HTC sells back half of stake in audio firm Beats

A man poses with a replica of the HTC smartphone inside a mobile phone shop in Taipei April 6, 2012.

TAIPEI (Reuters) - Taiwanese smartphone maker HTC Corp's shares fell as much as 4 percent on Monday after the sale of half of its holding in audio technology firm Beats Electronics back to Beats' founders raised concern over its strategy.

HTC bought 50.1 percent of Beats Electronics, which was founded by U.S. rapper and music producer Dr. Dre and Beats' current CEO Jimmy Iovine, for $309 million in August last year, as part of its efforts to differentiate its phones and enhance branding amid rising competition.

But it said in a weekend statement that it sold 25 percent back to Beats' founders for $150 million. It will continue to work closely with the maker of high-end headphones and speakers.

"We find HTC's announcement of cutting back its investment in Beats puzzling," said Morgan Stanley in a research report, adding that the structure of the whole deal from acquisition to disposal does not make much strategic and financial sense to HTC shareholders without disclosure of more details.

"Reducing its holding to 25.57 percent signals HTC's separation from Beats' operations. Possibly it implies that there was not much synergy between the two companies from the beginning."

HTC will remain Beats' largest shareholder with 25.1 percent, with Beats' founders holding the remainder. It will hold a 25.57 percent voting right. Some models in its latest One series of phones use Beats audio technology.

The share sale "provides Beats with more flexibility for global expansion while maintaining HTC's major stake and commercial exclusivity in mobile," HTC's statement said.

By 0212 GMT, shares of HTC has lost 3.83 percent, versus broader market's 2.11 percent fall.

Fierce competition from Samsung's Galaxy phones could be pushing HTC towards a more conservative operation and centralized business, according to KBC Concord Asset Management Investment and Research Manager Henry Chen.

In a separate statement, HTC said it had agreed to lend Beats T$6.74 billion ($224.85 million) for one year with an interest rate of LIBOR+1.5 percent to LIBOR+7.5 percent.

HTC's profit more than halved in the second quarter, with the company struggling to regain market share lost to Samsung and Apple Inc.

($1 = 29.9755 Taiwan dollars)

(Reporting by Jonathan Standing and Clare Jim; Editing by Richard Pullin)