Much has been made about the scale of Apple's $3 billion purchase of Beats Electronics and Beats Music, but the reality is that the money represents a pittance to Cupertino, literally pocket change in the light of its bank balance.
Wednesday, Apple announced its intention to acquire the headphone maker and streaming music service for a total of $3 billion, $2.6 billion in cash and $400 million in stock that will vest over time.
Apple's required filing with regulators at the U.S. Securities & Exchange Commission (SEC) has not yet been published by the agency, so other details of the deal were unclear. What was plain was the price Apple will pay.
The Beats deal will be the largest ever for Apple, dwarfing the record holder, the $404 million acquisition of NeXT in 1996, which brought Steve Jobs back to the company he co-founded and the core code of what would become OS X with him. Even taking inflation into account -- Apple's check for NeXT would be worth $613 million in today's dollars -- there was no contest: The headphone/speaker/streaming music service purchase price was five times larger.
Beats was gigantic when compared with other Apple purchases, too.
Last month CEO Tim Cook told Wall Street analysts that Apple had done 24 deals in the last 18 months. Cook did not say how much Apple paid for the two dozen firms, but the reported prices -- those few which were reported -- totaled $961 million, or less than a third of yesterday's price.
In other words, it is a lot of money. As former Sen. Everett Dirksen (R-Ill.) may have famously said, "A billion here, a billion there, and pretty soon you're talking real money."
"It's still a big deal," said Van Baker, analyst with Gartner, of the dollar amount.
But in context, not so much.
At the end of the March quarter, Apple had nearly $151 billion in cash and securities, 88% of it banked overseas. The $2.6 billion in cash -- the stock part of the deal was simply a dilution of the outstanding shares, and not even payable immediately -- amounted to just 1.7% of Apple's bankroll.
That would put a barely-discernible dent in Apple's cash.
It would be equivalent to someone with $1,000 in their checking account -- a lot of people have considerably less -- laying out $17, enough to pay for two movie tickets, but not enough in change to buy a shared soda. To someone with $10,000 in the bank, it would be the same as spending $172, enough to pay the average American's cable TV bill for two months.
Baker was among the analysts who believed Apple overpaid. "Why pay $3 billion if you could build the same yourself for a lot less?" Baker wondered. "Apple could be in the high-end headphone business if they wanted. Apple could be in the music streaming business if they wanted. Easily."
Certainly. But with profits like Apple's -- in the first quarter its cash flow was $13.5 billion, enough to pay for four Beats -- why not just go to the movies?
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