Report: Beats Electronics seeking to terminate HTC partnership

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Beats Electronics is looking to buy out embattled mobile device maker HTC, which owns a 25.5 percent stake in the audio technology firm, The Wall Street Journal reports.

Sources said that Beats--which manufactures the popular Beats by Dre headphones and is scheduled to launch its Daisy streaming music service later this year--plans to broaden its portfolio to include speakers, in-car audio systems and consumer electronics, and is seeking a new investor to help fund its ambitions. Insiders add that earlier this summer, Beats unsuccessfully attempted to raise $700 million to refinance debt and buy out HTC's stake, with Beats co-founder and CEO Jimmy Iovine pitching the proposal at a midtown Manhattan hotel where the company passed out free headphones to debt investors and played loud music.

The Journal report indicates Beats is now in talks with an investor that could provide debt financing and possibly take a minority ownership stake. Beats officials declined to disclose details of the investment, including the investor's identity. An HTC spokesperson declined to comment on whether the company intends to sell its Beats stake.

HTC purchased a 50.1 percent majority stake in Beats for $309 million in mid-2011, selling back 25 percent to Iovine and co-founder Andre Young--a.k.a. hip-hop icon Dr. Dre--for $150 million less than a year later. After returning the 25 percent, HTC said it would continue working with Beats to develop audio experiences optimized for mobile devices, retaining exclusive mobile rights over those technologies.

HTC has struggled to remain competitive in the mobile device market as rivals like Samsung Electronics have gained momentum. HTC shares have lost close to 90 percent of their value since Apr. 2011, when the company was second only to Apple (NASDAQ:AAPL) in U.S. smartphone sales.

Beats revenues increased to roughly $1 billion last year from less than $200 million in 2010, sources said. As of June 2013, Beats controls 59 percent of the U.S. market for premium headphones, according to NPD Group; that market, which includes all headphones and earphones costing at least $99, surged 18 percent last year, NPD notes.

The Daisy music service is scheduled to launch commercially in late 2013. Beats has so far revealed few details about the initiative. The company acquired digital music provider MOG in mid-2012: MOG offers free and premium streaming access across the mobile and desktop platforms, but it is unclear whether Daisy will follow a similar approach. Beats will face competition from Apple's forthcoming iTunes Radio as well as established players like Spotify, Rhapsody and Slacker Radio.

For more:
- read this Wall Street Journal article

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