Apple under pressure to make a big money deal

Steve Dinneen
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APPLE has $51bn (£32bn) burning a hole in its very deep pockets. This has led to rumours it is about to buy anything from a small European nation (possibly Belgium) to a terracotta army fashioned in the image of its iconic leader Steve Jobs.

Most persistent, though are the whispers that it is fallen Japanese giant Sony that Jobs has his beady eyes trained upon. The pressure to make a big acquisition is undoubtedly growing, with Apple’s cash pile threatening to eclipse the sun if it doesn’t spend it on something soon.

The problem it faces is that Apple investors have become used to the firm earning about $2 for every $1 it invests, making anything but an acquisition unpalatable. A share buy-back programme, for instance, would be value destructive and, as one industry insider told City A.M., “When the best thing a board can think of is to buy is its own shares, it might be time to get a new board.”

Apple has been acquisitive in the past, with Quattro Wireless and LaLa both adding value, but neither would satisfy the thirst of some investors. So, assuming a jaw-dropping acquisition is on the horizon, here are some of the possible names, and our assessment of how likely a deal is.

Shares in the former electronics poster-boy have continued to edge up since speculation about an Apple bid began, despite every industry analyst looking on incredulously. The idea is, frankly, barmy, but there are a few reasons to entertain it. The firm’s market value has dropped to $38bn, placing it within Apple’s reach. The two have been touted as a good fit in the past, with Sony tipped as a possible buyer for Apple a few years ago. Jobs was a huge fan of Sony in his youth, and was transfixed with the Walkman, immediately dismantling one the first day he bought it. Apple has a growing influence in video games and a tie-in with Sony’s PlayStation could be fascinating.

But Sony is a sprawling firm with thousands of products in categories ranging from cameras to Blu-ray players; the antithesis of Apple’s core-product strategy. The Japanese government would undoubtedly be hostile to a foreign bid. Sony investors would demand a significant premium on its market cap and Apple’s share price would take a beating. All things considered, this is a headache too far for Apple.

This deal isn’t quite as far-fetched as it first sounds. Steve Jobs is already the largest stakeholder in the firm after being awarded $4bn worth of shares (following its acquisition of Pixar, in which he owned a 50.6 per cent stake). Disney’s TV arm, which includes ESPN, could be of particular interest to Apple, which is looking to roll out its burgeoning online video streaming business. On-demand TV is an increasingly lucrative market and Apple has a solid foundation in its iTunes Store, which sells individual movies and episodes. Jobs has so-far called his foray into online streaming a “hobby”. But the latest incarnation of Apple TV suggests it could soon be incorporated into the core range of Apple products. However, at $68bn Disney is on the steep side, even for Apple.

MARKET CAP: $33.7bn
Facebook founder Mark Zuckerberg has already hinted the firm will be floated in 2012 but a trade sale to Apple is still possible. It would be a good fit for Apple’s growing online gaming business, with Facebook pulling in millions of casual gamers.

Apple has recently moved to make its iTunes platform more “social”, incorporating very Facebook-esque elements such as the ability to create a group of friends with whom to share music. An acquisition of Facebook could integrate well with this and provide a massive new audience for Apple’s social network.

However, the $33.7bn price tag is steep. While Facebook is a different kettle of fish to the likes of MySpace, Friends Reunited and Bebo (all disastrous acquisitions which lost millions for their buyers), a single investor would be taking on a lot of risk.

Once upon a time this seemed like a done deal. Apple machines integrated seamlessly with Adobe’s software. Design geeks around the world paired Photoshop and iMacs. Apple even uses an Adobe-owned font in its advertising (Myriad Pro).

But then the relationship hit the rocks – Jobs decided Adobe’s online video software Flash was the cause of all of his web-browsing nightmares and declared all-out war on the firm. The iPhone and iPad both refuse to load Flash videos. Jobs has almost single-handedly pushed a new paradigm for online video on the web (HTML5), massively undermining Adobe along the way. The thought of them striking a deal now seems very, very remote.