Did Apple save Dr. Dre and Jimmy Iovine just in time?

“Nobody published as detailed — or as nasty — a look at Apple’s newest acquisition as the one Sam Hamadah’s PrivCo posted on Thursday,” Philip Elmer-DeWitt reports for Fortune. “According to PrivCo, Beats in June 2013 was only days away from default on hundreds of millions of dollars of debt, and was saved from bankruptcy with a short-term, high-interested note, due next month and secured by rights to all Beats assets, trademarks and equity.”

P.E.D. reports, “The report is unsigned, except for a summary quote from PrivCo founder and sometime movie producer Sam Hamadah: ‘After Beats took its manufacturing in-house in 2012 — turning Beats into a low-margin electronics maker — while at the same time buying back HTC’s stake in the company with $265 Million in borrowed money due within 12 months, by 2013 Beats Electronics was a distressed business by any standard. New lenders were balking at Beats’ plan to borrow more money to not just pay off its looming debts, but to pay Dre and Iovine a quarter-billion dividend to boot. The company was in a corner until Carlyle stepped in. And now Apple coming to the rescue as Dre’s and Beats’ final savior. As for the king’s ransom Apple is paying, no traditional valuation measure applied to Beats as a business justifies the price. Although even CEOs become star-struck, they shouldn’t ever become blind. We must assume Apple and Tim Cook have grand plans to which we’re not privy to.'”

Read more in the full article here.

[Thanks to MacDailyNews Reader “Arline M.” for the heads up.]

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31 Comments

  1. the DEVIL is in the details. We all know what the DEVIL is and what the DEVIL’s plans are right? This is not a biblical, or even a religious rant. This is the plain and simple truth that the bleak darkness is reigning down upon us all.

    1. IOW, I have no idea why Apple bought Beats, but I have to write something about it, and it’s easiest to bash the deal because I don’t understand it, so here it is.

    2. Well, they shouldn’t all end with a preposition, but that bothers me less than the fact that they had it *fixed* with “to which”, but left the errant “to” at the end anyway. 😛

      I’ve got to turn off my grammar Nazi switch. (Go ahead – hammer me now for “got to”!)

      1. Definitely have to leave grammar critiques at the door when using the internets, but yeah that “to which” with the ending “to” is a disaster. Editors just aren’t what they used to be.

      2. Hey, leave my Grammar this. She may have been an ardent nazi, but she made the best bratwurst and spaetzle I’ve ever had, and the spitshine on her jackboots was amazing!

  2. I’m sorry, but wouldn’t Apple get access to Beats’s books as part of the buy-out process? It’s not like Tim Cook said, “Hey, I want to buy Beats. I’m going to throw money at them without doing my due diligence.”

    Here’s the thing these idiot pundits bashing this deal don’t understand: THEY DON’T KNOW SQUAT ABOUT BEATS’S FINANCIALS! Apple didn’t go into this deal blind. If Apple determined the price that they offered was what the companies were worth, then that’s what they’re worth.

    Monday-morning quarterbacking morons.

    1. Of course Apple saw Beats’ books. Apple also saw Beats upcoming products, research, and whatever special ideas or new services or contracts Beats may have that could be of huge benefit to Apple. And that may be what is justifying the price, or perhaps Apple had to out pay some other suitor.

      1. Exactly right, which is why I don’t understand why everyone is claiming Apple made some huge mistake here. It’s not like Apple is going in blind and “buying a brand for the sake of it.”

        You’d think these analysts would be smart enough to know this. (Well, of course they are, but there’s more money in manipulating Apple’s stock downward than there is in actually giving thoughtful analysis.)

    1. Apple will keep blowing wads, because this is Tim Cook’s Apple, a mere shadow of the once great Steve Jobs’s Apple. They are coasting into oblivion. The old saying, if you can’t innovate, buy a company that can, still stands.

  3. My take in the article is that the problem isn’t that Beats is a bad business, it just hasn’t been managed very well.
    Under Apple’s roof that would not be an issue at all!

  4. This article is silly (as are many others). A company is as valuable as someone is willing to pay for it. Just look at the L.A. Clippers. Valued at around $700 million 3-4 weeks ago, then sold for $2 billion. Why? Because multiple people really wanted the company, so the price went up.

    For all we know, Apple had to out bid someone else for Beats and Apple decided that what it would receive would be much more valuable to Apple than $3 billion. If Apple can turn Beats Music into a $2 billion/year profit machine, then isn’t a one-time $3 billion purchase price worth the investment?

  5. And a lame Tim Cook fell for the bait!

    This acquisition was just another Tim Cook blunder to stack on top the myriad others that’s he’s made in the last 3-years.

    I can’t believe he’s still CEO of Apple, after all the mistakes he’s made… utterly amazing!

    Let’s buy a heavily indebted company on the brink of bankruptcy, that sells cheap headphones for hundreds of dollars to naive teenagers, but that were made in China for a few bucks.

    Let’s also pay one-thousand times more for the company than it’s worth, but let’s also leak the story 2-weeks ahead of time so that I can look like an even bigger jackass when Dre brags in a YouTube video about how stupid I am.

    Where do I sign?

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