How Apple Inc.'s Beats Deal is Completely Out of Character

Beats is unlike anything that Apple has ever acquired. Does Apple see something that investors don't?

Jun 1, 2014 at 11:00AM

After a month full of speculation, Apple (NASDAQ:AAPL) officially announced its acquisition of Beats in a $3 billion deal. Of that, $2.6 billion will consist of cash, with the remaining $400 million in stock that will vest over time. The deal is expected to close before September. Music has always been instrumental to Apple's success, which is why the company says its acquiring the headphone maker.

In the past, Apple acquisition targets have fit within a specific profile. They generally have innovative technology that can be integrated into future products, generate negligible revenue relative to Apple's top line if it decides to shutter operations, typically do not have strong consumer brands, and cost $500 million or less. Beats is none of those things, which is why this deal has garnered so much attention.

Apple is paying an estimated 2 times sales for the deal, which isn't entirely unreasonable given the talent that it is acquiring. There is also potentially some innovative technology behind Beats Music curation, which would have obvious implications for iTunes Radio.

In this segment of Tech Teardown, Erin Kennedy discusses Apple's big buy with Evan Niu, CFA, our tech and telecom bureau chief.

Leaked: Apple's next smart device (warning, it may shock you)
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Erin Kennedy owns shares of Apple. Evan Niu, CFA owns shares of Apple. Evan Niu, CFA has the following options: long January 2015 $460 calls on Apple and short January 2015 $480 calls on Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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