Apple (AAPL) has not really needed the services of Wall Street all that much ever since it went public in 1981. And even though Steve Jobs married a fixed income professional from Goldman Sachs (GS), he didn't like the Wall Street types. He shunned Wall Street every chance he got.
Tim Cook however is not Steve Jobs. Tim Cook is more prone to get into bed with Wall Street than Steve Jobs was. And if you are going to get in bed with someone, why not get in bed with the best there is. I think it's only natural for the number one company in the world to hook up with the number one firm on Wall Street. And on Wall Street, the best firm for many years now has been Goldman Sachs.
In reality however, and even though Steve Jobs has avoided Wall Street, Apple has a long history with Goldman Sachs even though it has not use its services often.
Goldman Sachs was involved in two previous Apple bond offerings in 1994 and 1996. Goldman led a $661 convertible offering in 1996 right after Jobs rejoined the company. Then CFO Fred Anderson was the key person who got Goldman involved.
In 2009 Apple hired Adrian Perica, a Goldman Sachs investment banker, to build a mergers-and-acquisitions team. Apple on average has been doing one acquisition every two months. These are very small acquisitions of companies most people have never heard of, mainly to complement existing technologies and to acquire key engineering talent.
When Tim Cook became Apple's CEO in mid 2011, he immediately hired Goldman Sachs to help Apple in improving transparency and governance and also to advise the company what to do with its cash hoard. Sources say that the advice of Goldman Sachs was to return money to shareholders, mainly via stock repurchases. Goldman also helped Apple respond to David Einhorn who recently has been demanding action.
So it was only natural that Goldman Sachs would be the lead underwriting firm in Apple's recent $17 billion debt offering (Prospectus here).
The question is, will this courtship be the beginning of a "wonderful friendship"? Assuming Apple gets more involved with Wall Street and Goldman Sachs, might this open Apple's appetite to use Wall Street services more often? I think so.
And what other services besides selling bonds might Apple use Wall Street and Goldman Sachs for? My take is for M&A activity.
Βoth Oracle (ORCL) and Cisco (CSCO) have been heavy duty users of Wall Street's services for a long time now. I can't think of any two other companies out there that have made more acquisitions than them over the years (full list of acquisitions for Oracle here and for Cisco here). You can't really make that many acquisitions without professional investment banking help.
Having a lot of cash on the balance sheet, both Oracle and Cisco have grown over the years as a result of all these acquisitions. One can make a case if these acquisitions were worth it or not, but that's another question for another article. The important thing to remember is that these acquisitions are the reason these companies have grown.
Should Apple to the same? Yes it should, and I am surprised we hear voices demanding Apple give back money to shareholders, but we do not hear voices of criticism demanding that the money is not put to good use, primarily through acquisitions.
Not too long ago, Tim Cook speaking at an investor conference -- hosted by none other than Goldman Sachs -- admitted that Apple has been looking to buy large companies, but that they failed Apple's test. As Tim Cook explains:
We have looked at large companies. In each case, it didn't pass our test. Will we look at more, I think so. But we're disciplined and thoughtful, and we don't feel a pressure to go out and acquire revenue. We want to make great products. If a large company could help us, then that would be of interest. But again, deliberate, thoughtful, is our mantra.
So even though Apple has not made any big acquisitions, we know they have been looking around and that they are potentially willing and able, if something comes along. And as far as I'm concerned, the fact that Apple is on standby acquisition mode is something the market has not taken into consideration.
I for one think Apple should try to crack the enterprise space. With the cash hoard Apple has and with a little help from Goldman Sachs, it can certainly make many acquisitions in that direction. In fact DELL (DELL) would have been a good candidate, if Microsoft (MSFT) was not that involved in this deal. If there is one thing Apple knows how to do, that's making money in hardware.
Apple should stop being so finicky and follow in the footsteps of Cisco and Oracle. I really don't understand why an acquisition should complement Apple's existing technology. I think Apple can have many different business in entirely different segments and still make money.
The bottom line is that Apple's Wall Street endeavors will open a new window of opportunity for the company. To the extent that Tim Cook reaches out to Wall Street more than Steve Jobs did -- especially to Goldman Sachs -- I think that will only add to Apple's value in the long term.
As far as I'm concerned, Apple and Goldman Sachs are an "Effective team" for Apple shareholders in more ways than one. And if Apple ever decides to use all that money it has for acquisitions, and keep up its innovative spirit at the same time (something I trust it will do), it will do everyone a favor and not just its shareholders.