(Photo by Kevin Mazur/Getty)
CORRECTION: 7/30/14, 12:58 p.m. EDT. An initial version of this story misspelled the name of Beats general counsel Rafferty Jackson. We regret the error.
Apple’s $3 billion buy of Beats Electronics is music to the ears of three Am Law 100 firms and London-based Osborne Clarke.
The deal, announced late Wednesday, had been anticipated since earlier this month, when reports emerged of Apple’s interest in the Santa Monica-based headphone maker founded in 2006 by recording industry titan James Iovine and hip hop mogul Andre Young, a rap-turned-audio icon better known by his stage name Dr. Dre.
The acquisition of Beats is somewhat unusual for Apple, a technology giant known to prefer in-house development rather than high-profile acquisitions. Before its bid for Beats, the largest M&A deal in Apple’s history was its $400 million purchase of Israeli flash memory storage firm Anobit Technologies, a deal that the Cupertino, Calif.-based acquirer handled in-house, according to our previous reports.
But Apple is now facing increased competition in the music space, as upstarts like Pandora and Spotify compete for customers with Apple’s iTunes store. In Beats, Apple acquires a company with a track record of shaking up an industry where growth has been hard to come by in recent years. Apple itself has a bevy of Am Law 100 firms on its payroll, including Silicon Valley stalwart Wilson Sonsini Goodrich & Rosati, whose chairman Larry Sonsini opined in 2011 on the death of company cofounder Steve Jobs.
For its Beats buy Apple has turned to Kyle Krpata, an M&A partner in the Redwood Shores, Calif., office of Weil, Gotshal & Manges. Krpata, once one of the youngest attorneys to ever make partner at the firm, previously advised Apple in its involvement in a group that paid $4.5 billion for a patent portfolio from bankrupt Nortel Networks in 2011 and a year later handled Apple’s $325 million acquisition of mobile security firm AuthenTec. Weil has advised on a variety of other matters for Apple, such as helping the company reach a settlement six years ago in a high-profile patent infringement case with Burst.com.
Apple’s general counsel is D. Bruce Sewell, who was hired by the company from Intel in 2009 to replace retiring predecessor Daniel Cooperman, now of counsel with Bingham McCutchen. Sewell, who has managed Apple’s patent wars with archrivals like Samsung, received a whopping $68.9 million in compensation in 2012, according to regulatory filings and news reports. (With roughly $159 billion in cash reserves, Apple’s largesse makes it richer than the economies of some countries.)
As for Beats, cofounders Dre and Iovine will join Apple as part of a deal that’s expected to close by year’s end, pending certain regulatory approvals. The $3 billion sum—which Dre appeared to celebrate in a video that went viral earlier this month, when reports of Apple’s interest in Beats first broke—consists of a $2.6 billion purchase price and another $400 million that will vest over time.
Brian McCarthy, a corporate partner and head of the Los Angeles office at Skadden, Arps, Slate, Meagher & Flom, is leading a team from the firm advising Dre, Iovine and other key Beats shareholders. Other Skadden lawyers working on the matter include corporate partner Andrew Garelick, executive compensation and benefits partner Joseph Yaffe and counsel Barbara Mirza, IP and technology partner Stuart Levi and counsel James Talbot, tax partner Kenneth Betts, labor and employment partner Karen Corman and associates Robert Frings and Matthew Hofheimer.
Both Dre and Iovine, who are not yet billionaires despite their deal with Apple, serve as members of Beats’ board of directors. The deal is a stunning development for a company that besides its high-end Beats by Dre headphones, launched a music-streaming subscription service earlier this year. That service, which operates under the Beats Music banner, gives Apple another option for its customers besides iTunes.
Brett Rodda, a corporate partner with Munger, Tolles & Olson in Los Angeles, and associates Jesse Creed and Sarah Graham are counseling Beats Music on its acquisition by Apple. The firm previously advised Beats on its acquisition of music subscription service Mog in 2012 and subsequent $60 million investment last year to turn the business—initially renamed Daisy—into Beats Music. Tyler Lenane serves as general counsel for Beats Music.
Munger Tolles corporate partner Kevin Masuda and associates Jasmine Roberts, Mark Sayson and Andrew Wolstan are handling the Beats Electronics side of the sale to Apple. Masuda led a team from the firm last year advising Beats on a $500 million investment from private equity giant The Carlyle Group, which helped the company buy back a 25 percent stake acquired by Taiwan’s HTC in another $300 million deal in 2011. (Latham & Watkins represented longtime client Carlyle—which stands to make a substantial profit from its Beats investment—on the first transaction.)
Rafferty Jackson, hired by Beats last year to become its general counsel as the company transitioned from an audio focus to providing peer-streaming services, is working with senior director Susan Chasnov on the Apple transaction. Munger Tolles tax partner David Goldman, tax attorney Samuel Greenberg and employee benefits of counsel Williana Chang are advising both Beats units on their sale to Apple, as is Osborne Clarke corporate partner Steve Wilson, the head of the Silicon Valley office for the British firm, which is known for advising technology sector clients.
Universal Music Group, the world’s largest recording company and a Santa Monica-based subsidiary of French conglomerate Vivendi, also reportedly stands to make up to $500 million in profit from the sale of its stake in Beats to Apple. Munger Tolles has also been a longtime legal adviser to UMG.
Beats might not be the last Los Angeles–area startup in which Munger Tolles lines up as deal counsel.
Snapchat, the social messaging service that recently hired Hogan Lovells litigation partner Christopher Handman as its first general counsel after reportedly turning down a $3 billion takeover offer by Facebook, could also find itself needing transactional expertise.
If so, Munger Tolles will have an in-house advantage. Snapchat’s 24-year-old founder, Evan Spiegel, who came under fire this week for some racy emails from his college days, is the son of Munger Tolles litigation partner John Spiegel.