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.]

Related articles:
Apple paying under $500 million for Beats Music streaming service – May 30, 2014
With Beats, Apple has its next iPod – May 29, 2014
Jimmy Iovine: Apple’s new music impresario – May 29, 2014
Tim Cook: Beats acquisition a ‘killer’ deal for Apple – May 29, 2014
Did Tim Cook just pay $3 billion for his successor, Jimmy Iovine? – May 29, 2014
Steven Levy: With Beats Music service, Apple’s Tim Cook goes against the wisdom of Steve Jobs – May 29, 2014
Apple + Beats = MTV? – May 29, 2014
Eddy Cue and Jimmy Iovine: Steve Jobs would be extremely proud of Apple today – May 29, 2014
Jimmy Iovine brings his own brand of ‘reality distortion field’ to Apple – May 29, 2014
JPMorgan: Apple may spin-off Beats Electronics business – May 29, 2014
Apple CEO Cook: Beats deal a ‘no-brainer’ – May 28, 2014
Tim Cook’s internal memo to Apple employees regarding Beats acquisition – May 28, 2014
It’s official: Apple acquires Beats Music and Beats Electronics for $3 billion – May 28, 2014


  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?

  6. As for the king’s ransom Apple is paying. . . . We must assume Apple and Tim Cook have grand plans to which we’re not privy to.’”

    YES. I can at least shout that opinion. $3 Billion for a company on the brink of bankruptcy. That explains why they were for sale. And then what happens?

    1. (Sigh. Left out the closing italics tag. Late for my lunch, obviously. Please read, no italics):

      YES. I can at least shout that opinion. $3 Billion for a company on the brink of bankruptcy. That explains why they were for sale. And then what happens?

      Something good please.

  7. Two points.

    First, if there is one thing that Tim Cook has proven it is that he can turn around “low margin electronics manufacturers”. Tim Cook is the one who brought down Apple’s manufacturing costs and kept Apple in business when Steve Jobs brought him in. He can certainly make the hardware end at Beats more profitable.

    Second, a lot of strategic value to Apple may simply be in keeping Beats away from a competitor like Samsung. Neither the writer nor anyone on this forum know who else was making offers for Beats.

    Apple wants them for a reason, so presumably they don’t want a competitor to get them. There are a lot of acquisitions that are done strictly for this reason alone.

    1. Nice points! I agree there is a lot of strategy involved in this move but for the price tag keeping Beats away from competitors can’t be a top-3 reason for the purchase.

    2. Apple wants them for their headphone manufacturing, both ear-and-headphone, something which Sony have had in-house for years, a fact that was used to beat (ha! See what I did there?) Apple every time a phone or music player review came up. The Beats range, which is high profile and enormously popular with young people who use iPhones and pods, gives Apple a direct entry into that market, while tweaks to the speaker tunings on the higher-end models, like the Solo HD and Studio models, balancing out the frequencies for the more mature market gives Apple a whole new product range; well designed, easily carried headphones that sound great, and carrying the Apple logo on the outside.
      Sounds good to me… ;^)

  8. Apple better off spending money improving earbud design and sound. Is it just me or do most hate wearing a DJ headgear just to listen to music. It would ruin my superbly coifed hair.

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