3 Buyouts That Just Make Sense
Jun 27th 2012 11:27AM
Updated Jun 27th 2012 11:28AM
Mergers and acquisitions are part of the fabric of American business. Companies make acquisitions to add capabilities they don't have, to reduce competition, or to diversify their portfolios. We don't know exactly what CEOs and boards of directors have on their minds right now, but from time to time, it's fun to speculate on what they may be thinking about or some deals that make sense.
Below, I have laid out three buyouts I think make all the sense in the world for three of America's most well-known companies.
Apple and a Square
One of the most overlooked byproducts of Apple's (NAS: AAPL) iTunes and App Store ecosystem is the sheer number of accounts and credit cards the company now has on file. At the recent WWDC presentation, Tim Cook said the company has more than 400 million App Store accounts with credit cards attached to them, the largest such store on the Internet. As fellow Fool Evan Niu pointed out, with the new Passbook app Apple announced, "the iPhone is one step closer to becoming your wallet."
So wouldn't it make sense for Apple to acquire one of the leaders in online payments? The company I'm talking about is Square, the credit card processing company that has revolutionized the way businesses can operate and sell products. The company allows your iPhone or iPad to accept credit cards and has a simple and graceful interface for users.
Just imagine the complementary ways Square's and Apple's accounts could impact our payment methods. Businesses could accept payments through credit cards or App Store accounts with the touch of a button on your phone. Money could be transferred to and from your account to other users, just like you can do at banks or on PayPal. The possibilities are endless.
The big question here is how far Apple wants to go into the payment ecosystem. So far, Apple has simply provided the platform for developers and hasn't become a payment method itself. It has the capability to go much further, even creating a banking system if it so desires. Apple recently kicked Google's Maps app to the curb for its own app, so a payment method to rival PayPal or Intuit isn't out of the question.
Buying Square would cost around $4 billion if rumors from a recent round of funding are true. Apple would hardly miss the money and could expand its ecosystem further with the purchase.
For now, I think it will take slow steps to expand what you can purchase with your App Store account, but adding Square would be an interesting change to the game that makes a lot of sense to me, even if it doesn't happen.
Starbucks goes green
Starbucks (NAS: SBUX) has been known for its retail coffee shops for years but has been looking for ways to enter our kitchens as well. VIA has sold well, but the instant coffee doesn't have the same cache as a home brew, which is where Green Mountain Coffee Roasters (NAS: GMCR) comes in. The Keurig maker has multiyear deals with Starbucks and Dunkin' Brands as well as a number of brands of its own and has a foothold in millions of homes around the country.
Green Mountain has been able to grow like a weed by offering a simple single-serving system to customers in the home. With a stock price that's plummeted, I think this is the perfect time for Starbucks to pounce.
If we figure even a 50% premium from today's price, Starbucks could buy Green Mountain Coffee Roasters for about $4.5 billion and get a steal. The company has had $3.5 billion in sales in the last four quarters and earned $329 million, or $2.15 per share over the same time. A price around $30 per share would still only be 14 times trailing earnings. Starbucks could mitigate the risk of lost revenue and expiring patents that have hurt Green Mountain's sales and use its combined distribution muscle to expand the reach of K-Cups.
Not only is Green Mountain a good strategic fit, the price is right if Starbucks pounces right now.
A big bet in solar
General Electric (NYS: GE) has been a big player in renewable energy for years, particularly in wind, and today it's trying to expand into solar. It just did it at the wrong time with the wrong technology by expanding its CdTe plants at a time when the market is trending toward higher-efficiency modules. But there are ways the company can expand in solar and leverage its current business.
Right now, former solar leader First Solar (NAS: FSLR) is at a crossroads and needs to make some changes to stay relevant. The company's stock has plummeted and I've suggested that a breakup of the company may be the best move. If GE were able to buy the company's development unit it could leverage its own finance unit to lower borrowing costs and create a competitive advantage using the best available technology, internally manufactured or not. Sure, it could use this as a path to sell its own modules, but it could also become a player around the world using the most appropriate technology for the environment.
At this point, GE could buy First Solar for under $2 billion (a 55% premium) and along with it would come a pipeline of 2.7 GW in projects and a large manufacturing infrastructure. The manufacturing unit could be acquired and added to GE's unit, left as an independent company, or liquidated for parts. No matter how you slice it, I think it'd be money well spent for GE.
Foolish bottom line
I don't know if any of these acquisitions will happen, but I think they each make sense for both parties. But what do you think? Would you make these acquisitions if you were CEO? Leave your thoughts in our comments section below and check out three American companies profiting from emerging markets in our free report found here.
The article 3 Buyouts That Just Make Sense originally appeared on Fool.com.Fool contributor Travis Hoium manages an account that owns shares of Apple. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of Starbucks and Apple. Motley Fool newsletter services have recommended buying shares of Apple, eBay, Green Mountain Coffee Roasters, First Solar, and Starbucks; creating a lurking gator position in Green Mountain; creating a bull call spread position in Apple; writing naked calls on Dunkin' Brands; and writing covered calls on Starbucks. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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