Tight-lipped Apple could keep quiet on Beats deal thanks to SEC rules
Apple has rarely issued press releases trumpeting new acquisitions since the landmark 1997 deal for NeXT that brought Steve Jobs back into the fold, and the company's now-massive size could help it continue its silence even with a rumored $3.2 billion deal for Beats Electronics.
The U.S. Securities and Exchange Commission, the regulatory body that makes the rules for publicly-traded companies, requires the public disclosure of any "significant" acquisition activity by a regulated company. For most companies contemplating a $3.2 billion acquisition, that disclosure would take the guise of a press release and the filing of form 8-K with the SEC.
Apple, however, is not most companies.
The iPhone maker's sheer size means that even the reported multi-billion dollar Beats agreement might not be considered materially significant. That would allow Apple to prolong its decades-long streak of near radio silence when it comes to acquisitions, a policy that seems to suit current CEO Tim Cook just fine.
"And so you can bet that you will continue to see acquisitions and some of which we'll try to keep quiet and some of which seems to be impossible to keep quiet," Cook said of their competitive strategy during the company's last quarterly earnings call.
Because Beats is a private company, little is known about its overall financial situation. It's widely believed, however, that the Dr. Dre-backed headphone manufacturer brings in around $1.5 billion in revenue each year, allowing for some back-of-the-napkin income calculations.
The SEC considers an acquiree significant when its pretax income is greater than 10 percent of the pretax income of its acquirer. Apple's pretax income for the last fiscal year was just north of $50 billion -- meaning that even if all of Beats's $1.5 billion in revenue was included, it would still fall far short of 10 percent.
Even if an acquisition isn't deemed financially significant, it must be reported if it's considered material to the business. Methods of determining materiality aren't very well-defined, however, leaving it up to legal interpretation --?which Apple watchers saw in action when the company took fire for going months without disclosing the health problems of then-CEO Steve Jobs.
According to the SEC, corporate officers must disclose "any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant's liquidity increasing or decreasing in any material way." In other words, they are required to tell investors if they're planning to spend a large chunk of the company's cash -- but the threshold for just how much cash is considered "material" is mostly up to the company.
The last acquisition Apple overtly acknowledged was its 2002 purchase of the company behind Logic
The U.S. Supreme Court has narrowed that definition only slightly, holding that information is material "if there is a substantial likelihood that a reasonable shareholder would consider it important" in making investment decisions or if it "would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available."
Historically, Apple has considered other multi-billion dollar commitments -- like the billions it often shells out in component supply prepayments -- as materially significant expenditures and pointed them out on quarterly earnings calls. Those revelations have come fewer and farther between recently, though, as the company's cash hoard surged north of $150 billion.
Apple is so large now that they might just write off $3.2 billion as pocket change -- and the government isn't likely to stop them.
The U.S. Securities and Exchange Commission, the regulatory body that makes the rules for publicly-traded companies, requires the public disclosure of any "significant" acquisition activity by a regulated company. For most companies contemplating a $3.2 billion acquisition, that disclosure would take the guise of a press release and the filing of form 8-K with the SEC.
Apple, however, is not most companies.
The iPhone maker's sheer size means that even the reported multi-billion dollar Beats agreement might not be considered materially significant. That would allow Apple to prolong its decades-long streak of near radio silence when it comes to acquisitions, a policy that seems to suit current CEO Tim Cook just fine.
"And so you can bet that you will continue to see acquisitions and some of which we'll try to keep quiet and some of which seems to be impossible to keep quiet," Cook said of their competitive strategy during the company's last quarterly earnings call.
Is a Beats deal "materially significant?"
The SEC defines three tests that acquiring companies must perform in order to determine the "significance level" of an acquisition: the income test, the asset test, and the investment test. Broadly, each of these measures the relative size of an acquired company to its acquirer -- the closer the two are in size, the more significant the deal is considered.Because Beats is a private company, little is known about its overall financial situation. It's widely believed, however, that the Dr. Dre-backed headphone manufacturer brings in around $1.5 billion in revenue each year, allowing for some back-of-the-napkin income calculations.
Beats revenue would need to be at least 3x higher to be a "significant" buy for Apple
The SEC considers an acquiree significant when its pretax income is greater than 10 percent of the pretax income of its acquirer. Apple's pretax income for the last fiscal year was just north of $50 billion -- meaning that even if all of Beats's $1.5 billion in revenue was included, it would still fall far short of 10 percent.
Even if an acquisition isn't deemed financially significant, it must be reported if it's considered material to the business. Methods of determining materiality aren't very well-defined, however, leaving it up to legal interpretation --?which Apple watchers saw in action when the company took fire for going months without disclosing the health problems of then-CEO Steve Jobs.
According to the SEC, corporate officers must disclose "any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant's liquidity increasing or decreasing in any material way." In other words, they are required to tell investors if they're planning to spend a large chunk of the company's cash -- but the threshold for just how much cash is considered "material" is mostly up to the company.
The last acquisition Apple overtly acknowledged was its 2002 purchase of the company behind Logic
The U.S. Supreme Court has narrowed that definition only slightly, holding that information is material "if there is a substantial likelihood that a reasonable shareholder would consider it important" in making investment decisions or if it "would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available."
Historically, Apple has considered other multi-billion dollar commitments -- like the billions it often shells out in component supply prepayments -- as materially significant expenditures and pointed them out on quarterly earnings calls. Those revelations have come fewer and farther between recently, though, as the company's cash hoard surged north of $150 billion.
Apple is so large now that they might just write off $3.2 billion as pocket change -- and the government isn't likely to stop them.
Comments
The U.S. Securities and Exchange Commission, the regulatory body that makes the rules for publicly-traded companies, requires the public disclosure of any "significant" acquisition activity by a regulated company. For most companies contemplating a $3.2 billion acquisition, that disclosure would take the guise of a press release and the filing of form 8-K with the SEC.
Apple, however, is not most companies.
This is true. It'll probably be left to Apple's discretion. (But it's not like many of these SEC filings actually say much more than boilerplate nonsense anyway).
That said, given all the negative, head-scratching commentary that the Beats acquisition rumor has generated, it will be in Apple's interest to disclose more, rather than less, about this. I am guessing that Cook will disclose info, but perhaps not until his next analyst conference call (about 10 weeks away).
Awesome news for Apple! Being allowed to remain silent gives Apple the opportunity to...
1. Read and hear what many, many, many people write and say about this purchase.
2. Let all of the people who feel they are owed money come out of hiding.
3. Let the trolls who have chosen to not sue Beats for "treading on their patents" prepare to sue Apple for Beats "treading on their patents".
This is true. It'll probably be left to Apple's discretion. (But it's not like many of these SEC filings actually say much more than boilerplate nonsense anyway).
That said, given all the negative, head-scratching commentary that the Beats acquisition rumor has generated, it will be in Apple's interest to disclose more, rather than less, about this. I am guessing that Cook will disclose info, but perhaps not until his next analyst conference call (about 10 weeks away).
In my opinion, it is in Apple's interest to not disclose anything at all. Let the negative, head-scratching commentary run its course then Apple can disclose whatever it wants. For example Cody Willard's article deriding this rumored purchase has be re-titled multiple times by MarketWatch in an effort to keep the article in the news. By not saying anything everyone has to guess why Apple might have purchased Beats. Way to go Apple!
How do we know Apple has actually purchased Beats? Since rumors of a potential purchase leaked certainly the real thing would. Perhaps the silence is because it's not a done deal or Apple isn't acquiring them.
We don't know, and the assumption was that a deal had yet to take place since we didn't hear anything officially. But this article is saying that for all we know, Apple could've already purchased the company and doesn't even have to announce it. That's what's new (to me at least).
Or it's because they're releasing the iTV in fall of 2011 2012 2013 2014!
How do we know Apple has actually purchased Beats? Since rumors of a potential purchase leaked certainly the real thing would. Perhaps the silence is because it's not a done deal or Apple isn't acquiring them.
We don't know. This article is speculating what would happen if Apple acquires Beats (whenever that might be).
Since Apple does not publicly acknowledge their acquisitions, the only way we -- John Q. Public -- know when they have purchased another company is by rumor (like a tweet or Facebook comment), followed up by more reliable circumstantial evidence, typically changes to peoples' LinkedIn profiles under employment history.
Since there is currently no evidence of refreshed LinkedIn profiles, it is reasonable to assume that the purported deal has not closed yet. Who knows, it could be a sham for all we know.
The only ones who ever have any definitive proof are Apple, the acquired company (and its employees) plus certain tax agencies (like the Internal Revenue Service or Social Security) and employment benefits firms (health insurance, 401k, etc.).
Just want to www.primesense.com and got a completely blank page.
Maybe something is coming on June 2nd! :-)))
Dr Dre has bragged about it- livin larger.
This is just nonsense. There is no Beats deal. There was no Beats deal. There will not be a Beats deal. This was just some loser’s hoax.
So? That was the official announcement? A Colt 45-fueled party with his friends?
Preempting replies that my invocation of “Colt 45” is racist.
Preempting replies that more official announcements should be made in party form.
I really don’t think we can say that until WWDC hits and the keynote makes zero mention of it. Which I think it will, but we’ll have to wait.
I always skip the rumor and/or analyst "articles" on AI: but this has been a lot of fun.
Also, it turns out that Iovine and Dre may be getting sued by another possible co-founder of Beats. That story can be found here:
http://www.billboard.com/biz/articles/news/legal-and-management/6092232/dr-dre-jimmy-iovine-face-royalties-claim-from-beats
Such an occurrence makes a deal less likely, not more and yet right after this story came out, this fluff piece conveniently appears on Appleinsider.
Despite what Beats apologists say, this deal make no sense for Apple. This is a company that makes inferior hardware and runs an inferior music service. If Apple is convinced they need to acquire a music service they'd do better to approach Spotify or Rdio. As for the Beats brand, it may be true that they're an icon with twenty somethings but they are despised by anyone over thirty.
Whats the truth ? Its possible that Apple is pursuing some business relationship or partnership with Beats. Then someone from fed this nonsense to Rupert Murdoch's WSJ and then every other financial outlet, and Appleinsider followed like sheep.
I always skip the rumor and/or analyst "articles" on AI: but this has been a lot of fun.
Most of the times I just skim through the article and go straight to the comments. That is where the real entertainment is.
People always quote the important bits of the article to comment/ correct/ speculate, so I get the news anyway!
Why not buying Soundcloud instead?
It is a great social music platform to discover and stream music. Twitter has been courting Soundcloud recently.
In that photo of Iovine and Dr Dre, because of the too tight suit, Iovine looks like Picard and Dre looks like a Vulcan.
Apple is not "required" to disclose any acquisitions. What a bizarre headline.