U.S. judge mulling compromise decision on AT&T-Time Warner deal

WASHINGTON (Reuters) – The judge who will decide if AT&T will be allowed to buy movie and TV show maker Time Warner indicated on Monday that he could be considering a decision that wasn’t a clear approval or blocking of the $85 billion deal.

FILE PHOTO: A combination photo shows the Time Warner shares price at the New York Stock Exchange and AT&T logo in New York, NY, U.S., on November 15, 2017 and on October 23, 2016 respectively. REUTERS/Lucas Jackson (L) and REUTERS/Stephanie Keith/File Photos

In his closing remarks, U.S. Justice Department lawyer Craig Conrath asked for the planned transaction to be stopped. “Consumers will be worse off and that’s why this merger ought to be blocked,” he said. In the absence of blocking it, Conrath urged the judge to consider a divestiture, or asset sale.

Judge Richard Leon asked about the possibility of imposing a remedy, like saying the deal could go forward if the companies sell a particular asset. Conrath said that if the judge found the deal to be anti-competitive then he could impose a fix or a remedy.

In his summation, Daniel Petrocelli, speaking for AT&T and Time Warner, argued against any ruling that would, for example, require AT&T to sell DirecTV, which has more than 20 million subscribers, in order to purchase Time Warner. “That is an effort to kill the deal,” he said.

Leon said that he would likely have a decision on June 12.

Chief Executive Officer of AT&T Randall Stephenson (L) walks off the stage with David McAtee (C), SEVP and General Counsel for AT&T, and Daniel Petrocelli (R), counsel from O’Melveny & Myers LLP., after a press conference in New York City, New York, U.S. November 20, 2017. REUTERS/Shannon Stapleton

The judge’s decision will guide dealmakers on how aggressive they can be with ‘vertical mergers’, where one company buys another in the same industry but operating at a different point in the supply chain. Regulators approve the vast majority of vertical deals.

‘FAILURE OF PROOF’

In his closing remarks, Petrocelli argued that the government had failed to prove that the merger was illegal because they had not shown that it would lead to higher prices.

FILE PHOTO: A Time Warner logo is seen at a Time Warner store in New York City, October 23, 2016. REUTERS/Stephanie Keith/File Photo

“We have a complete failure of proof,” he said at one point. He argued that the deal would mean half a billion dollars per year in price decreases for pay TV subscribers.

He also criticized a report by economist Carl Shapiro, who has testified that the deal would cost consumers more money because AT&T would have the incentive to withhold Time Warner content like CNN or March Madness basketball from pay TV rivals, both pricey cable companies and cheaper online startups.

And Petrocelli argued that an arbitration offer given by AT&T would take away much of the power to raise prices. In hopes of preventing a court fight, AT&T proposed that for seven years it would submit to third-party arbitration any disagreement with distributors over the pricing for Time Warner’s networks and promise not to black out programming during arbitration.

In his final argument, the Justice Department’s Conrath told the court that AT&T’s Chief Executive Randall Stephenson, who said it was “absurd” that they would withhold content from competitors, also wrote an email to Time Warner’s chief executive Jeff Bewkes to complain after Time Warner took a stake in Hulu, a cheaper online competitor.

“‘It’s hard to imagine how it won’t impact all of our relationships,’” Conrath quoted Stephenson as writing.

Referring to DirecTV, Conrath said that AT&T “wanted to preserve that ‘cash cow’ for as long as they can.” DirecTV lost 187,000 traditional U.S. video customers in the first quarter of 2018.

Two key witnesses at the trial were Stephenson and Bewkes, who is retiring if the transaction goes through. Both were present for the closing arguments, and Stephenson shook Petrocelli’s hand during a break after his summation.

The two executives argued in the trial that marrying AT&T’s granular information about customers with Time Warner’s ability to create compelling video would allow the merged company to advertise more effectively, giving it a fighting chance to compete with internet advertising titans like Facebook Inc and Alphabet Inc’s Google.

Reporting by Diane Bartz, Editing by Franklin Paul and Rosalba O’Brien

T-Mobile, Sprint say $26 billion deal would give U.S. tech lead over China

(Reuters) – T-Mobile US Inc (TMUS.O) and Sprint Corp (S.N) said on Sunday they had agreed to a $26 billion all-stock deal and believed they could win over skeptical regulators because the merger would create thousands of jobs and help the United States beat China to creating the next generation mobile network.

The agreement capped four years of on-and-off talks between the third and fourth largest U.S. wireless carriers, setting the stage for the creation of a company with 127 million customers that will be a more formidable competitor to the top two wireless players, Verizon Communications Inc (VZ.N) and AT&T Inc (T.N).

U.S. regulators, who have challenged in court AT&T’s $85 billion deal to buy U.S. media company Time Warner Inc (TWX.N), are expected to grill Sprint and T-Mobile on how they will price their combined wireless offerings.

Verizon has 116 million U.S. wireless customers, according to a spokesman, while AT&T has 93 million branded customers, as of the first quarter.

Their first round of merger talks ended unsuccessfully in 2014 after the administration of then-U.S. President Barack Obama expressed antitrust concerns.

The new deal will create the highest-capacity U.S. network, lower prices, create jobs and improve service in rural areas, said John Legere, the chief executive of T-Mobile and the new head of the proposed combined company.

The combined company, which will be called T-Mobile, will invest $40 billion over the next three years to upgrade its networks to accommodate the next generation 5G wireless technology, which is expected to have the speeds necessary to power drones and self-driving cars, Legere said in a statement.

The companies said during a conference call with analysts that the recent U.S. tax overhaul would have a positive impact, and the combined company would not be a significant taxpayer until 2025.

T-Mobile and Sprint said they expected to complete their deal no later than the first half of 2019, an ambitious goal given the intense U.S. regulatory scrutiny it will be subjected to. T-Mobile will not be liable to pay Sprint a breakup fee should regulators block the deal, according to sources who asked not to be identified because that detail in their contract had not yet been made public.

The companies said they expected U.S. regulators would see the benefits of the deal.

“This isn’t a case of going from four to three wireless companies – there are now at least seven or eight big competitors in this converging market,” Legere said, referring to cable companies as wireless competitors. Other companies also would be forced to accelerate their investments in the face of a combined T-Mobile-Sprint, the companies added.

A spokeswoman for Federal Communications Commission Chairman Ajit Pai declined to comment on Sunday on the proposed merger. The FCC will decide whether to grant the deal regulatory approval if it is in the “public interest,” the spokeswoman added.

CTIA, a trade organization that represents the U.S. wireless communications industry, ranks the United States behind China and South Korea in 5G readiness. The Chinese government launched a plan targeting 5G deployment by 2020, with three carriers committed to the timeline.

Legere said the deal would likely lead to lower prices from AT&T and Verizon, as well as Comcast Corp (CMCSA.O).

AT&T declined to comment. Comcast could not immediately be reached for comment.

Verizon declined to comment on prices but said it remained committed to building a 5G network.

DEAL BREAKTHROUGH

The breakthrough in the companies’ negotiations, first reported by Reuters on Thursday, came after T-Mobile majority-owner Deutsche Telekom AG (DTEGn.DE) and Japan’s SoftBank Group Corp (9984.T), which controls Sprint, agreed on a structure that would allow Deutsche Telekom to continue to consolidate the combined company, which will have a market value of over $80 billion, on its books.

Deutsche Telekom will own 42 percent of the combined company, and will control the board of the combined company, nominating nine of the 14 directors. Legere will also serve as a director.

The implied equity valuation for Sprint is $6.62 per share based on T-Mobile’s closing share price on Friday. Sprint shares closed on Friday at $6.50.

Smartphones with the logos of T-Mobile and Sprint are seen in this illustration taken September 19, 2017. REUTERS/Dado Ruvic/Illustration

The all-stock transaction is at a fixed exchange ratio of 0.10256 T-Mobile shares for each Sprint share, or the equivalent of 9.75 Sprint shares for each T-Mobile US share.

Tokyo-based SoftBank and Deutsche Telekom will sign a voting rights agreement that will give Deutsche Telekom access to voting rights for a total of 69 percent of T-Mobile shares.

The second round of talks between Sprint and T-Mobile ended in November over valuation disagreements.

Since then, Sprint’s shares lost about a fifth of their value amid questions about how the company can compete effectively under the weight of its long-term debt of more than $32 billion.

T-Mobile’s market capitalization is $54.7 billion, while Sprint is valued by the deal at $26 billion.

INVESTING IN 5G TECHNOLOGY

Even though Sprint’s customer base has expanded under CEO Marcelo Claure, growth has been driven by discounting. Analysts say that without T-Mobile, Sprint lacks the scale needed to invest in its network and to compete in a saturated market.

T-Mobile has fared better than Sprint, even if it remains a distant third to Verizon and AT&T. It has managed to score sustained market-share gains, as innovative offerings, improving network performance and good customer service attract new customers, according to Moody’s Investors Service Inc.

T-Mobile became the first major U.S. carrier to eliminate two-year contracts, a shift quickly embraced by consumers and copied by competitors. The company has also badgered rivals with its unlimited data plans.

Both Sprint and T-Mobile are far behind Verizon and AT&T in upgrading their network to accommodate next generation 5G wireless technology. Even after their merger, the combined company’s budget to invest in 5G will be smaller than that of Verizon or AT&T.

Sprint and T-Mobile hope the deal will give them more firepower to participate in auction for spectrum to develop 5G. They plan to participate in a spectrum auction in late autumn and will request a waiver if the merger prevents the companies from participating.

PJT Partners, Goldman Sachs, Deutsche Bank and Evercore served as advisers for T-Mobile. The Raine Group, J.P. Morgan and Centerview Partners LLC advised Sprint.

Reporting by Greg Roumeliotis, Sheila Dang and Liana B. Baker in New York; Writing by Sheila Dang; Editing by Peter Henderson, Lisa Shumaker and Peter Cooney

Sainsbury’s, Walmart’s Asda to create UK supermarket powerhouse

LONDON (Reuters) – Sainsbury’s and Walmart’s Asda are in talks to create Britain’s biggest supermarket group, a combination which would surpass Tesco’s grocery market share and be worth up to 15 billion pounds ($20.7 billion).

FILE PHOTO: A Sainsbury’s worker stacks a vegetable shelf in a store in Redhill, Britain, March 27, 2018. REUTERS/Peter Nicholls

Sainsbury’s confirmed on Saturday that it and Walmart, the world’s largest retailer, were in advanced discussions regarding a combination of the Sainsbury’s and Asda businesses, the UK’s No. 2 and 3 UK grocers. It said they will make a further announcement at 0600 GMT on Monday.

Britain’s big grocers, including No. 4 player Morrisons, have been losing share to German discounters Aldi and Lidl and must also deal with growing demand for internet grocery shopping and the march of Amazon.

Sainsbury’s gave no details of the deal’s structure but a source with knowledge of the situation told Reuters the holding company of the combined group would retain the Sainsbury’s name. Sainsbury’s Chief Executive Mike Coupe, who used to work for Asda, would lead it, the source said.

The source described the planned deal — which would consolidate a brutally competitive UK food market while helping Walmart address its underperforming UK arm through greater buying power — as a “merger”.

Three sources with knowledge of the situation said Walmart would take a minority stake in the combined business. Two said Walmart would be the biggest shareholder, with a stake of around 40 percent.

The Qatar Investment Authority, which has tried to buy Sainsbury’s in the past, is currently the supermarket group’s biggest shareholder with a 22 percent stake. The deal would probably dilute that holding.

Sainsbury’s invited media and analysts to presentations scheduled for Monday, indicating a done deal.

Walmart declined to comment. Asda did not respond to requests for comment.

Sky News, which first reported the news, said the deal could be worth over 10 billion pounds.

One of the sources who spoke to Reuters said the combined company would have an enterprise value, including debt, of around 15 billion pounds and would remain listed in London.

Sainsbury’s shares closed on Friday at 269 pence, giving the company an equity value of 6 billion pounds.

The deal would be the largest in the UK supermarket sector since Morrisons acquired the Safeway business in 2004.

FILE PHOTO: An ASDA employee walks beneath a company logo outside a store in Manchester, northern England, July 8 , 2016. REUTERS/Phil Noble/File Photo

PROFIT DECLINE

Sainsbury’s has reported three straight years of profit decline, and is forecast to report a fourth on Wednesday. Asda has seen two years of falls.

Asda, which Walmart bought in 1999 for 6.7 billion pounds, is one of the retail giant’s largest and worst-performing international businesses. Analysts reckon Asda was hurt the most by the rise of the discounters, which eroded its traditional price advantage.

“Asda doesn’t have discount and it doesn’t have convenience. This (deal) provides a potential solution for Walmart to deliver a more profitable Asda in the long run,” said Shore Capital analyst Clive Black.

In recent years Walmart has shifted its traditional approach from building overseas businesses itself to partnering with local players, for example in China.

In January, Walmart appointed Chief Operating Officer Judith McKenna to run its international unit with a remit that included fixing its UK operations. McKenna is a Briton and a veteran of Asda, where she served as both COO and finance chief.

Roger Burnley, who took over as Asda CEO in January, is a former Sainsbury’s executive, working under Coupe. One of the sources said he would stay at the combined group.

Tesco last month moved to strengthen its grip on the UK food sector, completing the 4 billion-pound purchase of wholesaler Booker. In 2016 Sainsbury’s purchased general merchandise retailer Argos for 1.1 billion pounds.

Sainsbury’s and the similarly-sized Asda would overtake Tesco with a combined market share of 31.4 percent versus Tesco’s 27.6 percent, according to the latest data from market researcher Kantar Worldpanel.

Asda stores would continue to trade under their own brand, separate from the more upmarket Sainsbury’s, the sources said.

REGULATORY HURDLES

A major uncertainty surrounding any combination would be whether the move secures approval from Britain’s competition regulator, the Competition and Markets Authority (CMA), given that the deal would effectively create a duopoly.

However, the CMA’s surprise unconditional waving through of Tesco’s Booker deal may have changed the regulatory landscape.

“It’s going to be a really big test of the CMA’s understanding of the market and whether it believes that this deal is in the consumer’s interest,” said Shore Capital’s Black.

“It’s hard to believe it would not require considerable store disposals and there aren’t many buyers out there.”

Additional reporting by Nandita Bose in New York; Editing by Georgina Prodhan and Catherine Evans

Exclusive: U.S. considers tightening grip on China ties to corporate America

NEW YORK (Reuters) – The U.S. government may start scrutinizing informal partnerships between American and Chinese companies in the field of artificial intelligence, threatening practices that have long been considered garden variety development work for technology companies, sources familiar with the discussions said.

So far, U.S. government reviews for national security and other concerns have been limited to investment deals and corporate takeovers. This possible new expansion of the mandate – which would serve as a stop-gap measure until Congress imposes tighter restrictions on Chinese investments – is being pushed by members of Congress, and those in U.S. President Donald Trump’s administration who worry about theft of intellectual property and technology transfer to China, according to four people familiar with the matter.

Artificial intelligence, in which machines imitate intelligent human behavior, is a particular area of interest because of the technology’s potential for military usage, they said. Other areas of interest for such new oversight include semiconductors and autonomous vehicles, they added.

These considerations are in early stages, so it remains unclear if they will move forward, and which informal corporate relationships this new initiative would scrutinize.

Any broad effort to sever relationships between Chinese and American tech companies – even temporarily – could have dramatic effects across the industry. Major American technology companies, including Advanced Micro Devices Inc, Qualcomm Inc, Nvidia Corp and IBM, have activities in China ranging from research labs to training initiatives, often in collaboration with Chinese companies and institutions who are major customers.

Top talent in areas including artificial intelligence and chip design also flows freely among companies and universities in both countries.

The nature of informal business relationships varies widely.

For example, when U.S. chipmaker Nvidia Corp – the leader in AI hardware – unveiled a new graphics processing unit that powers data centers, video games and cryptocurrency mining last year, it gave away samples to 30 artificial intelligence scientists, including three who work with China’s government, according to Nvidia.

For a company like Nvidia, which gets a fifth of its business from China, the giveaway was business as usual. It has several arrangements to train local scientists and develop technologies there that rely on its chips. Offering early access helps Nvidia tailor products so it can sell more.

The U.S. government could nix this sort of cooperation through an executive order from Trump by invoking the International Emergency Economic Powers Act. Such a move would unleash sweeping powers to stop or review informal corporate partnerships between a U.S. and Chinese company, any Chinese investment in a U.S. technology company or the Chinese purchases of real estate near sensitive U.S. military sites, the sources said.

“I don’t see any alternative to having a stronger (regulatory) regime because the end result is, without it, the Chinese companies are going to get stronger,” said one of the sources, who is advising U.S. lawmakers on efforts to revise and toughen U.S. foreign investment rules. “They are going to challenge our companies in 10 or 15 years.”

James Lewis, a former Foreign Service officer with the U.S. Departments of State who is now with the Center for Strategic and International Studies, said if the emergency act was invoked, U.S. government officials including those in the Treasury Department could use it “to catch anything they want” that currently fall outside the scope of the regulatory regime.A White House official said that they do not comment on speculation about internal administration policy discussions, but added “we are concerned about Made in China 2025, particularly relevant in this case is its targeting of industries like AI.”

Made in China 2025 is an industrial plan outlining China’s ambition to become a market leader in 10 key sectors including semiconductors, robotics, drugs and devices and smart green cars.

Last month, the White House outlined new import tariffs that were largely directed at China for what Trump described as “intellectual property theft.” That prompted Chinese President Xi Jinping’s government to retaliate with sanctions against the United States.

FILE PHOTO: The People’s Republic of China flag and the U.S. Stars and Stripes fly on a lamp post along Pennsylvania Avenue near the U.S. Capitol during Chinese President Hu Jintao’s state visit, in Washington, D.C.,U.S., January 18, 2011. REUTERS/Hyungwon Kang/File Photo

(For a graphic, click tmsnrt.rs/2GXE9qr)

Those moves followed proposed legislation that would toughen foreign investment rules overseen by the Committee on Foreign Investment in the United States (CFIUS), by giving the committee – made up of representatives from various U.S. government agencies – purview over joint ventures that involve “critical technology”.

Republican and Democratic lawmakers who put forth the proposal in November said changes are aimed at China.

Whereas an overhauled CFIUS would likely review deals relevant to national security and involve foreign ownership, informal partnerships are likely to be regulated by revised export controls when they come into effect, sources said.

To be sure, sources said the Trump administration could change its mind about invoking the emergency act. They added that some within the Treasury Department are also lukewarm about invoking the emergency act as they preferred to focus on passing the revised rules for CFIUS.

FOCUS ON AI

Chinese and U.S. companies are widely believed among analysts to be locked in a two-way race to become the world’s leader in AI. While U.S. tech giants such as Alphabet Inc’s Google are in the lead, Chinese firms like Internet services provider Baidu Inc have made significant strides, according to advisory firm Eurasia Group.

As for U.S. chipmakers, few are as synonymous with the technology as Nvidia, one of the world’s top makers of the highly complex chips that power AI machines.

There is no evidence that Nvidia’s activities represent a threat to national security by, for instance, offering access to trade secrets such as how to make a graphics processing unit. Nvidia also said it does not have joint ventures in China.

In a statement, Nvidia said its collaborations in China – including training Chinese scientists and giving Chinese companies such as telecom provider Huawei Technologies Co Ltd early access to some of its latest technology – are only intended to get feedback on the chips it sells there.

“We are extremely protective of our proprietary technology and know-how,” Nvidia said. “We don’t give any company, anywhere in the world, the core differentiating technology.”

Qualcomm did not respond to requests for a comment, while Advanced Micro Devices and IBM declined to comment.

FILE PHOTO: U.S. President Donald Trump and China’s President Xi Jinping shake hands after making joint statements at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj/File Photo

Nvidia is far from being the only U.S. tech giant, much less the only chipmaker, that lends expertise to China. But it is clearly in the sights of the Chinese. When the country’s Ministry of Science and Technology solicited pitches for research projects last year, one of the listed objectives was to create a chip 20 times faster than Nvidia’s

“Five years ago, this might not be a concern,” said Lewis, “But it’s a concern now because of the political and technological context.”

Additional reporting by Diane Bartz in WASHINGTON; Editing by Lauren LaCapra and Edward Tobin

Exclusive: T-Mobile, Sprint make progress in talks, aim for deal next week – sources

(Reuters) – U.S. wireless carriers T-Mobile US Inc (TMUS.O) and Sprint Corp (S.N) have made progress in negotiating merger terms and are aiming to successfully complete deal talks as early as next week, people familiar with the matter said on Thursday.

FILE PHOTO: The logo of U.S. mobile network operator Sprint Corp is seen at a Sprint store in San Marcos, California August 3, 2015. REUTERS/Mike Blake/File Photo

The combined company would have more than 127 million customers and could create more formidable competition for the No.1 and No.2 wireless players, Verizon Communications Inc (VZ.N) and AT&T Inc (T.N), amid a race to expand offerings in 5G, the next generation of wireless technology.

T-Mobile majority-owner Deutsche Telekom (DTEGn.DE) and Japan’s SoftBank Group Corp (9984.T), which controls Sprint, are considering an agreement that would dictate how they exercise voting control over the combined company, two of the sources said.

This could allow Deutsche Telekom to consolidate the combined company on its books, even without owning a majority stake, the sources added. Deutsche Telekom owns more than 63 percent of T-Mobile, while SoftBank owns 84.7 percent of Sprint.

Deutsche Telekom and T-Mobile are also in the process of finalizing the debt financing package they will use to fund the deal, the sources said.

A T-Mobile logo is advertised on a building sign in Los Angeles, California, U.S., May 11, 2017. REUTERS/Mike Blake

There is no certainty that a deal will be reached, the sources cautioned. The companies came close to a merger agreement in November before SoftBank’s chief executive officer, Masayoshi Son, pulled out of the talks at the last minute.

The sources asked not to be identified because the negotiations are confidential. Sprint, T-Mobile, Deutsche Telekom and SoftBank did not immediately respond to requests for comment.

Sprint and T-Mobile have market capitalizations of $24 billion and $55 billion, respectively. Sprint shares rose 9 percent in afterhours trading in New York, while T-Mobile shares were up 4 percent.

When the previous round of talks between the companies ended in November over valuation disagreements, Deutsche Telekom Chief Executive Officer Tim Hoettges left the door open by saying: “You always meet twice in life.”

Failure to clinch a deal had left SoftBank’s Son, a dealmaker who raised close to $100 billion for his Vision Fund to invest in technology companies, in search of other options for Sprint.

SoftBank has been looking to trim its debt, which reached 15.8 trillion yen ($147 billion) as of the end of December. It has said it is planning to raise cash by taking its Japanese mobile phone unit public this year.

Even though Sprint’s customer base has expanded under CEO Marcelo Claure, growth has been driven by discounting. Analysts have said that without T-Mobile, Sprint lacks the scale needed to invest in its network and to compete in a saturated market.

T-Mobile, under its Chief Executive Officer John Legere, has fared better than Sprint, even if it remains a distant third to Verizon and AT&T. It has managed to score sustained market share gains, as innovative offerings, improving network performance and good customer service attract new customers, according to Moody’s Investors Service Inc.

T-Mobile became the first major U.S. carrier to eliminate two-year contracts, a shift quickly embraced by consumers and copied by competitors. The company has also unsettled rivals with its unlimited data plans.

Another roadblock to the deal could be regulatory hurdles. Sprint’s and T-Mobile’s first round of merger talks ended in 2014 after U.S. President Barack Obama’s administration expressed antitrust concerns about the deal.

It is not clear how the Trump administration would view the combination. AT&T agreed to acquire U.S. media company Time Warner Inc (TWX.N) in October 2016 for $85 billion. The U.S. Department of Justice has sued to block the deal over concerns about the companies’ pricing power in the media market. AT&T and Time Warner are currently defending their deal in court.

Reporting by Greg Roumeliotis and Liana B. Baker in New York and Pamela Barbaglia in London; Additional reporting by Jessica Toonkel in New York and Douglas Busvine in Frankfurt; Editing by Leslie Adler and Tom Brown

Facebook’s rise in profits, users shows resilience after scandals

(Reuters) – Facebook Inc (FB.O) shares rose on Wednesday after the social network reported revenue that beat Wall Street estimates, showing no initial impact on its lucrative ad business from a scandal over the handling of personal data.

FILE PHOTO: Silhouettes of laptop users are seen next to a screen projection of Facebook logo in this picture illustration taken March 28, 2018. REUTERS/Dado Ruvic/Illustration/File Photo

Shares traded up 4.6 percent at $167, paring a month-long decline that began with Facebook’s disclosure in March that consultancy Cambridge Analytica had harvested data belonging to millions of users.

The Cambridge Analytica scandal, affecting up to 87 million users, generated calls for regulation and for users to leave the social network, but there was no sign that advertisers cared.

“Everybody keeps talking about how bad things are for Facebook, but this earnings report to me is very positive, and reiterates that Facebook is fine, and they’ll get through this,” said Daniel Morgan, senior portfolio manager at Synovus Trust Company. His firm holds about 73,000 shares in Facebook.

Facebook’s quarterly profit beat analysts’ estimates, as a 49 percent jump in quarterly revenue slightly outpaced a 39 percent rise in expenses from a year earlier. The mobile ad business grew on a major push to add more video content.

Facebook said monthly active users in the first quarter rose to 2.2 billion, up 13 percent from a year earlier and matching expectations, according to Thomson Reuters I/B/E/S.

The company reversed last quarter’s decline in the number of daily active users in the United States and Canada, saying it had 185 million users there, up from 184 million in the fourth quarter.

The results are a bright spot for the world’s largest social network amid months of negative headlines about the company’s handling of personal information, its role in elections and its fuelling of violence in developing countries.

Facebook, which generates revenue primarily by selling advertising personalized to its users, has demonstrated for several quarters how resilient its business model can be as long as users keep coming back to scroll through its News Feed and watch its videos.

Facebook said it ended the first quarter with 27,742 employees, an increase of 48 percent from a year earlier.

Chief Executive Mark Zuckerberg, who has said he will sacrifice Facebook’s profit margin for the sake of long-term health, said in a statement that Facebook was “investing to make sure our services are used for good.”

Net income attributable to Facebook shareholders rose in the first quarter to $4.99 billion, or $1.69 per share, from $3.06 billion, or $1.04 per share, a year earlier.

Analysts on average were expecting a profit of $1.35 per share, according to Thomson Reuters I/B/E/S.

Total revenue was $11.97 billion, above the analyst estimate of $11.41 billion.

Tighter regulation could make Facebook’s ads less lucrative by reducing the kinds of data it can use to personalize and target ads to users, although Facebook’s size means it could also be well positioned to cope with regulations.

Facebook and Alphabet Inc’s (GOOGL.O) Google together dominate the internet ad business worldwide. Facebook is expected to take 18 percent of global digital ad revenue this year, compared with Google’s 31 percent, according to research firm eMarketer.

The company said it was increasing the amount of money authorized to repurchase shares by an additional $9 billion. It had initially authorized repurchases up to $6 billion.

Facebook shares closed at $185.09 on March 16, the day that the Cambridge Analytica scandal broke after the bell on a Friday. In the days immediately afterward, the company lost more than $50 billion in market value.

Even if the company’s flagship social network, Facebook, suffers large reputational damage among users or advertisers, it still owns three more of the most popular smartphone apps in the world: Instagram, Messenger and WhatsApp.

Reporting by David Ingram in San Francisco and Munsif Vengattil in Bengaluru; Editing by Lisa Shumaker

Wall Street slides as high bond yields fan cost worries

NEW YORK (Reuters) – U.S. stocks slid on Tuesday as 10-year Treasury yields hit the highly anticipated 3 percent mark for the first time in four years, stoking concerns over higher borrowing rates for companies already facing rising costs, and as quarterly results failed to deliver positive outlooks.

The S&P 500 and the Dow fell the most in two-and-a-half weeks, while the Dow Jones Industrial Average was down for a fifth day in a row. The S&P 500 is now down 1.5 percent year-to-date.

The 10-year yield, a benchmark for global borrowing costs, has been driven steadily higher by a combination of concerns over inflation, growing debt supply and rising Federal Reserve borrowing costs.

“It makes borrowing costs more expensive for corporations. This market rally for the last nine years has been driven by low interest rates, accommodating monetary policy and excess liquidity,” said Oliver Pursche, chief market strategist for Bruderman Asset Management in New York.

Higher bond yields could also prompt portfolio managers to weigh moving money into more attractive fixed-income securities at the expense of equities. The stock market had already been spooked by a climb in bond yields earlier in the year, sliding sharply in February..

Technology .SPLRCT and industrial .SPLRCI stocks weighed on the major indexes on Tuesday, with Alphabet Inc (GOOGL.O), Facebook Inc (FB.O), 3M Co (MMM.N) and Caterpillar Inc (CAT.N) all falling more than 3.5 percent.

Alphabet shares fell {GOOGL.O;-PCTCHNG:2}77 percent, erasing the stock’s year-to-date gains as rising expenses and shrinking margins overshadowed the company’s better-than-expected profit.

Industrial bellwether Caterpillar tumbled {CAT;-PCTCHNG:2} percent on fears of increasing steel prices, despite the company’s beating earnings estimates due to strong global demand.

Diversified industrial manufacturer 3M was the biggest drag on the Dow Jones Industrial Average .DJI. Shares fell {MMM;-PCTCHNG:2} percent after the company posted in-line profits as lower taxes offset a miss in operating profits and the company lowered its 2018 earnings forecast.

“We’re seeing some of the earnings numbers have come out, and after further review, (investors) realized where all this revenue was coming from,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. “They didn’t see it as recurring or indicative of the core business.

“I think what investors had hoped the benefit from taxes would get redeployed back into the company. That’s not happening,” Nolte said.

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in the Manhattan borough of New York City, New York, U.S., April 19, 2018. REUTERS/Brendan McDermid

The Dow Jones Industrial Average .DJI {.DJI;NETCHNG_1,PCTCHNG;[F1<0]fell -F1 points, or -F2 percent,[F1>0]rose F1 points, or F2 percent,[F1=0]remained unchanged} to {.DJI;TRDPRC_1}, the S&P 500 .SPX {.SPX;NETCHNG_1,PCTCHNG:2;[F1<0]lost -F1 points, or -F2 percent,[F1>0]gained F1 points, or F2 percent,[F1=0]remained unchanged} to {.SPX;TRDPRC_1} and the Nasdaq Composite .IXIC {.IXIC;NETCHNG_1:2,PCTCHNG;[F1<0]dropped -F1 points, or -F2 percent,[F1>0]added F1 points, or F2 percent,[F1=0]remained unchanged} to {.IXIC;TRDPRC_1:2}.

Apple Inc (AAPL.O) shares lost {AAPL.O;-PCTCHNG:2} percent as worries over softening demand for high-end smartphones were underscored as Corning Inc (GLW.N) reported a drop in screen glass sales for the first time in at least four quarters.

Other technology stocks in the FAANG group, Facebook, Amazon.com Inc (AMZN.O) and Netflix Inc (NFLX.O), also weighed on the Nasdaq.

“They’re kind of pulling each other down,” said Nolte. “Investors are saying, ‘You know, the group has had a tremendous run over the last two to three years, maybe we should take some money off the table here.’”

Shares of Lockheed Martin Corp (LMT.N), the Pentagon’s largest weapons supplier, dropped {LMT;-PCTCHNG:2} percent. The company reported better-than-expected first-quarter earnings and boosted its full-year sales and profit forecast but did not raise its 2018 cash-flow projections.

So far, 24 percent of S&P 500 companies have reported first-quarter results, with 77.1 percent coming in above the Street consensus, versus the 64 percent average since 1994. Analysts estimate 21.1 percent growth in earnings for the quarter, according to Thomson Reuters data.

On the economic front, U.S. consumer confidence rebounded in April, according to the Conference Board, as short-term optimism improved and the share of consumers expecting their incomes to decline in the coming months hit its lowest level since December 2000.

Oil rose above $75 a barrel to its highest level since November 2014, but then reversed course as U.S. President Donald Trump and French President Emmanuel Macron pledged to try to resolve U.S.-European differences on Iran, easing concerns that the United States might reinstate sanctions against Iran.

Declining issues outnumbered advancing ones on the NYSE by a 1.94-to-1 ratio; on Nasdaq, a 1.71-to-1 ratio favored decliners.

The S&P 500 posted 13 new 52-week highs and 21 new lows; the Nasdaq Composite recorded 61 new highs and 90 new lows.

Volume on U.S. exchanges was 7.22 billion shares, compared to the 6.80 billion average for the full session over the last 20 trading days.

Reporting by Stephen Culp; Editing by Leslie Adler

Google parent Alphabet profit beats despite privacy concerns

SAN FRANCISCO (Reuters) – Google owner Alphabet Inc (GOOGL.O) reported first-quarter sales and profit Monday that topped financial analysts’ estimates as it achieved better pricing on ads and saw unrealized income from startup investments, sending its shares up about 1 percent after-hours.

FILE PHOTO: The Google logo is pictured atop an office building in Irvine, California, U.S., August 7, 2017. REUTERS/Mike Blake/File Photo

The results eased concerns that investment in new ventures beyond its core search business was undermining Alphabet’s outlook. There also were no immediate signs that rising global privacy concerns would affect profits.

Alphabet’s profit margins have fallen in recent quarters as it ramps up costly new projects in cloud computing and hardware at its core Google unit, and despite spending cuts on an unprofitable set of ancillary initiatives known as “other bets.”

But quarterly profit of $9.4 billion, or $13.33 per share, exceeded estimates of $6.56 billion, or $9.28 per share, according to Thomson Reuters I/B/E/S. About $3.40 of the earnings per share were attributable to a new accounting method for unrealized gains in Alphabet’s investments in startups such as Uber Technologies Inc [UBER.UL].

Excluding the investment-related gains and other items, adjusted earnings were $9.93 per share, topping the $9.28 per share consensus.

The price for clicks and views of ads sold by Google rose in its favor as advertisers pursued ad slots on its search engine, YouTube video service and millions of partner apps and websites.

Investor appetite for Alphabet has been weakened by a combination of cost and regulatory concerns as officials across the world seek to force changes in Google’s business practices, such as giving customers more control over privacy of their data. Shares had fallen nearly 3.5 percent this year until a swift pre-earnings rebound last week.

U.S. lawmakers initially sought to question Google alongside rival Facebook Inc (FB.O) at a hearing this month on how British data analysis firm Cambridge Analytica was able to acquire data on unwitting Facebook users.

Google was later excused. But analysts who follow the company have said Google may not escape European Union regulators, which plan to begin enforcing a new data privacy law next month. It could prompt more users to reject receiving personalized ads online, costing Google a few billion dollars in annual sales, said Brian Wieser, a senior analyst at Pivotal Research.

Advertisers also may limit ad-buying this year while sorting out their own compliance with the new European policy, known as General Data Protection Regulation, he said.

Still, any pullback would be temporary because of the effectiveness of Internet advertising compared with declining media such as print and broadcast, analysts say. Alphabet’s first-quarter results again showed that advertisers’ attraction to Google’s powerful systems in particular is strong, which could help it rebound from any privacy setbacks.

Worldwide ad sales increased to $31.1 billion, above the average analysts’ estimate of $30.3 billion.

Revenue from Google’s mobile app store and growth priorities such as cloud computing services and consumer devices was $4.4 billion in the first quarter.

But Google saw its operating margin fall compared with a year ago as it acquired 2,000 employees in Taiwan for $1.1 billion from HTC Corp (2498.TW).

Google also saw cost increases from moving up when it awards equity to employees and acquiring streaming rights for its YouTube TV offering.

Executives have said some costs will moderate this year.

Reporting by Paresh Dave and Arjun Panchadar; Editing by Lisa Shumaker and Peter Henderson

U.S. regulator permits China’s ZTE to submit more evidence

NEW YORK (Reuters) – The U.S. Commerce Department has granted ZTE Corp’s (000063.SZ) (0763.HK) request to submit more evidence after the agency banned American companies from selling to the Chinese technology firm, a senior Commerce official said on Saturday.

FILE PHOTO – Visitors pass in front of the Chinese telecoms equipment group ZTE Corp booth at the Mobile World Congress in Barcelona, Spain, February 26, 2018. REUTERS/Sergio Perez/File Photo

The U.S. Commerce Department’s Bureau of Industry and Security, or BIS, this week banned American companies from selling to ZTE for seven years, saying the Chinese company had broken a settlement agreement with repeated false statements. The action was sparked by ZTE’s violation of an agreement that was reached after it was caught illegally shipping U.S. goods to Iran.

According to Commerce regulations, there is no appeals process, but the agency has “exercised discretion” to let ZTE present additional evidence through an “informal procedure,” the senior official said.

The Wall Street Journal first reported the decision by Commerce to allow more evidence.

ZTE, in a statement on Friday, called the initial decision “unacceptable” and said it could cause damage to both the company and its partners.

It is unclear whether the decision to accept more evidence would provide a chance for resolution between U.S. regulators and the company.

This week’s U.S. action, first reported by Reuters, could be devastating to ZTE since American companies are estimated to provide 25 to 30 percent of the components used in ZTE’s equipment, which includes networking gear and smartphones.

The ban is the result of ZTE’s failure to comply with an agreement with the U.S. government after it pleaded guilty last year in federal court in Texas to conspiring to violate U.S. sanctions by illegally shipping U.S. goods and technology to Iran.

The company paid $890 million in fines and penalties, with an additional penalty of $300 million that could be imposed.

As part of the agreement, Shenzhen-based ZTE promised to dismiss four senior employees and discipline 35 others by either reducing their bonuses or reprimanding them, senior Commerce Department officials told Reuters. But the Chinese company admitted in March that while it had fired the four senior employees, it had not disciplined or reduced bonuses to the 35 others.

Under terms of the ban, U.S. companies cannot export prohibited goods, such as chip sets, directly to ZTE or via another country, beginning immediately.

The U.S. action against ZTE is likely to further exacerbate current tensions between Washington and Beijing over trade. After the United States placed export restrictions on ZTE in 2016 for Iran sanctions violations, China’s Ministry of Commerce and Foreign Ministry criticized the decision.

Reporting by Ginger Gibson in Washington and Karen Freifield in New York; Editing by Matthew Lewis

Trade tensions set for brighter U.S. corporate spotlight

NEW YORK (Reuters) – The potential for an intensifying trade dispute to undercut the U.S. stock market could become clearer next week when a host of multinational companies reports quarterly results that may provide a glimpse into the impact of those global tensions.

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., April 18, 2018. REUTERS/Brendan McDermid

A broad trade war scaled up a list of worries for Corporate America and equity investors after U.S. President Donald Trump imposed tariffs last month on imports of steel and aluminum. His comments and posts on Twitter about unfair behavior by U.S. trade partners have rattled the market, which has pulled back from record highs early this year.

China has responded with tariffs of its own, leading to fears about a full-blown trade war and injecting fresh volatility into a stock market that has been more jittery over the past two months.

Of 25 U.S. companies seen by Credit Suisse as most exposed to a trade war, more than half will report their results in the coming week. They include Halliburton Co on Monday, 3M Co and Texas Instruments Inc on Tuesday, Boeing Co on Wednesday, Intel Corp on Thursday and Chevron Corp on Friday.

Overall, more than 180 companies in the benchmark S&P 500 index are due to report results next week. Some companies have already weighed in on trade tensions in the early stages of earnings season.

“Management has to walk a fine line between flapping their arms and lobbying against tariffs, and presenting themselves as vulnerable to tariffs,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago.

Of particular concern will be executives’ views about their exposure to China, the world’s No. 2 economy and an important market for many U.S. companies.

“I’d like to know if things do deteriorate with China, how much it would affect them,” said David Joy, chief market strategist at Ameriprise in Boston.

Omar Aguilar, chief investment officer of equities at Charles Schwab Investment Management in San Francisco, said he expects companies to start discussing how they may alter their budget for capital expenditure “depending on the outlook of policies related to trade.”

Company comments about tariffs and trade could blemish what is expected otherwise to be a stellar earnings season, which includes the first full quarter with the recently passed U.S. corporate tax cuts. With 87 companies having reported so far, S&P 500 profits in the first quarter are expected to have increased a whopping 20 percent, according to Thomson Reuters data.

With investors focused on earnings, the S&P 500 was set to rise by almost 1 percent for the week, but the benchmark index is little changed from where it ended 2017.

Trade tensions cast a shadow on an otherwise rosy report about U.S. economic growth from the U.S. Federal Reserve this week.

In the latest “Beige Book,” the Fed’s periodic summary of contacts with businesses, the words “tariff” or “tariffs” were mentioned 36 times, compared to zero mentions in the March 7 Beige Book.

“Contacts in various sectors including manufacturing, agriculture, and transportation expressed concern about the newly imposed and/or proposed tariffs,” according to the report, which covered the period from March to early April.

Martin Anstice, the chief executive of Lam Research, said this week that the chip equipment maker had yet to see an impact on its business from tariffs, but was watching for any dampening of consumer confidence or changes to domestic equipment company agendas.

“If things got a little bit tit-for-tat, then there are obviously risks at a minimum that we need to be attentive to,” Anstice told analysts on a conference call.

Honeywell Chief Financial Officer Tom Szlosek called the China tariffs “a fluid situation”, and that the diversified industrial manufacturer was assessing its exposure “while also actively developing mitigation plans.”

Any trade war would erode economic growth and affect its business, said Hamid Moghadam, CEO of Prologis Inc, a real estate company specializing in warehouses, but he added that “I don’t think we’re quite there yet.”

“All of our customers that I’m aware of have basically had their head down doing their business and not paying too much attention to what comes out in the tweets in the morning until there’s something specific they can react to,” Moghadam said on his company’s call.

Additional reporting by Sinead Carew in New York and Noel Randewich in San Francisco; Editing by Bernadette Baum