Citigroup analyst Jim Suva put out an entertaining note on Friday that had investors’ heads spinning with M&A dreams. Specifically, he listed seven companies that would make sense as buyout targets for Apple Inc. (NASDAQ:AAPL) and its $250 billion-plus in cash and investments — and they’re not minnows.
Tesla Inc (NASDAQ:TSLA) and Walt Disney Co (NYSE:DIS) are among the big names, and Wall Street is taking at least a couple of the possibilities seriously.
A quick look at the list:
- Activision Blizzard (NASDAQ:ATVI): $42 billion
- Electronic Arts Inc (NASDAQ:EA): $30 billion
- Hulu: $25 billion (estimated in August 2016)
- Netflix, Inc. (NASDAQ:NFLX): $68 billion
- Take Two Interactive Software Inc (NASDAQ:TTWO): $7 billion
- Tesla: $48 billion
- Walt Disney: $176 billion
The argument wasn’t based on any specific news out of AAPL, but simply various criteria that would form a logical case. Still, we saw sizable moves from TSLA (3.8%) and TTWO (2.5%), so at least a few investors might have gotten the dreamies today.
Suva came to the list of seven based on five criteria — “strategic fit, global scale, transaction size, few non-strategic assets and likely impact on Apple’s share price” — according to Reuters.
Apple’s cash hoard jumped to a record $256.8 billion in the most recent quarter, a gain of $10 billion sequentially. As is widely discussed, much of that cash is held overseas and thus subject to a significant 35% repatriation tax rate that would cut the figure to “only” $166 billion. Still, with that, it could buy any of the companies on that list with the exception of Disney.
But the reason for the report — and many other speculative articles of the sort — is the increasing belief that President Donald Trump will enact a special repatriation tax holiday that will drop the rate down to 10%, encouraging companies with large overseas stashes to bring those assets back to the U.S. in the form of additional hires and investment … or at least special dividends and buybacks.
While AAPL certainly could wow Wall Street with some financial engineering if it’s able to bring as much as $231 billion overseas, many would like to see the tech titan — whose growth is slowing and actually receded for three quarters before rebounding in fiscal Q2 — make a transformative acquisition that would rejuvenate the company.
TSLA would certainly do that, bringing Apple into the automotive field, as would NFLX, which would instantaneously make Apple a media player, and which Tuva believes is the likeliest acquisition, giving it a 40% chance of happening.
Disney — while seemingly the most unlikely acquisition simply because of its size — would also encompass the most tentacles, as Apple would suddenly have a multimedia empire, resorts and merchandise under its wing. And to Suva, it’s the second likeliest buyout, giving it a 20% chance.
Citi gives Tesla and the rest of the companies 10% or less odds of being snapped up.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
