Apple agrees deal to buy Dr Dre's Beats headphones firm for $3bn

Apple has bought headphone maker Beats Electronics for $3bn (£1.8bn) in a deal that ranks as the iPhone giant’s largest ever.

The agreement sees Apple snap up Beats’ music streaming service and audio equipment arm. Beats co-founders Jimmy Iovine, a music producer, and rapper Dr Dre will join Apple, as part of the deal, which comprises $2.6bn in cash and around $400m in Apple shares.

The transaction is due to close by the end of September.

“Music is such an important part of all of our lives and holds a special place within our hearts at Apple,” said Tim Cook, Apple’s chief executive. “That’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.”

Mr Iovine added: “I’ve always known in my heart that Beats belonged with Apple. The idea when we started the company was inspired by Apple’s unmatched ability to marry culture and technology. Apple’s deep commitment to music fans, artists, songwriters and the music industry is something special.”

^{This image, including Apple CEO Tim Cook and rapper Dr Dre, centre, was released after the deal was announced}

Buying Beats, which was founded by music producer Jimmy Iovine and rapper Dr Dre in 2008, marks a significant shift in strategy by Mr Cook.

His predecessor, Steve Jobs, famously transformed the music industry when he released iTunes and the iPod a decade ago. However, these have since waned in popularity.

Acquiring Beats’ music streaming service gives Apple, which runs the iTunes Radio service, extra firepower in its fight with rivals Spotify and Pandora.

Beats Music, as it is known, is a paid-for subscription service similar to Spotify, so allows Apple to continue operating iTunes Radio, which is free.

“Music is such an important part of Apple’s DNA and always will be,” said Eddy Cue, Apple’s senior vice-president of internet software and services. “The addition of Beats will make our music lineup even better, from free streaming with iTunes Radio to a world-class subscription service in Beats, and of course buying music from the iTunes Store as customers have loved to do for years.”

^{Beats tweeted this picture shortly after the Apple deal was announced}

Meanwhile, Apple will team up its own modestly-priced headphones business with Beats’ high-end range. Beats controls 27pc of the $1.8bn headphone market and 57pc of the market for “premium” versions, despite its products selling for hundreds of pounds each. It also reaches consumers through partnerships with Chrysler, Hewlett Packard and HTC.

Wednesday's multi-billion-dollar deal dwarfs the $404m Apple spent in 1996 to buy computer company NeXT, which ranks as its biggest to date. It is also be a substantial increase to the $1bn Beats was valued at just eight months ago, when asset management firm Carlyle Group took a minority stake for $500m.

Earlier this year Tim Cook said that Apple, which is sitting on a $133bn cash pile, was not against agreeing deals for large sums of money.

“We have no problem spending 10 figures for the right company, for the right fit that’s in the best interest of Apple in the long-term. None. Zero,” he said.