Having $250 billion in free cash certainly gives Apple Inc. massive buying power. Apple could approach and take over valuable companies whose operations and business are in line with its interest or that will expand the tech giant’s reach. Interestingly, one of these companies is luxury electric vehicle maker Tesla Inc.
This comes as Citigroup recently published a list of companies – seven in total -- that could possibly become takeover targets for Apple. Tesla’s name surfaced on the list, which also includes Activision Blizzard, Electronic Arts, Hulu, Netflix, Take Two Interactive Software and Walt Disney.
Jim Suva, an analyst at Citigroup, said in a note to clients that more than 90 percent of Apple’s free cash is sitting beyond the United States. He quipped that should the tax proposals of US President Donald Trump be realized, Apple would have cash coffers amounting to $220 billion, which the tech giant could use for acquisitions or buybacks.
The Trump administration has dangled a tax proposal that would allow multinational companies like Apple to bring in or repatriate profits earned overseas at a rate that is lower than that of the present. Currently, the tax rate for reeling in overseas profits is 35 percent, but under the tax plan proposed by the Trump administration, the rate drops drastically to 10 percent. This rate should be favorable to companies like Apple, as they would be able to retain more cash in their coffers that they could use for financing certain business activities like acquisitions or share buybacks.
Suva remarked that since one of the Trump administration's priorities is to enable US companies to bring in overseas cash at a lower tax rate, Apple may have a more acute need to make use of this cash. According to Suva, the list of potential targets of an Apple takeover was arrived at after taking consideration of five criteria: strategic fit, global scale, transaction size, few non-strategic assets and their possible impact on Apple's share price.
Seriously, Apple buying Tesla wouldn’t be much of a surprise. Apple has been testing the grounds of the auto industry through its so-called Project Titan not-so-secret electric car scheme. This effort resulted to Apple poaching Tesla’s employees – former Tesla senior engineer Jamie Carlson -- as well as experts from other carmakers and tech giants. Tesla responded by also pirating Apple employees. Just recently, Apple has received a permit for testing autonomous cars in California. However, instead of going head-to-head against Tesla, Apple could opt to just acquire the EV maker. After all, Apple has enough cash power to do so.