Apple acquires Beats for $3 bn in biggest acquisition to date

Apple Inc, the maker of the iPod and the iPhone, today announced that it has acquired headphone maker Beats Electronics for $3 billion, its biggest acquisition to date.

''Music is such an important part of all of our lives and holds a special place within our hearts at Apple,'' said Tim Cook, Apple's CEO. ''That's why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.''

The California-based technology giant will pay $2.6 billion in cash and approximately $400 million in stock.

As part of the deal, Beats co-founders, rapper and hip-hop producer Andre "Dr Dre" Young, and music producer Jimmy Iovine will join Apple in undisclosed roles.

This acquisition is Apple's largest after it acquired Steve Jobs' software company NeXT in 1997 for $429 million.

The acquisition includes both the streaming Beats Music subscription service and the division that produces headphones and speakers.

Although armed with $150 billion in cash reserves, the cash-conservative company is paying over the hill for Beats, which was valued at around $1 billion late last year when private-equity firm Carlyle Group invested $500 million for a minority stake in the company. (See: Carlyle to acquire minority stake in Beats Electronics for $500 mn)

Apple's rival smartphone maker HTC of Taiwan had acquired a 50.1-per cent majority stake in Beats in 2011 for $309 million and sold 25 per cent in less than a year back to the company's founders, for $150 million.

As part of the investment, HTC integrated Beats' headphones and audio technology into its own smart phones.

In 2006, Iovine and Dre set out to solve the problem of poor sound quality caused by the digital revolution combined with the proliferation of cheap ear buds bundled with MP3 players, laptops, mobile phones and other portable devices.

Their solution led to the founding of Beats in 2008. Beats' portfolio comprises the Beats by Dr Dre range of premium consumer headphones, earphones, and speakers as well as patented Beats Audio software technology.

Beats, which has estimated annual sales of $2 billion,  currently has more than 64 per cent per cent market share of the $100-plus premium headphone category in North America, according to data provided by NPD Group.

Its products are used in Chrysler vehicles, Hewlett Packard computers and monitors, and HTC smart phones. They are also being sold in Apple's retail stores.

In just five years since its launch, the Beats ''b'' has become the brand of choice in the music and sports worlds, and is the market leader in the premium headphone market.

Music superstars including Lady Gaga, Lil Wayne and Nicki Minaj have designed their own customised Beats headphones and speakers, while fashion designers and street artists such as Alexander Wang, Futura and Snarkitecture have collaborated on special limited products, and athletes including LeBron James, Serena Williams and Neymar use Beats as a critical part of their training.

Beats has quickly become part of pop culture in the US and with the acquisition, the Beats product lineup will be offered in many more countries through the Apple Online Store, Apple's retail stores and select Apple Authorised Resellers.

Last month, Beats launched a subscription streaming music service using Apple's in-app purchase, which competes with iTunes Radio.

With the acquisition, Apple will jump-start its eight-month-old iTunes Radio and catch up with leaders in the music streaming business like Pandora Media Inc and Spotify.

''The addition of Beats will make our music lineup even better, from free streaming with iTunes Radio to a world-class subscription service in Beats, and of course buying music from the iTunes Store as customers have loved to do for years,'' said, Apple's senior vice president, Eddy Cue.