The economy is obviously getting better, so long as you are not one of the unemployed or about to lose your job. Now with more than a 50% rally from the March lows and a Dow Jones Industrial Average challenging the 10,000 level, suddenly everyone wants to put on their investment banker hats again and look for buyers and buyout candidates after deals are announced. This week’s Dell Inc. (NASDAQ: DELL) deal for Perot Systems Corp. (NASDAQ: PER) was a $3.9 billion acquisition versus $12.7 billion in cash and equivalents held at the end of the quarter. The Oracle Corp. (NASDAQ: ORCL) deal for Sun Microsystems Inc. (NASDAQ: JAVA) is valued at $7.4 billion, or $5.6 billion net of Sun’s cash and debt. We went back through our list from September 2, 2009 where we noted that outside of the financials in the 20 largest US companies had a cash hoard of $335 billion that could be used for mergers and acquisitions, and that is not accounting for lines of credit, stock or debt that could be sold, and other means of financing a deal. While nowhere near all of the cash will ever be used, many companies could pay big dividends before any tax changes.
So we wanted to look through the technology sector and after we looked through the top 100 markets caps in our 24/7 Wall St. Real-Time 500 we added a few new additions in the tech sector that still had over $5 billion in cash. Out if the $335 billion from those in the top twenty, we broke out Microsoft Corporation (NASDAQ: MSFT), International Business Machines (NYSE: IBM), Apple Inc. (NASDAQ: AAPL), Google Inc. (NASDAQ: GOOG), Cisco Systems Inc. (NASDAQ: CSCO), Intel Corp. (NASDAQ: INTC), Oracle Corp. (NASDAQ: ORCL). Even after a huge rally, $335 billion and then some could go a very long way for strategic and bolt-on acquisitions as a positioning strategy for the next decade. Now, going further down the list of the top 100 companies with $5 billion or more in cash from tech companies alone adds in Hewlett-Packard Company (NYSE: HPQ), QUALCOMM Inc. (NASDAQ: QCOM), EMC Corporation (NYSE: EMC), and Yahoo! Inc. (NASDAQ: YHOO). When we tally up all the cash, there is over $260 billion available from these few tech companies that could be deployed for mergers, acquisitions, or the good old dividends. Again, that is before tallying up credit lines, factoring, debt sales, and other financing methods.
Hewlett-Packard Company (NYSE: HPQ) had almost $25 billion in cash and long-term investments. Now that it has migrated away from just selling PCs and printers, we think that there will be a rather long lull before H-P tries to match its big buyout of EDS even if Dell is tip-toeing into IT-services and consulting with Perot. But in the end, what we think may not matter. Nearly $25 billion in cash when you know you will be profitable ahead leaves a lot of room to go out make purchases.
QUALCOMM Inc. (NASDAQ: QCOM) was the 29th largest company as of Wednesday with a $74.12 billion market cap. If you tally up its cash, short-term and long-term investments, it is sitting on almost $15 billion in cash and equivalents as of last quarter. After all the lawsuits that the Jacobs team are settled, it might consider a way to deploy capital to get around future patent cases. If only it was possible, although anything is possible.
EMC Corporation (NYSE: EMC) is the 64th largest in the country with a $34.7 billion market cap, and it is sitting on very close to $10 billion in cash and short-term and long-term investments. The issue is that it just made the $2.1 billion deal for Data Domain, Inc. (NASDAQ: DDUP), but it also has over 50% of the float of VMware (NYSE: VMW) and that company is worth $17 billion. EMC is likely in such a storage leadership position that it has to make strategic deals. In that notion, EMC could be making $1 to $3 billion buyouts every six to twelve months.
Yahoo! Inc. (NASDAQ: YHOO) was the 100th largest company mid-week with a $23.6 billion market cap. The distant #2 search player is hard to call a definite buyer now because of new management and because of a new direction and restructuring. But the company is still generating cash every quarter even if Google has dwarfed it, and the deal with Microsoft is going to add cash. Throw in its other strategic spin-outs and asset sales, and suddenly Yahoo! may have a real desire to go for broke. At the end of Q2 it held about $7.5 billion in cash and short-term and long-term investments. As Yahoo! wants to get further into profitable content and user-centric interfaces, you could probably pick a hundred names for it to buy. Carol Bartz is no meager CEO and she could probably even get into the auto business if she could make the case that it would take back ten points in the company’s share of search.
Microsoft Corporation (NASDAQ: MSFT) is still #2 with a $230 billion market cap mid-week has more than $36 billion in cash and equivalents. There is always the concern that antitrust issues will arise in any Microsoft deal, but that has not been the case in the search pact with Yahoo! so far. There are very few add-on plays here for its O/S and Office software. Other software, media, search, advertising-related, audio and communications plays would be the most logical targets assuming all the cash doesn’t go for buybacks or another big dividend.
International Business Machines (NYSE: IBM) was #9 on the top companies list and had a market cap of $159 billion and $12.5 billion in cash after spending $2.4 billion in the last quarter alone for dividends and buybacks. IBM would likely look at another people-intensive or service-intensive deal, although there are random hardware and storage and systems possibilities still out there.
Apple Inc. (NASDAQ: AAPL) is now #8 on the America’s largest and it has long been a puzzle about what it would do with all that cash. Its market cap was $165 billion mid-week, and its hoard of cash and equivalents is more than $31 billion. Buying back its own stock would be expensive and maybe just silly and integrating an outside company into Apple might be far from easy. With Apple’s 909.16 million shares, it could pay out close to a $34.00 per share dividend if it wanted to take the cash balance down to Zero and start all over again.
Google Inc. (NASDAQ: GOOG) now has a market cap of close to $158 billion now that its stock went back over $500… and a cash balance of roughly $19.3 billion. Google may have the “Do no evil” mantra, but Google will now get into trouble for any deal it makes that is beyond an expansion. If Google chose the cash dividend route, it could pay close to $60.00 per share and just start over on its cash growth game. Also keep in mind one thing: in acquisitions, Google has tried to stay as content-neutral as it can so that it can still claim fair and open search and preference of content on the web.
Cisco Systems Inc. (NASDAQ: CSCO) was worth close to $135 billion in market cap mid-week and despite making deals all along the way and buying back billions worth of shares, its last quarter ended with close to $35 billion in cash and equivalents. Its expansion has been on many fronts, so where it could do a deal would depend on the climate and upon what would give it a leg up for the next generation. It also has preferred to make small strategic deals since its old Scientific-Atlanta deal.
Intel Corp. (NASDAQ: INTC) had a market cap of roughly $109 billion mid-week and has close to $19 billion cash equivalents before closing a recent deal. It also had close to $6 billion in receivables and inventories. Intel has been somewhat active via its ventures and in acquiring units or bolt-on companies like Wind River recently. Intel has to be careful where it treads on anything processor-related, but there are dozens of core related technologies in computing and in communications that it would not fall under harsh antitrust reviews.
Oracle Corp. (NASDAQ: ORCL) had over $12.5 billion in cash at the end of last quarter that could be used for a deal if its Sun ambitions are thwarted by the dopes at the E.U. who think that Sun should keep losing money. If that deal is somehow blocked, you know at least how much Larry Ellison is willing to dole out for a money-losing operation.
As a reminder, these market caps and figures were snapshots mid-week. The top market caps were taken from our own 24/7 Wall St. Real-Time 500 list of American companies with the 500 largest market caps in the country. There is also sometimes a discrepancy in the formal figures on the books and what companies state in their conference calls, and we have attempted to smooth that data as a result.
You can join our open email distribution list which goes out several times per week to be notified of key merger news, key analyst calls, top early morning day trader alerts, along with news of IPO’s, key offerings, guru investor data on Buffett and others, mergers, and more.
JON C. OGG
SEPTEMBER 25, 2009