Apple Inc. (NASDAQ: AAPL) is about to get an opportunity to do something useful with the reported $250 billion in cash the company has piled up in overseas banks. The recently approved tax legislation includes a one-time tax holiday to repatriate cash held by U.S.-based firms in foreign countries with payment of a 10% tax, less than half the new 21% tax rate on corporate earnings.
So let’s say Apple brings it all back home. After taxes that leaves the company with a war chest of $225 billion. Now shareholders will want a (good-sized) chunk of that. When Carl Icahn took a run at Apple a few years ago seeking a $50 billion buyback, Apple had about $160 billion in cash.
If Apple decides to repatriate the cash (and why wouldn’t it), what could the company use it for besides returning cash to shareholders? It could pour more money into making a smartwatch that people wanted to buy or it could up its spending on autonomous driving technology, or it could buy a company that would complement its business. Netflix Inc. (NASDAQ: NFLX), for example.
The big plus for Apple is that buying Netflix keeps Amazon.com Inc. (NASDAQ: AMZN) from making its own offer. Not only does Netflix offer a content play, the streaming video company is also a global distribution play. Owning content rights is a good business — just ask Walt Disney Co. (NYSE: DIS) — but without getting that content in front of millions of eyeballs, it has limited value.
That’s one reason why Disney is trying to buy a big slice of Fox’s media assets — to keep them out of the hands of the giant technology firms. Analysts at media research firm Midia recently noted:
The accelerating revenue growth and valuations of the tech majors and the streaming giants have left media companies trailing in their wake. The Disney / Fox deal was two of the world’s biggest media companies realising that consolidation was the only way to even get on the same lap as the tech majors. They needed to do so because those tech majors are all either already or about to become content companies too, using their vast financial fire power to outbid traditional media companies for content.
The ability to distribute content widely cannot be overemphasized. Apple may have the credit card numbers of millions of iPhone users, but that did not do the company much good with its Apple Music product. Netflix comes with a global distribution network with more than 90 million subscribers that Apple probably couldn’t duplicate on its own.
How much would it cost Apple to buy Netflix? Analysts at Citi cited at Business Insider reckoned that Apple could do it with about $70 billion or $75 billion of its cash hoard. Netflix’s market cap as of Friday was about $83.1 billion. Apple could relatively easily issue new stock to boost the premium to Netflix shareholders to, say, 50%.
Will it happen? That really depends on how badly Apple wants to beat Amazon.
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