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  • The “Apple Should Buy…” Report

    April 14th, 2017

    Every so often you read about an alleged industry analyst or investment company suggesting that Apple should buy this, that, or another company. Sometimes, when a tech company merges with someone else, Apple is blamed for missing out on such a huge opportunity.

    Now before I go on, it’s true that Apple routinely acquires a couple of dozen or so small companies every year. These purchases, such as Siri in 2010, are largely about buying technology that will, over time, be incorporated into Apple’s products and services. The closest thing to acquiring a company just to add to the product portfolio was Beats Electronics. It gave Apple a line of higher-priced headphones — I’ll leave it to the reader to decide about the quality — but also the technology for the service that later became Apple Music.

    Now spending a few hundred million here and here, and even a few billion, is chump change to Apple. With $237 billion on hand, mostly in overseas accounts, you wonder if there isn’t a long-term plan to use that cash. Or is it meant to just hang out until the time that the U.S. tax laws allow for it to be repatriated without a huge tax bill? Or maybe to help sustain the company if business goes bad.

    Regardless, one thing that seems pretty certain is that Apple is not going to buy another company because people say so. At one time, there was even chatter about merging with Tesla Motors, which may also have seemed credible in light of Apple’s own interest in the car business.

    While there hasn’t been much chatter about the so-called Project Titan of late, after the initial flurry of stories about hiring hundreds of people to explore the possibilities of an automotive  venture, the most recent rumors were about self-driving. So Apple might be looking into developing — and licensing — a CarPlay on steroids, which would make a vehicle capable of autonomous driving.

    How such a technology would be marketed is one an open question mark. Would Apple attempt to license it to existing car makers, or build their own motor vehicle to compete with the likes of Tesla? Besides, the entire industry is working on adding self-driving features. Even if Apple’s technology beats the rest, would that be sufficient to tempt the likes of a GM or Daimler to buy a license?

    I suppose, if they had difficulties perfecting their own versions of such technology, they might look into teaming up with another auto maker, or looking at some bright ideas from a third party, such as Apple or Google.

    In the meantime, other possibilities have arisen for Apple to buy. So before AT&T got their claws into Time Warner, there were reports that Apple had shown interest.

    I suppose on the surface, it might have made sense. Apple supposedly wants to get into the entertainment business, perhaps with a TV subscription service. But why buy a network, plus a bunch of subsidiary properties including theme parks, and how would that enhance the ability to negotiate with other networks? True, Comcast, who owns NBC/Universal, routinely licenses content from other networks, but that’s because they offer cable TV and the other companies need seats at the table.

    But there are already several streaming services out there, and I wonder whether Apple can make much of a difference except perhaps with a spiffier user interface.

    In keeping with that theory, however, RBC Capital Markets, a global investment bank, is now suggesting that Apple should acquire Disney?

    Apple and Mickey Mouse? Apple and Marvel Comics? Apple and LucasFilm? Apple and Pixar? Apple and Disneyland?

    I suppose there may be some sense to it, since Steve Jobs sold Pixar to Disney for $7.4 billion in 2006, thus making him the latter’s largest single stockholder. To be sure, Apple and Disney have had a close relationship over the years, so maybe it would seem logical, on the surface at any rate, for Apple to spend hundreds of billions of dollars to make this move? RBC says such a merger would result in a “tech/media juggernaut like no other.”

    Perhaps.

    This clearly wouldn’t be a casual investment. It’s estimated that Apple would have to pay $237 billion to cut a deal with Disney, which would mean using up all or most of its spare cash and then some. Such a transaction might involve a mixture of cash, debt and stock.

    Would that even make sense?

    RBC’s theory is that it would give Apple a revenue source that would reduce its dependence on the iPhone, boost services income, and provide the content to build out a huge streaming service to compete with Amazon, Hulu, Netflix and other companies. I will avoid references to benefiting stockholders, since that does nothing to enhance sales and profits.

    While such prospects might seam peachy on paper, I hardly think Apple wants to risk all or most of its spare cash for such a deal, nor to take on billions of dollars of additional debt. Over the years, it’s clear that huge corporate mergers are rarely efficient affairs, and combined company rarely finds the synergies predicted when the move is announced.

    More often than not, a merger is merely designed to kill a competitor. Take HP’s controversial acquisition of Compaq as a key example.

    Even if an Apple/Disney tie-up occurred, it would take several years to combine the operations, during which time Apple would be distracted from its main mission of building insanely great products. If anything, this added bloat would only make the company far less efficient. It’s the polar opposite of the way Apple works, so why would they want to do it?

    As it is, if it’s about content, Apple could certainly attempt to strike a deal with Disney to license its properties, just as it’s possible to license content from other networks. It hasn’t happened yet, but it would put the company at far less risk than assuming control of a global enterprise with over 180,000 employees, and squandering billions of dollars trying to somehow fit it together with its own operations.

    While there many be legitimate reasons for an Apple/Disney marriage to happen, it’s just not Apple’s way. As with other merger predictions, I rate it as yet another “no way.”



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