Apple might buy Beats Electronics with foreign cash, effectively paying much less than $3.2 billion

“Apple might not be overpaying for Beats Electronics after all,” Patrick Seitz reports for Investor’s Business Daily.

“The two companies have not confirmed Apple’s rumored purchase of high-end headphone maker Beats, but media reports have put the price tag at $3.2 billion,” Seitz reports. “Some analysts have said that the price would be too high, especially considering that The Carlyle Group paid $500 million for roughly 50% of Beats just last September.”

“But Apple effectively could be paying much less for the company because Beats established tax residency in Ireland in 2012 with a holding company,” Seitz reports. “Depending on how a potential acquisition is structured, Apple could buy Beats with foreign funds that have not been repatriated to the U.S., wrote Joe Harpaz, head of the corporate tax and accounting business at Thomson Reuters, in a blog post on Forbes on Thursday. ‘Corporate M&A decisions are increasingly being driven by offshore tax policy,’ Harpaz said. ‘Following the rough tax math of a foreign acquisition, Apple’s $3.2 billion bid would really be more like $2 billion if the transaction could take place in Ireland.'”

Read more in the full article here.

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    1. Joe Harpaz is completely wrong in his claim that “…Apple’s $3.2 billion bid would really be more like $2 billion if the transaction could take place in Ireland.” His “rough math” would only apply if Apple were purchasing Beats in the U.S. using repatriated funds. Apple would never do that because it makes no sense at all.

      There are only four reasonable approaches for Apple to make such a purchase (were they intending to do so):

      1) Fund the purchase in the U.S. using U.S. cash flow
      2) Fund the purchase in the U.S. using borrowed money
      3) Execute the purchase in the U.S. using AAPL stock
      4) Fund the purchase outside of the U.S. using foreign profits

      In every one of these cases, the cost is basically the same, except for the relatively low borrowing charges in case (2). The scenario proposed by Joe Harpaz in which Apple somehow magically “saves” $1.2B is fantasy.

  1. Why they call it “high end” when it’s no audiophile-grade and made for? It’s only meant to make money out of a stage name! Stop this misinformation! I wouldn’t buy it even if it said Steve Jobs on it from now on. With all due respect to Mr. Jobs. If it’s true it can not be for these plastic head jewelries.

    1. Depends entirely on which Beats ‘phones you’re referring to.
      Seeing as how they run from around £99 up to £325, that’s a hell of a price range.
      I’ve tried their ‘phones at £125, and ones at £260, sound-wise I was pretty impressed with the high-end ones, while the cheap ones are well-enough built but far too bassy for my tastes, and I like good, solid bass in some of my music.
      I do like the simple, uncluttered appearance of Beats ‘phones, and the fact that they fold into a compact package, I’m tempted to pick up a pair of cheap refurbished ones, and set up a custom curve in EQu, a music app that I use with my various different canalphones.
      I’m pretty sure most of the negative comments about Beats ‘phones is due to their being highly popular among young people who don’t care much about sound quality, and like lots of bass-heavy music; a modified version, with Apple’s attention to QC, and a modified sound to give a more neutral quality, I’m sure would appeal to a lot of Apple users, with the ‘b’ logo replaced with a more subtle Apple logo.
      There’s nothing inherently wrong with Beats ‘phones that a bit of tweaking to give them wider appeal wouldn’t put right.

  2. It would still be $3.2 billion, whatever the monetary unit, whatever bloated taxes #MyStupidGovernment attempts to extract from foreign made profits. Meanwhile, this is all just blahblahblah about nothing substantial.

    Another slow news day, apparently…

    1. Yes foreign profit should only be taxed there. I am proposing a similar law in Calif. I think no business should pay CA income tax on any money they get from out of state tourists or businesses. It is not the state’s right to collect non CA profits. In fact I think cities and counties should do the same, No one should pay taxes anywhere they do not want to. There, problem solved.

  3. Maybe it is going to be used as a tax conversion play similar to he PFE takeover of a UK firm. Apple buys Beats and then merges the firm into Beats Irish Corp and never has to pay taxes on the billions it holds offshore. Would be an immediate windfall as they can reverse the tax expense they booked. This is hypothetical or wishful thinking. I’m no tax expert.

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