It's Official: Apple Adds Dr. Dre With $3 Billion Beats Deal

Rap is coming to Cupertino in a big way.

After weeks of rumor, Apple finally announced it has acquired headphone maker Beats Electronic for $3 billion, including $2.6 billion cash up front and approximately $400 million in stock that will vest over time. As part of the deal, Beats co-founders Dr. Dre and Jimmy Iovine will join Apple AAPL -1.09% in undisclosed roles.

“Music is such an important part of all of our lives and holds a special place within our hearts at Apple,” CEO Tim Cook said in a statement. “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.”

This acquisition is Apple’s biggest ever, and largest since it brought back Steve Jobs in 1997 though a $400 million purchase of NeXT. However, the $3 billion price is still just a tiny fraction of the company’s $150 billion cash reserves, and Beats’ estimated annual sales of $2 billion represents barely over 1% of Apple’s $171 billion revenue last year.

“I’ve always known in my heart that Beats belonged with Apple,” Iovine said. “The idea when we started the company was inspired by Apple’s unmatched ability to marry culture and technology. Apple’s deep commitment to music fans, artists, songwriters and the music industry is something special.”
The $3 billion purchase price includes Beats Music, the sister company that runs a subscription streaming music service. In fact, Apple’s press release mentioned that before the more well-known headphone business. While some analysts have wondered why Apple doesn’t simply build its own streaming service within iTunes, Cook must believe this deal gives him a quicker way to catch up with Spotify and others.

“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,” Apple Senior Vice President Eddy Cue said.

Apple shares fell slightly on Wednesday in trading before the announcement, but remain up over 17% since April 23rd. Shares have crested $624, the highest mark Apple has traded at since October 2012.