HTC to Acquire Control of Dr. Dre’s Beats Headphone Maker for $300 Million

(Corrects analyst’s share estimate in fourth paragraph.)

HTC Corp. (2498), Asia’s second-largest handset producer by market value, agreed to buy control of a headphones maker backed by rapper Dr. Dre for $300 million.

The Taiwanese company will acquire 51 percent of Beats Electronics LLC using its own cash, HTC Chief Financial Officer Winston Yung said today. U.S.-based Beats Electronics, formed in 2006 by Dr. Dre, also known as Andre Young, and Universal Music’s Interscope Records Chairman Jimmy Iovine, makes headphones that sell for as much as $600.

Beats Electronics valuation is about 1.75 times the expected 2011 revenue of $350 million, Yung said in a briefing in Taipei today.

The purchase paves the way for the Taiwanese smartphone maker to expand its offering of accessories as competition in the smartphone market escalates. HTC last month agreed to buy S3 Graphics Co. for $300 million to access its trove of patents as it defends against infringement lawsuits from Apple Inc. (AAPL)

“HTC is trying to beef up its audio and earphone products,” Richard Ko, an analyst at KGI Securities Co., said by phone from Taipei today. “This will help stop further erosion of the average selling prices” of the company’s products. Ko reiterated his “outperform” rating and a 12-month price estimate of NT$1,080 on the stock.

HTC rose 0.6 percent to close at NT$825 in Taipei, while the island’s benchmark Taiex index lost 0.2 percent.

Demand for phones with touch screens and faster fourth- generation connectivity is helping HTC generate record sales as it closes in on Nokia’s No. 3 position in the global smartphone market after Apple and South Korea’s Samsung Electronics Co. The gains helped Taoyuan, Taiwan-based HTC boost its cash and cash equivalent holdings to NT$116 billion at the end of June. HTC’s cash may decline at the end of September to more than NT$70 billion, Yung said.

The company will use the technology acquired from Beats Electronics to introduce new products in the fourth quarter, said John Wang, HTC’s chief marketing officer.

To contact the reporters on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Janet Ong in Taipei at jong3@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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