It's Official: Apple Is Buying Beats for $3 Billion

Moneybox
A blog about business and economics.
May 28 2014 11:52 AM

It's Official: Apple Is Buying Beats for $3 Billion

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A slight change in the Beats deal price could thwart Dr. Dre's bid to become hip-hop's wealthiest man.

Photo by Isaac Brekken/Getty Images for Beats by Dre

Update, May 28, 4:45 p.m.: Apple is officially buying Beats Electronics for $3 billion—shelling out $2.6 billion in cash and $400 million in equity for the music-streaming service and iconic headphones. Apple will continue to use the Beats brand and bring co-founders Dr. Dre and Jimmy Iovine aboard at the company's electronics and music-streaming divisions. The New York Times reports that Apple CEO Tim Cook said the deal was a "no-brainer." "These guys are really unique," he told the Times. "It's like finding the precise grain of sand on the beach. They're rare and very hard to find." Apple expects the transaction to close in the fourth quarter of the fiscal year.

Apple is expected to announce its much-hyped deal with Beats Electronics this week, though at a slightly lower price. The New York Post reports that Apple is cutting the cost of the deal to $3 billion from the previously expected $3.2 billion. The Post suggests that a leaked report that pegged Beats Music's March subscriber count to just 111,000 may have led to a reduced valuation for the firm, especially compared with the 10 million paying subscribers Spotify reported for the same period.

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If the deal ends up going through for $3 billion, the $200 million adjustment will only amount to a 6 percent reduction in cost. But that could be enough to undo Dr. Dre's ambitious dream (and premature celebration) of becoming hip-hop's first billionaire. Dre is thought to hold around a 25 percent stake in Beats. Forbes estimated earlier this month that a $3.2 billion deal could boost his net worth to some $800 million after capital gains taxes were accounted for. That wouldn't quite catapult Dre into the 10-figure club, but it would be enough to overtake Sean "Diddy" Combs' estimated $700 million fortune and make him hip-hop's wealthiest man. A $3 billion deal, on the other hand, could make the hip-hop wealth race a closer call.

Alison Griswold is a Slate staff writer covering business and economics.

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