Apple Mulling Buying Beats Electronics for $3.2 Billion

It’s a head-scratcher for some but Apple (AAPL) reportedly is in talks to buy Beats Electronics, the high-end headphone maker founded by hip-hop music artist Dr. Dre and music industry veteran Jimmy Iovine for some $3.2 billion.

Apple’s been promising new, innovative products for some time now, but brand-name headphones?

Were Apple to flip the switch on the deal, it would constitute its largest purchase ever, not only dwarfing the $400 million it paid for Steve Jobs’ NeXT in 1997 but also it would indelibly place chief executive Tim Cook’s mark on the company. For Apple, which historically shuns large purchases despite its $150 billion cash storehouse, a purchase of this magnitude certainly would depart from its entrenched low-profile M&A posture.

According to The Wall Street Journal, which picked up the story from the Financial Times, the deal could be finalized next week but there’s no certainty the talks won’t collapse, according to its sources. The Journal said Iovine, who was a friend of the late Jobs, could take a position at Apple if the deal goes through. And, Dr. Dre reportedly was sighted last month at Apple’s headquarters in Cupertino, California.

While it’s a bit challenging to understand why Apple would want in on the headphones business, if tied together with Beats Music, the company’s newly launched music subscription service, the deal would give the iPod maker an instant door-opener into a rapidly growing segment now carved out by Pandora and Spotify in which users pay a monthly fee to subscribe to an unlimited amount of music of their choosing.

The Journal quoted Piper Jaffray analyst Gene Munster questioning the deal. "We are struggling to see the rationale behind this move," he wrote in a research note, adding that Apple never has “acquired a brand for a brand's sake."

The Journal suggested that Jobs’ interest in the music business and his friendship with Iovine could play a strong part in the deal going through, pointing out a recent interview in which he admitted his idea for Beats came from Apple. Iovine reportedly began talking to Jobs about a music subscription service 10 years ago and he was one of the first people to see Apple’s iTunes.

Beats investors include Carlyle Group, Access Industries and Vivendi’s Universal Music Group, where Iovine is a senior executive. The company had sales of about $1.2 billion last year.