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  • Three Great M&A Ideas For Apple's $137B Cash

    We all know by now that Apple (NASDAQ:AAPL) is sitting pretty on $137B cash, which currently constitutes a third of Apple's $413B market cap (as of Jan 27, 2013). That cash is losing value to inflation. Repatriating it to issue a dividend would incur significant tax liabilities, and the company seems loath to engage in share buybacks.

    In the meantime, Apple's growth has come under serious scrutiny and skepticism, so we've pulled together a list of three major M&A (mergers and acquisitions) opportunities for Apple to start putting some of that cash to good use. These ideas are not all new, and their total values is currently over $30B.

    1. Twitter: Twitter is rumored to have a current valuation of about $10B, for secondary employee stock option trading purposes. There are three good reasons why Apple should acquire Twitter: First, Twitter is a master of engagement and sharing. As Apple's hardware loses its uniqueness and shine, Apply needs to think increasingly about growing revenues through owning and controlling social engagement, content and activity. Second, Apple integrating Twitter could give Twitter a big leg-up in the fight with Facebook for users' time. Apple could thus make Twitter a lot more valuable. Third, because Apple's web services are pretty miserable, notably iTunes, iCloud, Ping etc. Twitter knows how to get those kinds of services right. Particularly as Apple TV comes on line, that could drastically impact Apple's business.

    2. Waze: Waze is a target for Facebook (NASDAQ:FB)(, and rightly so. But Apple needs Waze desperately. Apple's recent maps fiasco underscores its need for a good mapping solution. In addition, if Apple used Waze for its mapping solution, a core iPhone function would be built on social engagement, and would be the first integral Apple service built on a social layer. This would considerably raise the bar for Android smartphones. Future music, news, stock information and other functions could all be crowd-driven social apps, and this would give Apple back an edge that it has been losing. This has the potential to drastically change the way services are deployed by Apple in the future and give Google (NASDAQ:GOOG) and Samsung a real run for their money.

    By acquiring Twitter and Waze, Apple could put smartphones on a new trajectory; they could become fundamentally social devices, rather than phones with mobile browsers and a good apps platform. On a whole different and less transformational level, is:

    3. Corning (NYSE:GLW): Corning makes the specialty glass used in iPhones and iPads, and is an R&D driven company that constantly puts out new and improved product. It trades at very low multiples (P/E around 8), and issues a nice dividend; in general it looks undervalued, and Apple can own Corning's IP around glass surfaces for its products. That is nothing to be snuffed at; Corning invented Pyrex, makes windows for NASA's space ships, and is at the forefront of OLED surface designs. Their IP should be critical in the next generations of TV, entertainment, and smartphone devices, and Apple could own those innovations.

    In summary, Apple has a chance to use its cash to undertake some transformational M&A (Twitter, Waze), as well as to lock in some incredible R&D capabilities that will help it own a bigger piece of the TV pie it so desperately wants.

    Disclosure: I am long FB, GLW, GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: FB, GLW, GOOG, AAPL, long-ideas
    Jan 28 8:57 AM | Link | Comment!
  • Premortem Of Acquisitions - HP Should Have Read This!

    M&A is back in the news with the massive write-down at HP (NYSE:HPQ) following its acquisition of Autonomy last year. But that write-down was even less than HP wrote-down following its acquisition of EDS, and those are on top of $Bs written down on the Palm and Compaq deals. With so much going wrong in M&A - and not just at HP - one has to wonder what is being done wrong and why. We'll touch on that briefly in this article, but will also suggest that the solution lies in broader participation in the M&A decision making process, and Merjerz is the company that is making that process a reality. Daniel Kahneman won the Nobel Prize for Economics in 2002, and is one of the most influential thinkers of this generation. In his recent book Thinking, Fast and Slow, this giant of behavioral economics addresses the world of M&A. Kahneman discusses optimism and overconfidence in business leaders, and how this effects companies and markets. Kahneman quotes a study by economists Malmendier and Tate that shows that optimistic CEOs - measured by the amount of stock they personally owned in the company - took excessive risks; for example, they were more likely to overpay for acquisitions, and to "undertake value-destroying mergers" (p.258).

    Kahneman writes that "beliefs in one's superiority have significant consequences. Leaders of large businesses sometimes make huge bets in expensive mergers and acquisitions, acting on the mistaken belief that they can manage the assets of another company better than its current owners do. The stock market commonly responds by downgrading the value of the acquiring firm, because experience has shown that efforts to integrate large firms fail more often than they succeed. The misguided acquisitions have been explained by a "hubris hypothesis": the executives of the acquiring firm are simply less competent than they think they are." (Daniel Kahneman, Thinking, Fast and Slow, 2011, p.258).

    How can this common leadership fault be addressed? Part of the problem is that when senior management, especially a CEO, is excited by an M&A deal, it's a rare and brave soul who stand up and say "this deal sucks". Groupthink is very, very powerful. It's what stopped people from preventing failures from Titanic and Pearl Harbor, to the Challenger and Deepwater Horizon. In the world of business, people rarely die from a failed M&A deal (happily, or business would be dangerous), but optimism and groupthink behave in just the same way. At organizations from the CIA and NASA, to Lehman and AIG, professionals are making faulty risk assessments and no one, not even the people whose job it is to do so, looks them in the eye and says 'this is bad'.

    For the world of M&A Kahneman says Gary Klein has the best solution, though it is only a partial remedy: conduct a premortem. When considering an acquisition, pretend now that the deal closed and you're a year in the future, and the deal was a complete disaster. Now, write a brief history of this disastrous deal. A premortem allows - in fact requires - every member of the team to voice their doubts, to identify pitfalls, and this enables the acquirer to take at least some of the necessary steps to avoid the pitfalls they' have anticipated. In HP's case, the lone voice of the CFO - against the CEO, strategy team, Board, Barclays, Perella, Deloitte, and Skadden Arps - would have been amplified and considered, and HP would have been $8B better off.

    Merjerz is doing something similar - instead of just requiring a few executives to suspend reality for a minute and find ways to tell their boss that she's doing a stupid deal, Merjerz enables people who have no qualms or restrictions, no social barriers, to voice their opinions. This is the best way (we know of) to fight hubris, optimism and over-confidence in M&A.

    [For more thought-leadership on M&A, go to, and follow our blog].

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 27 8:52 AM | Link | Comment!
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