Apple could save over $1B on alleged Beats deal with international acquisition - report
Because Beats Electronics has tax residency in Ireland, Apple could structure a deal with the headphone maker in such a way that it would not only be able to use its massive international cash pile to pay for the deal, but it could also significantly reduce the final price with international tax laws, one financial expert says.
Joseph Harpaz, the tax and accounting expert on the leadership team at Thomson Reuters, penned a guest column for Forbes this week in which he said the existence of Beats Electronics Holding Limited, a corporation established in Ireland in 2012, could become a key part of a potential deal with Apple. Specifically, Apple could pay for the purchase entirely with foreign funds -- money that has not been repatriated back to the U.S. at a high tax rate.
"M&A decisions are increasingly being driven by offshore tax policy," Harpaz wrote. "It's hard to argue the business logic of using offshore income to acquire foreign companies versus bringing the money back into the U.S. for a domestic acquisition."
Using what he admitted is "the rough math of a foreign acquisition," Harpaz said that Apple's rumored $3.2 billion bid for Beats could actually come in around $2 billion if the transaction were to be completed in Ireland. His calculations, however, seem to presume that Apple would opt to repatriate that cash for a U.S. deal.
With his estimated final price pegged at more than $1 billion cheaper than the rumored offer, and with Apple carrying some $138 billion in cash and short-term marketable securities overseas, Harpaz believes Beats' presence in Ireland could be a major incentive for Apple.
But Harpaz's calculations assume that Apple would repatriate the necessary cash and pay taxes on it for a U.S.-based deal, something that executives at the company have signaled they have no plans to do. As of last quarter, Apple had some $18 billion in cash held domestically, and the company also has the ability to raise debt at low rates, suggesting that it wouldn't need to repatriate any funds for a domestic acquisition.
Still, in Harpaz's view, there are legitimate reasons Apple might pursue an international acquisition strategy --?one that could ultimately save the company a considerable amount money, he argued.
Word first surfaced earlier this month that Apple and Beats are allegedly in late-stage discussions for a potential acquisition said to be worth some $3.2 billion. The latest rumors have indicated that the deal is not yet finalized, but seems likely to go through.
While Beats is best known for its premium headphones, reports have claimed that the deal could be more of an "acqui-hire" to bring Beats co-founder and Chief Executive Jimmy Iovine onto its team --?someone who could help in negotiating contracts with content providers, thanks to his longstanding industry ties. It's also been said that Apple is interested in Beats Music, a Spotify-like subscription music service that could complement its existing iTunes Radio streaming, which is more akin to Pandora.
While word of a potential deal between Apple and Beats has earned considerable buzz, AppleInsider reported this week that reporting rules with the U.S. Securities and Exchange Commission could actually allow Apple to keep quiet on the deal, if it so chose. Though the $3.2 billion price would make it by far the largest acquisition in Apple's history, Apple's sheer size means that the reported deal might not be considered materially significant.
Joseph Harpaz, the tax and accounting expert on the leadership team at Thomson Reuters, penned a guest column for Forbes this week in which he said the existence of Beats Electronics Holding Limited, a corporation established in Ireland in 2012, could become a key part of a potential deal with Apple. Specifically, Apple could pay for the purchase entirely with foreign funds -- money that has not been repatriated back to the U.S. at a high tax rate.
"M&A decisions are increasingly being driven by offshore tax policy," Harpaz wrote. "It's hard to argue the business logic of using offshore income to acquire foreign companies versus bringing the money back into the U.S. for a domestic acquisition."
Using what he admitted is "the rough math of a foreign acquisition," Harpaz said that Apple's rumored $3.2 billion bid for Beats could actually come in around $2 billion if the transaction were to be completed in Ireland. His calculations, however, seem to presume that Apple would opt to repatriate that cash for a U.S. deal.
With his estimated final price pegged at more than $1 billion cheaper than the rumored offer, and with Apple carrying some $138 billion in cash and short-term marketable securities overseas, Harpaz believes Beats' presence in Ireland could be a major incentive for Apple.
But Harpaz's calculations assume that Apple would repatriate the necessary cash and pay taxes on it for a U.S.-based deal, something that executives at the company have signaled they have no plans to do. As of last quarter, Apple had some $18 billion in cash held domestically, and the company also has the ability to raise debt at low rates, suggesting that it wouldn't need to repatriate any funds for a domestic acquisition.
Still, in Harpaz's view, there are legitimate reasons Apple might pursue an international acquisition strategy --?one that could ultimately save the company a considerable amount money, he argued.
Word first surfaced earlier this month that Apple and Beats are allegedly in late-stage discussions for a potential acquisition said to be worth some $3.2 billion. The latest rumors have indicated that the deal is not yet finalized, but seems likely to go through.
While Beats is best known for its premium headphones, reports have claimed that the deal could be more of an "acqui-hire" to bring Beats co-founder and Chief Executive Jimmy Iovine onto its team --?someone who could help in negotiating contracts with content providers, thanks to his longstanding industry ties. It's also been said that Apple is interested in Beats Music, a Spotify-like subscription music service that could complement its existing iTunes Radio streaming, which is more akin to Pandora.
While word of a potential deal between Apple and Beats has earned considerable buzz, AppleInsider reported this week that reporting rules with the U.S. Securities and Exchange Commission could actually allow Apple to keep quiet on the deal, if it so chose. Though the $3.2 billion price would make it by far the largest acquisition in Apple's history, Apple's sheer size means that the reported deal might not be considered materially significant.
Comments
http://seekingalpha.com/article/2234863-what-will-googles-30-billion-in-foreign-acquisitions-do?uprof=45
Thank you... Thank you.
I like this deal now- the price is right.
The funniest rumor I read today was written by Cult of Mac, where it is rumored Apple purchased Beats to keep it out of Samsung's hands. Samsung supposedly attempted to purchase Beats earlier this year, but the attempt did not pan out. This is the first time I read about another company having been interested in Beats. Too funny.
Why put the word inconvenient in quotes? If there is money to be saved, all companies should do so if possible. Google is fully in their right to use The Double Irish & Dutch Sandwich.
http://tellmeyourview.wordpress.com/2013/02/03/the-double-irish-the-dutch-sandwich/
:-(
So, while everyone was hammering (including congress) was hammering Apple for tax residency in Ireland, here comes Beats (and yes, I know, many others) who also does the exact same thing. I didn't see Dr. Dre in front of congress like Apple's Tim Cook having to explain why they do it.
As for the price; $3.2 billion seems like a deal compared to what Facebook paid for WhatsApp ($19 billion). At least Beats has a physical product.
HTC was quite heavily linked with Beats, they even had Beats branding on their phones and Samsung would do anything to take HTC down as they would any of their rivals:
http://www.cnet.com/news/samsung-probed-for-allegedly-bashing-rival-htc-online/
HTC's phones are clearly better quality than Samsung's.
At least Beats has a physical product.
Which makes it easy to calculate valuation and a fair purchase price. Its where there are synergies, like software, where it's harder to determine exact valuation.
Beats headphones and Apple don't have synergies (if you think they do- it's the equivalent of arguing that Apple should buy iHome)- Beats would be best run as an independent company (i.e.- Beats by Apple). I was a detractor because 3.2b was too much, but 2b is the correct valuation based on their profit they've mentioned- it's a good deal for Apple because the streaming is just icing on the cake.
Agreed. The Southeast Asian rumor mill is working overtime trying to make it seem as if Samsung can compete with Apple. With so much crap coming from Samsung as fast as possible, the rumor mill has to go back in time to say Samsung was somewhere before Apple got there. The funny part of that thinking is Samsung got there first and failed. Apple stepped in and succeeded.
Until congress pulls it's preverbal and literal head out of it's @$$ and gets with it, I would fully expect this to continue.. This is a GLOBAL economy.. We COMPETE with the rest of the world.. keeping DOUBLE the rate of everyone else is ST TT TTT UUUU PPPP III DDD and a big reason companies shy from making US a corporate home base..! Much less making it costly to bring funds into the US to build and create jobs...
"Because Beats Electronics has tax residency in Ireland, Apple could structure a deal with the headphone maker in such a way that..."
Could? Will!
Yes, this is certainly plausible, but Apple has to keep any profits earned from the 'Beats subsidiary' abroad.
Anything profits repatriated to HQ will get taxed at the US rate.
I know how they could save $3.2bn
Penny wise pound foolish.
I'm sure it's way way way more complicated than that. You'd need a team of tax experts to determine the tax details of this deal. No single poster here will know.
I'm sure it's way way way more complicated than that. You'd need a team of tax experts to determine the tax details of this deal. No single poster here will know.
What I told you is simply the law. It's not that complicated.
You're welcome to check with your 'experts' (and tell us what you found out, just as I did).
What if they dissolve beats?
How would the absorption of beats music into iTunes affect taxes of revenue from current subscribers?
Those are 2 of hundreds of questions that would be asked to a team of the best tax analysis money can buy.
Look, I was being nice in my first post. Let me try a different tactic. You have no idea what you're talking about because it's way over your head, my head, and any acquaintance you know. It's so complicated it needs a team.
Now if you've worked on the tax laws of an international acquisition worth $3.2billion by a domestic company- and did it all by yourself, I'm all ears. Otherwise, shut it.
There also not really saving anything as they have no reason to ever bring the money to the states.