Apple’s Rumored Acquisition of Beats Delayed Until Next Week
Apple’s (NASDAQ:AAPL) rumored acquisition of premium headphone maker Beats Electronics may not be concluded until next week, according to sources cited by Re/code. When the story of Apple’s bid for Beats first broke last week, the Financial Times suggested that the deal would be finalized this week. Re/code’s sources offered no reason for the new timeline, and it is unclear if it the deal was delayed or if the previous information was simply incorrect.
Rumors about Apple’s interest in buying Beats Electronics were first reported on Thursday by the Financial Times. Several other media outlets subsequently confirmed the story through their own sources. According to the rumors, Apple will acquire Beats for $3.2 billion, the most the iPhone maker has ever paid for a company. The story gained further credence when a video of Beats co-founder Dr. Dre seemingly celebrating the deal surfaced on social media.
According to sources cited by The Wall Street Journal, Beats Electronics co-founders Jimmy Iovine and Dr. Dre (whose real name is Andre Young) would likely take senior positions at Apple. Last week, the Street’s initial reaction to the acquisition rumor was mostly negative, including a research note from Piper Jaffray analyst Gene Munster obtained by Barron’s that called the deal “a bad idea.”
Munster said in the note: “Beats would of course bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand’s sake (i.e., there are no non-Apple sub-brands under the company umbrella). Separately, we are not aware of any intellectual property within Beats that would drive the acquisition justification beyond the brand.”
On the other hand, Munster saw the addition of Iovine as potential boon for Apple. The longtime record and film producer’s experience and industry contacts would ostensibly benefit Apple’s overall content strategy.
Despite the largely negative initial reaction, other analysts have since characterized the acquisition as a smart move by Apple. UBS analyst Steven Milunovich released a research note earlier this week that outlined several reasons why Apple’s purchase of Beats might be a good idea.
“The potential purchase of Beats Electronics for $3.2bn as discussed in the press could make sense given that (1) the purchase price is reasonable if Beats revenue is about $1.4bn with high margins; (2) Apple uses the music service to complement its mediocre success with iTunes Radio (see p3); and (3) headphones and their designers fit into the company’s wearable plans,” said Milunovich in the note, obtained by Barron’s. “Before formulating a strong opinion, it would be nice to hear Apple’s rationale.”
Milunovich also noted that Iovine would be a good fit in Apple’s corporate culture since his “focus on the user experience is similar to Apple’s emphasis on product experience.” Finally, Milunovich also pointed out that the acquisition of the Beats brand could boost Apple’s appeal to “young people and to African-Americans.” However, despite the many rumors, it should be said that Apple has yet to confirm the acquisition of Beats.
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