Beats Electronics unplugs HTC partnership with $265M buyout


Struggling mobile device maker HTC has agreed to sell its remaining 24.84 percent stake in Beats Electronics back to the audio technology firm for $265 million.

Beats--which manufactures the popular Beats by Dre headphones and is scheduled to launch its Daisy streaming music service later this year--has also secured a $500 million investment from private equity firm Carlyle Group, increasing its valuation to $1 billion compared to $600 million two years ago, The Wall Street Journal reports. Insiders say Beats plans to leverage the investment to broaden its portfolio to include speakers, in-car audio systems and consumer electronics. Beats confirmed Carlyle Group will become an investor but declined to disclose financial terms of the agreement.

HTC purchased a 50.1 percent majority stake in Beats for $309 million in mid-2011, selling back 25 percent to producer/Interscope-Geffen-A&M chairman Jimmy Iovine and co-founder Andre Young--a.k.a. hip-hop icon Dr. Dre--for $150 million less than a year later. After returning the 25 percent, HTC said it would continue working with Beats to develop audio experiences optimized for mobile devices, retaining exclusive mobile rights over those technologies. But HTC has struggled to remain competitive in the mobile device market as rivals like Samsung Electronics have gained momentum.

"For HTC [the Beats buyback] puts more cash in the bank, and they need cash now that they have turned operating cash flow negative," JI Asia analyst Jean-Louis Lafayeedney told Bloomberg. "Investors have been asking HTC to shed assets and get cash back to help them regain profitability."

Beats Electronics revenues increased to roughly $1 billion last year from less than $200 million in 2010, sources said. As of June 2013, Beats controls 59 percent of the U.S. market for premium headphones, according to NPD Group; that market, which includes all headphones and earphones costing at least $99, surged 18 percent last year, NPD notes.

The Daisy music service is scheduled to launch commercially in late 2013. Beats has so far revealed few details about the initiative. The company acquired digital music provider MOG in mid-2012: MOG offers free and premium streaming access across the mobile and desktop platforms, but it is unclear whether Daisy will follow a similar approach. Beats will face competition from Apple's new iTunes Radio as well as established players like Spotify, Rhapsody and Slacker Radio.

For more:
- read this Bloomberg article
- read this Wall Street Journal article

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