5 Issues That May Be Delaying Apple’s Purchase of Beats
Ever since the Financial Times first broke the story that Apple (NASDAQ:AAPL) was seeking to purchase Beats Electronics for $3.2 billion on May 8, various media outlets have repeatedly reported that the deal was on the verge of being finalized. With no indication that the deal had been closed last week, Re/Code cited insider sources who predicted that the two companies would ink a deal this week. However, with less than twenty-four hours left in this week, it appears that the rumored acquisition has been put on hold once again. So why is a deal that so many insiders are convinced is about to happen being delayed yet again?
Billboard, the source of several previous leaks about Apple’s music industry ambitions, has compiled a list of five reasons why the Apple-Beats deal is being held up, based on information from insider sources and industry rumors. The first reason cited by Billboard may also be the most obvious: the acquisition is being delayed because “it’s complicated.” Although Apple completed fifteen strategic acquisitions in fiscal year 2013, those deals involved much smaller amounts of money. “Remember this is the biggest deal they’ve ever done, and it’s CEO Tim Cook’s first really big deal,” an insider source told Billboard. The most that Apple has ever paid for a company was in 1997 when it acquired NeXT for $400 million in a deal that also returned Steve Jobs to the company he helped found.
The second reason why the deal is being delayed may be that the news was leaked too early, noted another of Billboard’s sources. In other words, whoever leaked the original story may have miscalculated how close the deal was to being completed. Of course, this also begs the question of how a $3.2 billion figure emerged if Apple was not close to finalizing the deal.
The third reason behind a delay in the deal may be related to a clash in the two company’s cultures. More specifically, Billboard’s sources claimed that executives in Apple’s conservative corporate culture were alarmed by a profanity-laced video of Beats co-founder Dr. Dre and R&B artist Tyrese Gibson celebrating and seemingly referencing the pending acquisition. On the other hand, it seems odd that a multi-billion dollar deal would be delayed over such a minor gaffe.
The fourth reason is also somewhat related to the differences between the two companies’ cultures. Although several media outlets have reported that Jimmy Iovine and Dr. Dre will take senior positions at Apple, Billboard’s sources noted that the Cupertino-based company may still be trying to figure out exactly what those roles will be. Some industry watchers, including Steve Jobs’s biographer Walter Isaacson and Piper Jaffray analyst Gene Munster, believe that Iovine will take charge of Apple’s overall content strategy.
Finally, Billboard’s sources noted that the deal might have been delayed over issues related to the valuation of Beats. Although the $3.2 billion figure has been widely reported in the media, there is no guarantee that Apple has already determined a final price for the company. According to Billboard’s sources, some of the unresolved valuation issues may involve Beats Music; the premium headphone maker’s recently launched subscription music-streaming service. Despite the hold up, none of the sources contacted by Billboard have suggested that the deal is falling apart. Although this may sound like a familiar refrain to Apple watchers who have been following this story, insider sources have once again predicted that the deal will be finalized next week.
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