You have already seen the Hewlett-Packard (NYSE: HPQ) buyout of 3Com Corporation (NASDAQ: COMS). But this week before that deal was announced we covered how mergers in the technology sector have been very slow to develop over the scale in which we and others think is possible for the sector. After the Intel Corporation (NASDAQ: INTC) settlement with Advanced Micro Devices (NYSE: AMD), the tally of cash that is now estimated would be an implied $265 billion that is available for the tech giants in our 24/7 Wall St. Real-Time 500 to make acquisitions.
The giant cash balances are held by Microsoft Corporation (NASDAQ: MSFT), Cisco Systems Inc. (NASDAQ: CSCO), Apple Inc. (NASDAQ: AAPL), Google Inc. (NASDAQ: GOOG), and Oracle Corp. (NASDAQ: ORCL), assuming nothing happens with Sun Microsystems Inc. (NASDAQ: JAVA). But players like QUALCOMM Inc. (NASDAQ: QCOM), EMC Corporation (NYSE: EMC), International Business Machines (NYSE: IBM), Dell Inc. (NASDAQ: DELL), Yahoo! Inc. (NASDAQ: YHOO), Amazon.com Inc. (NASDAQ: AMZN), and eBay Inc. (NASDAQ: EBAY) are either all sitting with large amounts of cash or will be very soon.
We have broken out these technology, IT, software, and Internet companies by the cash amount they hold or what they have in a soon-to-be cash balance. Of course only a fraction of this cash will be used for mergers. But there is also a ton of room here for dividends and of course the share buybacks.
Microsoft Corporation (NASDAQ: MSFT) is the #2 on the Real-Time 500 by market cap with close to a $260 billion market cap. It ended the quarter with $36.7 billion in cash and short-term investments, but it also ended with equity and other investments of roughly $6 billion. We water down the non-cash investments in our analysis to account for dilution and selling pressure, but a one-third off the value would give the software giant some $40 billion. That could be over $4.00 per share that could be paid out as another huge dividend. In any deals it makes there is always the concern that antitrust issues will arise, but that has not been the case in the search pact with Yahoo! so far.
Cisco Systems Inc. (NASDAQ: CSCO) has some $35.4 billion in cash and equivalents. It also just raised $5 billion in a senior unsecured note offering this week, which effectively offsets the $2.5 billion for the Starent Networks Corp. (NASDAQ: STAR) and the $3.1 billion for the Tandberg deal if that gets resolved and completed. We are not counting Tandberg because it has had trouble and is considered an at-risk deal, which would give a total figure of about $37.9 billion today. With a $136 billion market cap, Cisco could pay close to a $6 dividend and start over building its cash if it wanted to.
Apple Inc. (NASDAQ: AAPL) is the perpetual mystery over what it can or will do with its cash mountain. The company now sitting with a market cap of $184 billion now that it has a price over $200.00 per share. Buying back its own stock would be expensive and maybe just silly and integrating an outside company into Apple might be far from easy. It holds close to $34 billion in cash if you include its long-term investments. Apple could pay out a special of over $37.00 today if it wanted to zero out the cash and start building that all over again. Or perhaps it could go make a video game platform acquisition.
Google Inc. (NASDAQ: GOOG) has a market cap over $180 billion and its new cash balance was listed as $22 billion. It is spending $750 million to acquire AdMob and $105 million to acquire On2 Technologies Inc. (AMEX: ONT). But these are both stock deals rather than cash and that leaves its cash as is. We saw that it might be buying stock to do the deal, but that is chump change for the king of search. Google has also noted it is on the prowl and these two small deals won’t stop that. If Google can’t find a large target, it could pay close to $69.00 per share and just start over on its cash growth game.
Intel Corp. (NASDAQ: INTC) has a market cap of almost $110 billion and has close to $13 billion in cash equivalents after closing a recent deal. But it has another $4.3+ billion in equity securities and other long-term investments. If we took the same one-third out to water that down, that leaves almost $3 billion there and a grand total of right at $16 billion… Back out the $1.25 billion heading out the door in Q4 for the Advanced Micro Devices (NYSE: AMD) settlement and you have almost $15 billion. There are dozens of core related technologies in computing and in communications that it would not fall under harsh antitrust reviews, but anything processor related to PCs would be a tough sell.
Oracle Corp. (NASDAQ: ORCL) is a wild card now as its deal for Sun Microsystems Inc. (NASDAQ: JAVA) at $7.4 billion, or $5.6 billion net of Sun’s cash and debt, is in jeopardy over the E.U. possible blockage. The company has a $111 billion market cap and it ended its August quarter with some $20.5 billion in cash and marketable securities. Ellison could pay out a special dividend of $4.00 if he wanted to start over at zero again. He has proven to be a deal-maker and we already know how much he is willing to spend to grow even if a target is not making money.
And what about Sun Microsystems Inc. (NASDAQ: JAVA)? If that deal is really blocked, it will have to do something other than fire employees. Sun has ‘bought earnings before’ and its old balance sheet lists close to $3 billion in cash and other equivalents.. we will water that down to $1.5 billion because it needs capital while it keeps losing money.
Hewlett-Packard Company (NYSE: HPQ) ended with $13.7 billion in gross cash, but that is still over $24.6 billion in cash if you include its long-term investments on the books. Back out $2.7 billion for 3Com Corporation (NASDAQ: COMS) and you end up with almost $22 billion in cash. H-P is probably out of the M&A business until 2010 now.
QUALCOMM Inc. (NASDAQ: QCOM) has a $75 billion market, and its cash and equivalents was $17.7 billion at the end of its fiscal fourth quarter. That would leave the potential for a $10.00 special dividend if it wants to return capital to holders and then start over building its cash. Or it could look for other intellectual property plays that would give it a 10 to 20 year patent lock.
EMC Corporation (NYSE: EMC) is worth almost $35 billion and no longer has the $2.1 billion from the deal to buy Data Domain. But EMC also still has over 50% of the float of VMware (NYSE: VMW) and that company is worth $16.6 billion that could be counted. The company said it ended its September quarter with cash and investments of $8.4 billion. If you assume that VMware could be carved out for half its market value in a very discounted sale, then EMC is sitting on close to $17 billion before tapping any credit lines and before tapping any debt.
International Business Machines (NYSE: IBM) has a market cap of $167 billion and now lists roughly $11.5 billion in cash. That is down from the prior quarter after it boiught back shares and retired debt. It is also on notice now that H-P bought 3Com. Based upon the debt pay down, we’d assume a deal would only come in the form of stock today.
Yahoo! Inc. (NASDAQ: YHOO) has a $22.5 billion market cap and may be a wild card because of new management and a Bartz-led reorganization. It ended its September quarter with cash and equivalents of $4.5 billion. It also holds over $3 billion in investments in stakes of other companies, so if you water that down by one-third it has access to $6.5 billion.
Dell Inc. (NASDAQ: DELL) completed its Perot purchase for $3.9 billion, which would leave roughly $8.8 billion in cash and equivalents versus $12.7 billion reported in August. Add in another $1 billion in cash flow for this quarter just ended on October 31 (results not out yet) and you get an implied $9.8 billion today. Michael Dell might not want to do another ‘me-too’ deal or transformative merger, but that choice may be one that is by force rather than by desire.
Amazon.com Inc. (NASDAQ: AMZN) completed its the Zappos.com buyout, but that was all in stock. Its market cap is almost $57 billion and it had almost $4 billion in cash and equivalents. Raising cash would be easy for the company to do after the huge run and with as well as everyone is treating it. It has made some very selective deals over the last year or two and we expect the niche acquisition game to continue. Bezos was an investment banker before.
eBay Inc. (NASDAQ: EBAY) is worth almost $31 billion again, yet it ended last quarter with cash and equivalents of over $4 billion when you include investments. But… the recent settlement will clear the sale of of the Skype unit of $1.9 billion, plus it will still retain 30% of the entity. Include the cash flows and eBay is closer to $6 billion in cash. Just sticking by its model probably won’t be a good message, but what it would buy is more of a question than an answer.
The cash and available amounts listed herein does sometimes differ with what was listed as just the cash and marketable securities. Our figure includes its long-term investments that can be unlocked and also includes recent cash raises. We also water the ‘equity investments’ down to give a more conservative picture. In short, this $265 billion is probably a lot more available than what we are counting. This is also just the U.S-based list. With a very weak US Dollar, our companies are looking cheaper and cheaper to foreign buyers.
Brocade Communications Systems, Inc. (NASDAQ: BRCD) is being overly punished this morning with a 12% drop to $8.15 now that 3Com was the merger of choice by H-P. Brocade may still be a target, yet you never know for sure. JDS Uniphase Corp. (NASDAQ: JDSU) is up over 10% at $7.99 now that Jim Cramer joined in on what we commented about it being viewed as a possible takeover candidate before. Stay tuned for a larger expanded list of takeover candidates in technology here.
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JON C. OGG
NOVEMBER 12, 2009