Posted with permission from International Business Times
In its recently released financial results, iPhone maker Apple revealed it is sitting on a massive $250 billion of cash reserves. And while social media was abuzz with what all that amount of money could hypothetically buy or finance, some analysts took a more realistic approach.
According to Citibank analyst Jim Suva, the company will likely use part of the money to fund an acquisition, and among the seven potential targets listed in the Citibank note are names like Tesla, Netflix and Walt Disney, Reuters reported.
Among those three, Tesla is currently the cheapest, in terms of market capitalization. The Elon Musk company recently overtook well-entrenched rivals, Ford and General Motors, and had a market cap of $52.84 billion at the close of Friday trade on Nasdaq. By comparison, Netflix had a market cap of $67.22 billion at close of trade, and Walt Disney, whose shares trade on the New York Stock Exchange, is valued much higher at over $178 billion.
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All three, however, are still well within Apple’s reach, and if the company bought even two of them, it would still have cash to spare. However, will any of those companies be willing to sell itself to Apple, is another matter altogether.
Tesla, for one, seems unlikely to be in a hurry to be acquired by anyone. In its own earnings call earlier this week, Tesla revealed it was automating the process of manufacturing for the upcoming Model 3 sedan. And Musk reportedly said in an interview that increased mechanization of the production line would make his company as valuable as Apple.
Scott Skjong, a Tesla production supervisor, examines a Model S for paint quality at the company's factory in Fremont, California, June 22, 2012. Photo: REUTERS/Noah Berger
The other four potential targets for acquisition by Apple, listed by the Citibank analyst, were video streaming service Hulu, and video game developers Activision Blizzard, Electronic Arts and Take Two Interactive Software. Hulu isn’t publicly traded, and the other three companies have market caps of $41.12 billion, $29.82 billion and $6.82 billion respectively. All three trade on Nasdaq.
According to Suva, Apple could be in a rush to spend its cash pile to take advantage of a new tax proposal by President Donald Trump’s administration. The proposal is to allow U.S.-based multinational companies to repatriate their earnings outside the country at a tax rate of 10 percent, down from the current 35 percent. Over 90 percent of the Cupertino, California, company’s cash is parked outside the U.S.
“Since one of the new administration’s top priorities is to allow U.S. companies to repatriate overseas cash at a lower tax rate, Apple may have a more acute need to put this cash to use, Reuters quoted Suva as saying.
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If Trump’s tax proposal becomes the law, and Apple brings back all of its cash reserves to the U.S., it would still be sitting on over $220 billion, enough to buy any of the companies mentioned in Suva’s note, and then some.
Apple, also traded on Nasdaq, is the world’s most valuable company. It closed Friday trade with a market cap of $789.53 billion