Apple to acquire Beats Electronics for $3 billion

Apple gets Beats for $3 billion

Apple will acquire headphone maker Beats Electronics for $3 billion, Apple said on Wednesday.

The deal is expected to close in the fiscal fourth quarter. Apple will pay $2.6 billion in cash and another $400 million in equity. It will also continue to use the Beats brand.

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Top executives of Apple and Beats Electronics
Source: Apple

Founded by rapper and producer Andre Young (aka Dr. Dre) and music mogul Jimmy Iovine, Beats Electronics is a key vendor in the premium headphone market. Apple reportedly began talks to buy the company in early May. Both Young and Iovine will join Apple as part of the deal.

"Iovine and Dre are kindred souls of Apple," Apple CEO Tim Cook told CNBC in an interview.

Beats' profit margins in the headphone market may be substantial. A pair of its high-end headphones retail for as much as $450, but production costs across the brand run only about $14 a pair, according to The New York Times. Apple said the deal would add to earnings in fiscal 2015.

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Beats also recently entered the streaming music business—placing it in head-to-head competition with much larger veteran rivals Pandora and Spotify.

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Recently, some were speculating the music streaming business—around 100,000 subscribers to competitor Spotify's 10 million—actually knocked $200 million off Apple's initial offer.

But others believe the fledgling service could fold well into Apple's existing iTunes software and store.

Tim Cook tweet

—With reporting by CNBC's Josh Lipton