Starbucks to fight tip-sharing ruling

Starbucks Corp. will not pay back its California baristas for tips they shared with shift supervisors, defying a San Diego Superior Court ruling last week.

"The ruling would take away the right of shift supervisors to receive the tips they earn for providing superior customer service," said Chief Executive Howard Schultz, in a voicemail message to employees Wednesday night. "I want you to know that we strongly believe that this ruling is extremely unfair and beyond reason."

In the voicemail, a transcript of which was released by Starbucks (SBUX, Fortune 500), Schultz said the media "grossly mischaracterized" the coffee chain's standard practice of allowing shift supervisors to share in tips left for baristas.

"We would never condone any type of behavior that would lead anyone to conclude that we would take money from our people," he said.

The company said in a separate statement Wednesday that there is no money to be "refunded or returned from Starbucks."

The California lawsuit was filed in 2004, and was granted class-action status in 2006. Last week, San Diego Superior Court Judge Patricia Cowett ordered Starbucks to pay baristas more than $100 million in back tips and interest, saying state law prohibits managers and supervisors from taking a cut from the tip jar. A hearing is set for May 1 before Cowett on how the California tip money should be distributed.

Starbucks responded in the statement that "shift supervisors are not managers and have no managerial authority," and customers don't differentiate between the supervisors and baristas when they tip.

Cowett also issued an injunction preventing Starbucks' shift supervisors from sharing in future tips, but Starbucks said it would not comply with the order while it appeals the court decision.

Since the ruling, two similar lawsuits against Starbucks have been filed, one in Minnesota and one in Massachusetts. Both seek-class action status. In his message to employees, Schultz vowed to "vigorously defend" the company.

Shares of Starbucks dipped 45 cents, or 2.6%, to $17.17 in afternoon trading.

Barry Diller wins battle for IAC/InterActiveCorp

A Delaware judge on Friday sided with media mogul Barry Diller in his dispute with John Malone, effectively paving the way for the breakup of Internet media giant IAC/InterActiveCorp.

The decision is the latest chapter in a high-profile showdown between billionaires Diller and Malone, who has a controlling interest in IAC/InterActive. Under a 1995 proxy agreement between Diller and Malone, Malone gave Diller the right to exercise Malone's 60% voting authority.

The media moguls are battling over Diller's proposal to break up IAC (IACI, Fortune 500) into five separate companies. IAC's holdings include Ask.com, Match.com, Ticketmaster, and the Home Shopping Network. The proposal would diminish Malone's majority shareholder voting power in the spinoffs. Malone agreed that the spinoff would be a good idea, but objected to the shareholder voting structure of the spinoffs.

Delaware Chancery Court Judge Stephen Lamb on Friday upheld that proxy agreement, letting Diller vote Malone's shares in favor of the breakup

Malone contends that Diller is attempting to wrest control of IAC from Liberty Media (LINTA), which owns a majority of the company's voting stock.

Malone and Liberty had asked the court whether it could oust Diller on the claim that he breached his fuduciary duties to shareholders by devising the spinoff plan.

On that matter, Lamb concluded that "it is premature to consider the claimsrelating to the fiduciary duties of the IAC board of directors.

"The simple, inescapable fact is that the IAC directors have not yet finally authorized the spin-off," he wrote, "and have not even considered many of the essential terms of that transaction, including the voting structure of the spincos."

The ruling caps a five-day trial held earlier this month.

Diller issued a statement late Friday, expressing regret over the falling out. "I wish this hadn't happened, but it did," he said. "Now it's over and we can all get on with our work and lives."

Countdown to iPhone 2.0

Apple is gearing up for a big bump in sales of the next generation iPhone, if new production plans are any guide.

The plans show the faster iPhone will be rolling off the assembly line this summer. The initial order calls for 11 million iPhones to be built this year, with that total split between the existing 2.5G phone and the upgraded 3G phone, according to people familiar with the plan.

Apple (AAPL, Fortune 500) appears to be targetting a June introduction of the 3G version of the phone, roughly a year after the original iPhone's debut. And similar to last year, Apple seems to be scheduling a limited initial supply to be followed by more phones in the fall quarter.

Observers are split on how to interpret the plans however.

Bank of America analyst, Scott Craig, who put out a research note Friday dissecting the Apple production plans, says the order indicates a significant production increase. If true, this could provide a surprise boost to the company's numbers. BofA expects 8 million iPhones will get sold this year, and if the 3G model is successful, every additional million beyond their projection translates to about $400 million in added sales and 12 cents per share - or 2% - more in profit.

But other analysts familiar with Apple's order patterns say the production reports are typically overestimated by the company, largely to keep component suppliers fully stocked should demand take off. By this reckoning, Apple will probably make about half of the 11 million iPhones the initial production plan calls for. It will probably have about one million 3G phones ready at launch and 4 to 5 million to follow later this year, says one analyst.

The curious part of the upcoming 3G iPhone introduction is just how Apple plans to handle the older iPhone. The new phone will operate on AT&T's (T, Fortune 500) faster network giving a big speed boost to mobile Internet users. The new phone will also be packed with more features including GPS navigation. Apple will clearly have a big price tag on the new phone, and observers speculate that the older version - which fetches $500 for the larger memory model - will likely get another price cut.

With two premium phones in the market, Apple is looking at a potentially robust second half sales spree. But the Cupertino, Calif. gadget giant will not have the field entirely to itself. Several phone makers are introducing touchscreen phones aimed at the iPhone this year. Sony Ericsson dazzled fans at recent gadget shows with a prototype of its upcoming Xperia phone, a touchscreen design with a slide-open keyboard. Another prototype that is a dead-ringer for the iPhone is Garmin's (GRMN) nuvifone, a GPS touchscreen device with a phone built in.

And probably the most hotly anticipated new smart phone in the wings is Research in Motion's (RIMM) 9000 BlackBerry. Though RIM acknowledges that a new BlackBerry is in the works, there have been scant few details available about its design. It will most likely include a touchscreen and easily be regarded as a sweet piece of handcandy for BlackBerry loyalists.

Take-Two rejects Electronic Arts bid

Grand Theft Auto" publisher Take-Two Interactive told its shareholders Wednesday to reject a $2 billion buyout bid from rival video game company Electronic Arts, saying it's not enough.

But in the same breath the company said it will explore alternatives, even combining with EA or other third parties, to maximize its value for shareholders. But it wants to wait until after April 29, when "Grand Theft Auto IV," the latest in the blockbuster series, hits store shelves. The game is by far Take-Two's most popular and one of the best-selling franchises in the industry.

Bid turned hostile earlier this month. The $26-per-share bid turned hostile March 13 when EA took the offer directly to shareholders. Take-Two's board had asked for 10 business days to mull over the decision and that time ran out Wednesday.

Take-Two took several steps to prevent EA from going through with a hostile takeover. It adopted a 180-day shareholders' rights agreement, also known as a "poison pill." It kicks in if an outsider acquires 20 percent of Take-Two's shares or if an existing shareholder who already owns this much buys another 2%.
Zap! Videogame takeover fight heats up

Chairman Strauss Zelnick said the rights agreement "will not, and is not intended to, prevent a takeover of the company on terms that are fair to and in the best interests of all stockholders."

Shareholder meeting moved. Take-Two (TTWO) also moved back its upcoming annual shareholder meeting to April 17 from April 10 and amended its bylaws to give shareholders more time to nominate board members.

A representative for Redwood City, Calif.-based Electronic Arts Inc. (ERTS) could not immediately be reached for comment.

Take-Two Interactive Software Inc.'s shares have briefly climbed above $26 in recent weeks, but analysts are not expecting the offer to go much higher. The company said it has received other "indications of interest" since EA's offer became public last month, but there haven't been any "substantive discussions."

Take-Two said it is willing to start preliminary talks, including with EA, before April 29 under confidentiality agreements.

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