Apple Inc. (NASDAQ:AAPL) is all set to buy Beats Electronics, but at a lower price than previously expected. On May 8, reports surfaced that the iPhone maker is in talks to acquire Beats for $3.2 billion. But the New York Post has learned that Apple has reduced the purchase price to $3 billion, down $200 million from the previous bid. The Cupertino-based company is expected to officially announced the deal by the end of this week.
Update 5:06 PM EST: Apple Officially Buys Beats For $3B
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Why did Apple reduce the offer?
It’s unclear what caused Apple Inc. (NASDAQ:AAPL) to reduce its offer. The company’s lawyers seem to have re-evaluated the deal after a leaked report which claimed that Beats Electronics had just 110,000 paying subscribers in March. The leading streaming service Spotify has more than 10 million paying customers, and another 30 million subscribers who use it for free. Moreover, a not-so-good video from Beats co-founder Dr. Dre “freaked” the tech giant out.
Sources told the NYPost that Apple Inc. (NASDAQ:AAPL) is still putting a higher valuation on Beats Electronics’ audio business which sells high-end headphones and speakers. The audio business generated more than $1.3 billion in sales in 2013. Sources close to the talks said that Tim Cook’s team hadn’t even started its due diligence process when reports of the $3.2 billion price tag came out.
Beats co-founders may attend Apple’s WWDC
Beats Electronics co-founders Jimmy Iovine and Dr. Dre are likely to pocket hundreds of millions of dollars in the deal. Dr. Dre owns 20%-25% stake in the company. If the price tag is $3 billion, he stands to gross a maximum of $750 million. Apple Inc. (NASDAQ:AAPL) doesn’t have a streaming service, which is the mainstay of music-label revenues. There has been a lot of debate on whether the iPhone maker wants to buy Beats for its streaming music or hardware business.
Sources said that the deal will be completed before the Worldwide Developers Conference begins on June 2. Jimmy Iovine and Dr. Dre are both expected to attend the conference.
Apple Inc. (NASDAQ:AAPL) shares inched up 0.16% to $626.61 at 11:48 AM EDT on Wednesday.