Although Apple bought his Beats By Dre headphones company a couple of days ago for $3 billion, Dre is not yet worth a Billionaire. Yea, Dre is not the first Hip Hop billionaire. Why? Because he is not the sole owner of the company; he has 25% stake in the company. Experts have calculated how much Dre's set to gain from the Apple deal, added to his current net worth (which is already largely connected to the Beat By Dre company), after taxes, Dre would be worth $790 million. This will make him Hip Hop's richest mogul, but not Hip Hop's first billionaire. I hope you understand how I broke it down. Okay, I know I am not an expert at finance, so I am going to let the people at Forbes break it down for you.
Earlier this month, word leaked that Apple was on the verge of acquiring Beats for $3.2 billion dollars–making the latter’s wealthy co-founders, Dr. Dre and Jimmy Iovine, even wealthier.The news led some outlets to speculate that both men would become billionaires immediately upon its consummation. But in our June 16th issue, we pegged Iovine’s net worth at $970 million, about $170 million ahead of Dr. Dre. Here’s why we’re not ready to pronounce either a billionaire just yet.
First of all, Apple’s acquisition of Beats hasn't been completed. Though it’s still likely to happen by most accounts, the deal has taken much longer to finish than initially anticipated, and a recent report by New York post suggests the final purchase price may be $3 billion, not $3.2 billion.
Then there’s the matter of Uncle Sam. Even if the deal goes through at $3.2 billion, it’s unclear how much will be paid in Apple stock and how much will be paid in cash. The computer giant is said to be interested in keeping Beats’ co-founders around as executives; some observers have suggested that Apple thinks Iovine could be the next Steve Jobs.
That would seem to suggest a payout packed with Apple stock, which could provide greater incentive for both men to stick around. But Apple is sitting on a whopping $150 billion in cash, or roughly 10% of all corporate cash held by nonfinancial companies, and may view its stock as more valuable to hold onto. Uncle Sam would take a hefty tax bite out of a cash payment.
When calculating Iovine’s net worth at $970 million, we took a middle-ground approach. More specifically, we assumed a half-cash, half-stock payout. Our internal estimates placed his net worth at $800 million earlier this year, based on a $2 billion valuation of Beats, of which he holds 25%.
Though a sale for $3.2 billion would increase the value of that stake from $500 million to $800 million, the capital gains hit from the cash portion of the sale–likely 33% for federal and state taxes–would lop off about $130 million, leaving Iovine with an increase of $170 million and a net worth of $970 million.
By similar logic, the deal would boost Dr. Dre's Net Worth from a recent $550 million to somewhere between $700 million and $800 million, making him hip-hop’s richest man.
If Apple does indeed buy Beats for $3.2 billion, and the payment is mostly in stock, Iovine may well become a billionaire in the near future, and Dre perhaps a bit further down the line. But given the uncertainty of the cash/stock breakdown and the final sale price, we feel it’s too early to make that designation just yet. (Zack O'Malley Greenburg- Forbes Staff)
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