Empirically, I'd say more than 90% of takeover rumors are false. Many of them are desperate attempts to push up equities which have little going for them. Monday's rumor on Apple (AAPL) buying German TV maker Loewe could easily be one of those, with Loewe's shares being in a prolonged agony and the company producing losses (Loewe had a net loss of 1 million euros in Q1 2012, on revenues of 66.6 million euros, as per its Q1 2012 report).
However, for once I believe this takeover rumor is realistic. It's understandable why it can happen. After all:
- Buying Loewe would make for a quick entry into the TV set market. This is much quicker than Apple seems able to achieve without such an acquisition, as there's a lot of technology to master before Apple can step into this particular market;
- Buying Loewe would make for a cheap entry into the TV set market. Loewe is trading at a market capitalization of just around 75 million euros, that's barely $105 million. Even a 20% takeover premium would bring the cost to just $126 million. Peanuts for Apple, especially with the acquisition meaning instant entry into the TV set market;
- Perhaps even more importantly, Loewe already shares some of Apple's product and design culture, with a love for beautiful, minimalistic, industrial design. From a product perspective, there's reason to believe the cultures would integrate quickly and successfully;
- Also, Loewe by itself already has a favorable market image and sells at some premium to mass market brands. It just lacks volume. Apple could certainly keep the premium but easily add the volume. By buying Loewe Apple wouldn't risk being seen as a purveyor of OEM TV sets. At the very least, it would be seen as a mass marketer of a premium brand, which connects well with its own brand.
Financial impact on Apple
As it stands, financially the acquisition of Loewe would be irrelevant for Apple. The cash spent on acquiring Loewe would be a drop in the bucket and wouldn't make any noticeable dent in Apple's cash pile. Loewe's revenues wouldn't move the Apple needle, and its losses would be irrelevant as well.
The true impact to Apple would come from early entry into the smart TV set market, which Loewe would instantly enable. This would rapidly yield additional revenues that would be tens of times higher than Loewe's, and since Apple would sell its sets at a premium, it would also quickly yield earnings amounting to several times the cash spent in the acquisition.
Conclusion
In my opinion the rumor of Apple buying Loewe is realistic and a positive for Apple, as it would mean early entry into the TV set market. It would be a very cheap acquisition that would have all the ingredients to work out well, even in the short term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
