Businessweek's Abercrombie Cover Is Really... Something

This week's Businessweek cover is really something.

The cover goes along with the magazine's latest feature, "The Aging of Abercrombie & Fitch," which chronicles the rise and fall of the teen retailer. The image, featuring an elderly man suggestively tugging on the waistline of a pair of unbuttoned jeans, is a play on Abercrombie's provocative ads that often feature topless men and scantily clad women.

Like many other teen retailers, Abercrombie has been struggling in recent years. Mike Jeffries, the company's controversial CEO who once said the brand was "exclusionary" and that it only marketed to "cool kids," announced he was stepping down in December.

A representative from Abercrombie declined to comment on the magazine cover.

Samsung In Talks With BlackBerry About $7.5 Billion Buyout: Source

By Jennifer Ablan and Liana B. Baker

NEW YORK (Reuters) - (Corrects Jan. 14 story, changes to representatives from the companies, from executives in paragraph 3)

Samsung Electronics recently offered to buy BlackBerry Ltd for as much as $7.5 billion, seeking its valuable patents as it battles Apple in the corporate market, according to a person familiar with the matter and documents seen by Reuters.

South Korea's Samsung <005930.KS> proposed an initial price range of $13.35 to $15.49 per share, representing a premium of 38 percent to 60 percent over BlackBerry's current trading price, the source said on Wednesday.

Representatives from the two companies, which are working with advisers, met last week to discuss a potential transaction, the source said, asking not to be identified because the conversations are private.

The Waterloo, Ontario-based company said in a statement that it "has not engaged in discussions with Samsung with respect to any possible offer to purchase BlackBerry. Shares of BlackBerry, which soared nearly 30 percent following the Reuters report, fell back about 15 percent in after-hours electronic trading following the statement.

Separately on Wednesday, Canadian newspaper Globe and Mail reported BlackBerry has shunned a handful of takeover overtures in recent months as its board and largest investor think its restructuring strategy will deliver greater shareholder value than current acquisition offers.

The board believes offering prices, some in excess of $7 billion, fall well below BlackBerry's potential asset value in the next few years, according to the Globe and Mail report.

Blackberry, a one-time investor darling that pioneered smartphones, has regained some of its lost swagger under Chief Executive John Chen, who is leading a bid to regain market share it has lost to Apple Inc, Google Inc and Samsung.

CORPORATE MARKET

"BlackBerry is in such transition today, so any investment has been a bet on the future, so at this point Samsung is cutting in before that full future becomes a reality," said Morningstar analyst Brian Colello.

Samsung’s strength as the No. 1 global smart phone marker has been built on making devices for the consumer market, which has become crowded in recent years. With a takeover of Blackberry, Samsung could make greater inroads into the corporate market, where it has trailed rivals.

“How many Samsung phones do you see in offices? This would be Samsung’s chance to get into the enterprise,” said BGC Partners analyst Colin Gillis.

Any tie-up with Samsung would require the blessing of Prem Watsa, whose Fairfax Financial Holdings Ltd is a major Blackberry shareholder. Fairfax helped bankroll a debt recapitalization that led to Chen's arrival in November 2013 as CEO. Paul Rivett, president of Watsa’s Fairfax Financial Holdings, declined to comment.

The bid would also face regulatory scrutiny in both Ottawa and Washington. Under Canadian law, any foreign takeover of BlackBerry would require government approval under the Industry Canada Act.

BlackBerry's secure networks manage the email traffic of thousands of large corporate customers, along with government and military agencies across the globe.

Samsung and its advisers also anticipate a complex approval process at the Committee on Foreign Investment in the United States (CFIUS), which reviews deals for national security implication, the documents reviewed by Reuters show.

PATENT PORTFOLIO

Samsung thinks that acquiring less than 100 percent of BlackBerry, perhaps keeping part of it as a publicly traded entity with an independent board, could help secure easier CFIUS approval. But it doubts whether it can accomplish its strategic objectives with less than 100 percent ownership, the documents show.

In 2013, the Canadian government had strongly hinted to BlackBerry that any sale to China’s Lenovo Group would be rejected due to security concerns, sources told Reuters at the time. Harper's office wouldn't comment on the report on Wednesday but sources familiar with the Canadian government's thinking said a Samsung buyout was unlikely to raise such concerns.

Ross Healy, a portfolio manager at MacNicol & Associates, which owns a small stake in Blackberry, said Samsung's reported offer undervalues the company.

“To get a hold of the BlackBerry network and all its secure features, that would be a real coup for Samsung, looking to differentiate themselves from Apple and from others," he said.

Blackberry's patent portfolio is composed of roughly 44,000 patents, worth more than $1.43 billion in net book value as of August last year, although many analysts think they could be worth much more.

Edward Snyder, managing director of Charter Equity Research, said it made sense for Samsung to target BlackBerry's patents in its outgoing battle with Apple and others, and that it likely would need to bid for the whole company because BlackBerry management did not want to only sell specific assets.

"Samsung will have to buy the whole thing and then and shutter what they don't need,” he said.

BlackBerry launched its long-awaited Classic model on Wednesday, hoping to help win back market share and woo customers still using older devices with a keyboard. The phone resembles its once popular Bold and Curve handsets.

In the third quarter, revenue at Blackberry, which is increasingly focusing on providing services like secure corporate networks, fell to $793 million from $1.19 billion a year earlier, falling short of analysts' expectations of $931.5 million.

Shares of Blackberry jumped as much as 30 percent on heavy volume in afternoon trading at $29.71 per share in New York.

The offer price would imply an enterprise value of $6 billion to $7.5 billion for BlackBerry, assuming conversion of $1.25 billion of convertible debt, according to the documents.

BlackBerry announced a high-profile security partnership with Samsung in November. The partnership will wed BlackBerry's security platform with the South Korean company's own security software for its Galaxy devices.

(Reporting by Jennifer Ablan and Liana Baker in New York, additional reporting by Alastair Sharp and Allison Martell in Toronto and Randall Palmer in Ottawa, Editing by Soyoung Kim and Christian Plumb)

Obamacare Is Close To Achieving Goal Of 9.1 Million Signups

WASHINGTON (AP) — The Obama administration is moving closer to its goal of 9.1 million people signed up for private coverage under the president's health care law.

The Health and Human Services Department says at least 400,000 people signed up last week. That brought total enrollment in the 37 states served by HealthCare.gov to more than 7.1 million.

National figures should be significantly higher because the federal count doesn't include major states such as California and New York that are running their own markets.

Florida leads the federal marketplace states, with more than 1.2 million people enrolled. Texas has nearly 920,000.

The administration is expecting a surge near the Feb. 15 sign-up deadline.

The law offers subsidized private coverage to people who don't have health insurance on the job.

SpaceX Gets $1 Billion From Google And Fidelity

HAWTHORNE, Calif. (AP) — SpaceX has raised $1 billion from Google and Fidelity in a deal that values the spaceship manufacturer at about $10 billion.

The infusion announced Tuesday will give Google Inc. and Fidelity Investments a nearly 10 percent stake in SpaceX, a Hawthorne, California, company that employs more than 3,000 people.

Although privately held SpaceX didn't reveal any concrete plans, the money could help founder Elon Musk realize his hopes to fly people to Mars within the next 12 years and eventually build a city on the planet.

Musk, 43, also has publicly talked about using satellites to provide Internet access to remote parts of the Earth, a mission that Google also has embraced in a separate project that relies on high-altitude balloons. As the owner of the largest Internet search engine and digital ad network, Google stands to make more money if more people can get online.

"Space-based applications, like imaging satellites, can help people more easily access important information, so we're excited to support SpaceX's growth as it develops new launch technologies," Google said in a statement.

Donald Harrison, who oversees Google's corporate development team, will be joining SpaceX's board of directors as part of the company's investment.

SpaceX, which stands for Space Exploration Technologies, has previously raised money from the Founders Fund, Draper Fisher Jurvetson, Valor Equity Partners and Capricorn since its 2002 inception. The Founders Fund was started by Peter Thiel, who teamed up with Musk in the late 1990s to create the online payment service PayPal.

Musk also is CEO of electric car maker Tesla Motors and has made headlines for his vision of a high-speed transportation system that would shoot passengers through elevated tubes from San Francisco to Los Angeles.

SpaceX's spacecraft has been used to deliver goods to the International Space Station.

A Bad Basketball Team Is A Great Investment

It's a great time to own an NBA team. And an even better time to sell one: A bad team losing money in a big city is ten times more valuable than it was just five years ago.

Take Russian oligarch Mikhail Prokhorov: He wants to sell the Brooklyn Nets, Bloomberg reported this week. The Brooklyn Nets are not good (they're 16-23). They lost $144 million last year, too.

Yet the Nets are also worth somewhere between $1.3 and $2.7 billion, according to various estimates.

How can such an bad, money-losing team be worth so much money? Television.

The Nets, like all teams in the NBA, get money from the league's revenue-sharing agreement, which parcels out the proceeds of national TV rights, taking money from rich teams and giving it to poorer ones. As part of that deal, every team gets an equal share of the TV money. That share was about $30 million this year. It will be more than twice that amount once a new nine-year, $24 billion deal takes effect in 2016.

And that’s just national media money. The Nets have their own local TV rights deal in the New York City area. It expires next year and is worth $20 million a year. Which is actually not all that much money -- it’s not unrealistic to think the Nets could get ten times more from a renegotiated deal. After all, the Los Angeles Clippers, who play in the country's second-largest media market, are expected to get $200 million a year when their current $20 million-a-year deal expires in 2016.

The Nets are losing money right now because they’re loaded up with silly expensive contracts for aging, poorly performing players that put them way over the league's salary cap. For breaking that cap, the team had to pay a league-record $90 million in luxury taxes for the 2013-2014 season.

Those player contracts are bad, financially and on the court, but they’re far shorter than media rights deals. Phase them out, sign a new, much-improved local TV deal, add in the soon-to-double league TV checks, and the Nets start looking like a pretty decent business: almost fixed revenue, slashed costs, and no real competition.

It’s actually more than a decent business model, it’s a great one -- unless you’re a basketball fan. Jay Z, former part-owner of the Nets, wasn’t just bragging when he said, “the Nets could go 0-for-82 and I look at you like this shit gravy.”

He was right. That’s just how the economics of owning an NBA team work: The costs of putting a team on the court are variable and under your control, while revenue is set in stone. The best way to make the most money is to spend as little money on players as possible in as big a media market as possible. Owners in such a market have an incentive to put a minimally viable product on the court: just good enough not to be a complete joke, but not much more. And even if you are spectacularly bad for a few seasons, high draft picks help you out.

Once the new owner sunsets the most expensive players, the Nets will be what they always should have been: a great business, regardless of how bad a team they are.

Obama's Free College Plan Is A Great Way To Give America A Raise

Putting Obama's free community college plan into action could cost $60 billion over the next decade. But the economic boost it provides could be even greater.

If enacted, the proposal will offer two tuition-free years of community college to students who maintain a C+ grade-point average and attend classes at least half-time. The federal government would cover 75 percent of the cost, with participating states covering the rest.

Studies find that community college investments pay themselves back to the government many times over and vastly raise students' earning potential. Nationwide, community colleges are already a major part of the U.S. economy, contributing an estimated $809 billion in 2012, according to a study by the Economic Modeling Specialists Intl. On the local level, community colleges mean better jobs, higher wages and more spending power for graduates, as well as a larger skilled workforce for local employers.

"Rising levels of education yield a more skilled workforce, which is a crucial driver of economic growth," Shai Reshef, founder and president of University of the People, a nonprofit online university, said in a recent interview with The Washington Post. "I think Obama’s proposal is an effort to revive education as one of the drivers of economic growth, and this is a good thing."

California, home to the largest community college system in the country, exemplifies the kinds of economic gains Obama's plan could bring.

A recent analysis found that a 2 percent increase in people with an associate’s degree and a 1 percent increase in people with a bachelor’s degree would result in $20 billion in additional economic input, $1.2 billion in additional state and local tax revenues every year and 174,000 new jobs.

For every dollar spent on economic and workforce development programs at community colleges, there is a $12 increase in California’s business income and employee wages, according to the Foundation for California Community Colleges. Furthermore, the state receives a $4.5 net return for every dollar it invests to get students through college.

Community colleges have come to serve as an affordable stepping stone for California students who go on to pursue bachelor’s degrees. More than half of California State University graduates started at community colleges, as did nearly a third of University of California graduates. The state’s community colleges are major training centers for some of the most in-demand careers. Over 70 percent of the state’s nurses graduated from the system. It also provides credentials to 80 percent of the state’s firefighters, law enforcement officers and EMTs.

Though the state's community colleges are the cheapest in the nation, severe budget cuts limited access to these opportunities and brought enrollment to an all-time low in 2013. Meanwhile, students have flocked to for-profit colleges, which offer less competition to get into courses and ply students with false promises about their graduates’ success rates. Nationally, the rate of default on student loans is higher at for-profit colleges than it is at public and private nonprofit institutions. The free community college plan could funnel students away from predatory institutions.

Maxwell Strachan contributed to this report.

Chipotle Pork Shortage Is Proof Of A Larger Problem Facing The Food Industry

Americans increasingly want grocers and restaurants to carry meat they can feel good about eating. But that meat is scarce, as Chipotle's pork problem revealed this week.

Chipotle, which has won over diners partly for its commitment to sustainability and animal welfare, recently discovered that one of its pork suppliers wasn’t meeting its “Responsibly Raised” standards. Chris Arnold, a Chipotle spokesman, explained in an emailed statement that the chain refuses to sell pork that comes from conventional farms because such pigs “generally do not have access to the outdoors, [and] spend their lives in densely crowded buildings,” among other issues.

But there is so little quality pork on the market that, for now, Chipotle has stopped offering the meat in hundreds of its locations.

“We would rather not serve pork at all, than serve pork from animals that are raised in this way,” Arnold said. "Replacing the supply we have lost in these ways will take some time, but it is important to us to maintain our high standards for pork and we will continue to see some shortage while we work to increase the available supply. "

Chipotle’s predicament illustrates the challenge in running a big chain committed to humanely raised meat. Less than 5 percent of meat in the U.S. is raised according to humane standards even using the broadest definitions, according to Andrew Gunther, the program director of American Welfare Approved, which certifies farms as humane.

Chipotle occasionally runs into this issue with beef as well, substituting meat from conventional farms when there isn’t enough available from suppliers that meet its standards. But in the case of the pork, the chain won't budge on its requirements. In an email, Arnold said that the differences in animal welfare are greatest with pork.

Other big chains taking a stab at selling humanely raised meat are also struggling for supply. Carl’s Jr. launched its “All Natural Burger” in December, and the chain is sourcing its grass-fed, antibiotic- and steroid-free beef from Australia because there isn’t enough supply in the U.S., the company’s CEO told USAToday last month.

And the market for this meat is only getting more crowded. Smaller chains with a similar feel-good ethos -- Shake Shack, Sweet Green and Native Foods -- are growing increasingly popular as diners demand fresh, natural and ethically raised food.

The problem is that the mass meat market, particularly the segment that caters to fast-food restaurants, is driven largely by price, said Aaron Allen, the founder of Aaron Allen and Associates, a restaurant consulting firm. "That's really the way that the industry has been oriented for the last three to four decades: How do we get it cheaper? Quicker?" Allen said. In that kind of environment, there's little reward for suppliers to spend the time and money ramping up their quality standards.

In the case of pigs specifically, converting farms to raise animals more humanely is expensive and may not be financially feasible for many farmers, said Adele Douglass, the executive director of Humane Farm Animal Care, another program that certifies farms as humane. The most controversial pig farming practice is keeping pigs in "gestation crates," which leave them with barely enough room to do anything other than lie down.

Increasing standards would mean putting the pigs into group housing or larger group pens that give them more room to move, Douglass said. Chipotle's pork suppliers also have to give their pigs outdoor access or house them in deeply bedded pens, and keep them free of antibiotics

In Douglass’ ideal world, the government would step in and offer farmers loans or grants to convert their farms. But short of government intervention, companies can help speed up these changes. The bigger the restaurant chain, the more influence it has over suppliers and the whole system. Gunther noted that restaurants can make long-term commitments to suppliers that agree to overhaul farms and raise animals more humanely.

“These companies can build these supply chains if they think it’s a good idea,” Gunther said. “It can be done, it just requires commitment.”

The risk in this approach is that restaurants might not want to get locked into a specific supplier and a specific price for a long period of time, making them less flexible.

Still, there’s hope. McDonald’s announced in 2012 that it would stop using pork that came from farms using gestation crates by 2022. The announcement came after controversy over the crates became too loud to ignore -- several states had already banned or restricted their use.

At the time, McDonald’s said it would work to help U.S. suppliers comply with the directive, but it was impossible to make the switch immediately.

“There are not enough sows housed in non-gestation crates right now,” Bob Langert, McDonald's vice president of corporate social responsibility and sustainability, told Reuters.