Apple’s Cook Pursuing Beats Seen Presaging More Big Takeovers
2014-05-10 04:01:00.6 GMT
By Peter Burrows
May 10 (Bloomberg) -- Tim Cook is making a habit of
breaking with Apple Inc.’s past.
The chief executive officer is overseeing talks to purchase
Beats Electronics LLC, the headphones and music service company
founded by music-industry executive Jimmy Iovine and hip-hop
artist Dr. Dre, for $3.2 billion, people with knowledge of the
matter have said.
That goes against the playbook of Apple co-founder Steve
Jobs, who never paid more than a few hundred million dollars for
an acquisition, choosing to buy small companies designed to
bring in technology and talent. Buying Beats will also signify
Cook’s willingness to use Apple’s $150.6 billion in cash more
aggressively, according to Gene Munster, an analyst at Piper
Jaffray Cos. in Minneapolis.
“This opens the door to do more mergers and acquisitions,
and I think you’ll see more deals around content and products,”
Munster said.
Apple’s possible targets include Yelp Inc., payments
company Square Inc. and Twitter Inc., Munster said.
Until now, Cook has closely followed Jobs’s mergers
strategy. The Cupertino, California-based company has bought 24
companies over the past 18 months, mostly small.
The biggest-ever acquisition was the $400 million Apple
paid in 1997 to buy Next Computer Inc. as part of a deal to
bring Jobs back to the company. Since then, the largest known
purchase was Anobit Technologies Ltd., a flash-memory drive
maker, for about $390 million two years ago.
Modus Operandi
A deal to buy Beats would be unlike anything Jobs ever did,
and shows that Cook is taking his predecessor’s advice to heart.
“Just do what’s right,” Cook recalled Jobs telling him before
his death in 2011. Cook said the Apple co-founder told him not
to worry about what he would do.
Cook has already been putting his stamp on Apple since
taking over, introducing dividends and share buybacks and
rolling out a corporate philanthropy program. Apple is also
sharing more information about its environmental efforts and
labor conditions in its supply chain.
“This appears to be the first time they are acquiring
another brand, which hasn’t been their modus operandi,” said
Todd Lowenstein, a money manager at Highmark Capital Management
Inc. in Montecito, California. “At this deal value, this would
mark the largest acquisition in its history and a material
divergence from past strategy.”
Tom Neumayr, a spokesman for Apple, and Sarah Joyce, a
spokeswoman for Beats, declined to comment. Faryl Ury, a
spokeswoman for Square, and Rachel Walker, a spokeswoman for
Yelp, declined to comment. A Twitter representative didn’t
immediately respond to requests for comment.
Big Targets
Lowenstein and some other investors are questioning why
Cook would choose Beats as the company to break the mold. With
annual sales of around $1 billion, the Santa Monica, California-
based company won’t deliver meaningful top-line growth relative
to Apple’s revenue of $170.9 billion in its latest fiscal year,
even if Beats were to grow 50 percent a year, according to
Charles Wolf, an analyst at Needham & Co.
“I don’t think investors care at all about the $3.2
billion,” Wolf said. “They might care if Apple did a $50
billion acquisition.”
Apple shares barely budged on news of the Beats deal. The
stock fell less than 1 percent to $585.54 at the close in New
York.
Brand Appeal
With Beats, Apple would also bolster its online music
services as the market for downloads, which Apple dominated,
slows. Music has long been one of the cornerstones of Apple’s
business, with its iTunes store and the iPod player that
reignited the company’s growth more than a decade ago. Apple has
also rolled out iTunes Radio, an advertising-supported streaming
service that competes with Pandora Media Inc. and Spotify Ltd.
While Beats would be too small to jump-start growth, the
deal would indicate that Apple is more serious about selling
more content and services to its customers to make up for slower
sales of mobile devices, according to Colin Gillis, an analyst
at BGC Partners LP in New York.
“This would be a step toward building a services layer,”
Gillis said. “Why not just buy Spotify? Go for the big boy in
the market.”
Maintaining a separate brand might also help Apple appeal
to a younger audience that no longer thinks Apple is cool,
Gillis said. Still, 67 percent of U.S. teens said their next
smartphone would be an iPhone, according to Piper Jaffray.
Another benefit of a deal would be bringing Beats co-
founder Iovine closer into Apple’s fold. The 61-year-old music
producer was instrumental in helping Jobs hone the strategy that
enabled iTunes to dominate the music business.
“Apple seems to want to burnish its brand with a younger
demographic and Dr. Dre and Jimmy Iovine have done a great job
of branding those headphones,” Mike McGuire, an analyst at
Gartner Inc., said. “Tim Cook has been alluding to new products
coming soon, maybe they are feeling they need to round their
lineup a bit.”
For Related News and Information:
Apple Said Near Buying Beats Electronics for $3.2 Billion
FIFW NSN N5BP326KLVRF <GO>
Apple Said to Prepare Song-ID Feature for IPhone Software Update
FIFW NSN N45GO56KLVRF <GO>
Carlyle Group Buys Minority Stake in Dr. Dre’s Beats Electronics
FIFW NSN MTS7806K50XS <GO>
Apple income charts: AAPL US <EQUITY> FA Q IS CHART <GO>
Apple relative value: AAPL US <EQUITY> RV <GO>
Top Technology Stories: TTOP <GO>
--With assistance from Scott Moritz in New York and Sarah Frier
and Adam Satariano in San Francisco.
To contact the reporter on this story:
Peter Burrows in San Francisco at +1-415-617-7191 or
pburrows@bloomberg.net
To contact the editors responsible for this story:
Pui-Wing Tam at +1-415-617-7327 or
ptam13@bloomberg.net
Reed Stevenson, Stephen West
2014-05-10 04:01:00.6 GMT
By Peter Burrows
May 10 (Bloomberg) -- Tim Cook is making a habit of
breaking with Apple Inc.’s past.
The chief executive officer is overseeing talks to purchase
Beats Electronics LLC, the headphones and music service company
founded by music-industry executive Jimmy Iovine and hip-hop
artist Dr. Dre, for $3.2 billion, people with knowledge of the
matter have said.
That goes against the playbook of Apple co-founder Steve
Jobs, who never paid more than a few hundred million dollars for
an acquisition, choosing to buy small companies designed to
bring in technology and talent. Buying Beats will also signify
Cook’s willingness to use Apple’s $150.6 billion in cash more
aggressively, according to Gene Munster, an analyst at Piper
Jaffray Cos. in Minneapolis.
“This opens the door to do more mergers and acquisitions,
and I think you’ll see more deals around content and products,”
Munster said.
Apple’s possible targets include Yelp Inc., payments
company Square Inc. and Twitter Inc., Munster said.
Until now, Cook has closely followed Jobs’s mergers
strategy. The Cupertino, California-based company has bought 24
companies over the past 18 months, mostly small.
The biggest-ever acquisition was the $400 million Apple
paid in 1997 to buy Next Computer Inc. as part of a deal to
bring Jobs back to the company. Since then, the largest known
purchase was Anobit Technologies Ltd., a flash-memory drive
maker, for about $390 million two years ago.
Modus Operandi
A deal to buy Beats would be unlike anything Jobs ever did,
and shows that Cook is taking his predecessor’s advice to heart.
“Just do what’s right,” Cook recalled Jobs telling him before
his death in 2011. Cook said the Apple co-founder told him not
to worry about what he would do.
Cook has already been putting his stamp on Apple since
taking over, introducing dividends and share buybacks and
rolling out a corporate philanthropy program. Apple is also
sharing more information about its environmental efforts and
labor conditions in its supply chain.
“This appears to be the first time they are acquiring
another brand, which hasn’t been their modus operandi,” said
Todd Lowenstein, a money manager at Highmark Capital Management
Inc. in Montecito, California. “At this deal value, this would
mark the largest acquisition in its history and a material
divergence from past strategy.”
Tom Neumayr, a spokesman for Apple, and Sarah Joyce, a
spokeswoman for Beats, declined to comment. Faryl Ury, a
spokeswoman for Square, and Rachel Walker, a spokeswoman for
Yelp, declined to comment. A Twitter representative didn’t
immediately respond to requests for comment.
Big Targets
Lowenstein and some other investors are questioning why
Cook would choose Beats as the company to break the mold. With
annual sales of around $1 billion, the Santa Monica, California-
based company won’t deliver meaningful top-line growth relative
to Apple’s revenue of $170.9 billion in its latest fiscal year,
even if Beats were to grow 50 percent a year, according to
Charles Wolf, an analyst at Needham & Co.
“I don’t think investors care at all about the $3.2
billion,” Wolf said. “They might care if Apple did a $50
billion acquisition.”
Apple shares barely budged on news of the Beats deal. The
stock fell less than 1 percent to $585.54 at the close in New
York.
Brand Appeal
With Beats, Apple would also bolster its online music
services as the market for downloads, which Apple dominated,
slows. Music has long been one of the cornerstones of Apple’s
business, with its iTunes store and the iPod player that
reignited the company’s growth more than a decade ago. Apple has
also rolled out iTunes Radio, an advertising-supported streaming
service that competes with Pandora Media Inc. and Spotify Ltd.
While Beats would be too small to jump-start growth, the
deal would indicate that Apple is more serious about selling
more content and services to its customers to make up for slower
sales of mobile devices, according to Colin Gillis, an analyst
at BGC Partners LP in New York.
“This would be a step toward building a services layer,”
Gillis said. “Why not just buy Spotify? Go for the big boy in
the market.”
Maintaining a separate brand might also help Apple appeal
to a younger audience that no longer thinks Apple is cool,
Gillis said. Still, 67 percent of U.S. teens said their next
smartphone would be an iPhone, according to Piper Jaffray.
Another benefit of a deal would be bringing Beats co-
founder Iovine closer into Apple’s fold. The 61-year-old music
producer was instrumental in helping Jobs hone the strategy that
enabled iTunes to dominate the music business.
“Apple seems to want to burnish its brand with a younger
demographic and Dr. Dre and Jimmy Iovine have done a great job
of branding those headphones,” Mike McGuire, an analyst at
Gartner Inc., said. “Tim Cook has been alluding to new products
coming soon, maybe they are feeling they need to round their
lineup a bit.”
For Related News and Information:
Apple Said Near Buying Beats Electronics for $3.2 Billion
FIFW NSN N5BP326KLVRF <GO>
Apple Said to Prepare Song-ID Feature for IPhone Software Update
FIFW NSN N45GO56KLVRF <GO>
Carlyle Group Buys Minority Stake in Dr. Dre’s Beats Electronics
FIFW NSN MTS7806K50XS <GO>
Apple income charts: AAPL US <EQUITY> FA Q IS CHART <GO>
Apple relative value: AAPL US <EQUITY> RV <GO>
Top Technology Stories: TTOP <GO>
--With assistance from Scott Moritz in New York and Sarah Frier
and Adam Satariano in San Francisco.
To contact the reporter on this story:
Peter Burrows in San Francisco at +1-415-617-7191 or
pburrows@bloomberg.net
To contact the editors responsible for this story:
Pui-Wing Tam at +1-415-617-7327 or
ptam13@bloomberg.net
Reed Stevenson, Stephen West