Apple has the means — and the motive — to pull off a massive acquisition
As Apple Inc.’s stash of cash grows, so does the possibility that the world’s most valuable company will use some of the money for a huge acquisition that would expand its empire beyond iPhones and other gadgets.
The company holds more than a quarter of a trillion dollars it could use to go shopping. So far, the guessing game has primarily focused on possible targets such as Netflix and Tesla. Either deal could make sense, given Apple’s long-running interest in providing a TV service to consumers and its more recent work on self-driving cars.
But in recent months the takeover talk has swirled around whether Apple might do something even more dramatic by making a bid for Walt Disney Co.
The mouse and the apple
Such a combination would create the world’s first company worth $1 trillion. Beyond that, an Apple-Disney marriage would unite some of the world’s most successful brands in technology and entertainment — a list that includes the iPhone, iPad, Mac computer, Mickey Mouse, Disneyland, ESPN, Lucasfilm, Pixar and Marvel.
“If there’s a deal out there that would strike fear in the hearts of Silicon Valley and Hollywood, this could be it,†RBC Capital Markets analyst Amit Daryanani wrote in a recent research report assessing the logic of an Apple-Disney combination.
Apple doesn’t discuss specific companies that it might buy, but it’s exploring far and wide, according to Chief Financial Officer Luca Maestri. “We are looking at every size of acquisition, so we will see how it goes going forward,†Maestri told the Associated Press in a Tuesday interview.
Disney hasn’t given any inclination that it’s looking for a buyer, but publicly held companies are required to consider all takeover offers. Buying Disney would be expensive. Daryanani estimates that Apple would have to pay $157 a share, or about $250 billion.
Treasure chest
Apple is one of the few companies — if not the only one — that could pay that sum out of its pocket. The Cupertino, Calif., company ended March with nearly $257 billion in cash and marketable securities, according to numbers released Tuesday with Apple’s earnings report for the January-through-March quarter.
That’s up from $233 billion a year earlier, and the figure is expected to keep growing as Apple piles up more profits from the iPhone, iPad and Mac, as well as the applications and services that feed those devices. In its latest quarter, Apple’s earnings climbed 5% to $11 billion, and its revenue rose 5% to nearly $53 billion.
Apple rose 93 cents to $147.51 during regular trading, but it fell more than 2% in after-hours trading after the company reported results that included slightly disappointing quarterly iPhone sales. Its guidance also wasn’t as strong as investors hoped.
In recent years, Apple has used a large chunk of its cash to provide its shareholders with extra income. The company disclosed plans Tuesday to raise its quarterly dividend by more than 10% to 63 cents a share, the fifth increase in five years. Apple also has spent $151 billion buying back its own stock since 2012.
Doing a mega-deal would be a major departure for Apple, whose largest acquisition to date was its $3-billion purchase of Beats Electronics in 2014 that helped launch its music streaming service.
The slowing smartphone
Daryanani and other analysts believe Apple may need to make a pricier acquisition to lessen the company’s dependence on the iPhone at a time when smartphone sales have been slowing.
IPhone sales edged up 1% last quarter, extending a recovery from an unprecedented downturn last year.
But many investors remain concerned that Apple has become too vulnerable to the ups and downs of the smartphone market, mostly because the company hasn’t been able to come up with another hit product since the 2011 death of its co-founder and chief executive, Steve Jobs. Apple’s last big success, the iPad, came out in 2010, but sales of the tablet have been declining for more than three years.
Meanwhile, the iPhone accounted for nearly two-thirds of Apple’s revenue last quarter.
The Trump administration may give Apple another reason to mull over a major acquisition, given earlier promises to lower U.S. taxes on overseas corporate cash brought back to the U.S. Should that tax cut happen, Apple CEO Tim Cook has said the company will consider bringing back most of the more than $230 billion it now keeps in foreign countries, making it easier to finance a blockbuster deal in the U.S.
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