered a $2.3 billion trading loss in 2011 connected to the activities of a former trader, Kweku M. Adoboli, who has since been sentenced to seven years in jail. In December, UBS said it would pay $1.5 billion in fines to settle a case related to the manipulation of the London interbank offered rate, or Libor.

UBS said pretax profit at the investment banking operation rose 92 percent, to 977 million francs. Stronger demand for its equity capital markets services offset a drop in its advisory and debt capital markets business, it said.

Net new money at its global wealth management business was 23.6 billion francs in the first quarter, compared with 10.9 billion francs in the same period last year. Pretax profit at wealth management outside the Americas fell 28 percent to 664 million francs, while earnings at wealth management in the Americas rose 19 percent, to 251 million francs.

Credit Suisse, the main rival to UBS in Switzerland, posted a profit of 1.3 billion francs in the first quarter, up from 44 million francs in the first quarter of 2012, when that bank booked a loss of 1.6 billion francs on the value of its own outstanding debt. The results were helped by a better performance of its investment banking operation.

UBS has been cutting back more at its investment banking operation than Credit Suisse. Mr. Ermotti, who took over at the end of 2011, hired Andrea Orcel from Bank of America Merrill Lynch last year to help change the unit.