The market's been buzzing since The San Francisco Chronicle ran a story on Sunday about Apple's (NASDAQ: AAPL) merger and acquisitions chief meeting with Tesla Motors (NASDAQ: TSLA) CEO Elon Musk last year.
Apple meets with companies all the time, but the source claiming that it was specifically M&A chief Adrian Perica was enough to drum up speculation that the country's most valuable company is trying to buy the market darling of the automotive world. Both stock opened higher this morning on the buzz, with Tesla snagging yet another all-time high.
Don't believe the hype. Let's go over a few reasons why this dream hookup isn't likely to happen.
1. Musk won't sell cheap
Shares of Tesla soared 344% last year and are up another 32% this year before this morning's pop. Given that kind of momentum, do you really think Tesla shareholders will be willing to punch out?
As overpriced as the electric-car maker may seem to many skeptics, investors aren't going to sell -- triggering huge capital gains -- for a modest markup. Tesla currently commands a market cap of $25 billion. If a lot of nervous market watchers think that the stock is overvalued now, what will they think of Apple paying $35 billion or $40 billion for Tesla?
2. Apple's not as rich as you think
Apple may be sporting $158.8 billion in cash and marketable securities on its balance sheet -- more than any other company in the country -- but that doesn't mean that it can easily cut big checks. A big chunk of Apple's dough is stashed overseas because repatriating those profits would trigger a sizable tax bill. As Apple spends stateside money on dividends and aggressive share buybacks ($14 billion since last month's poorly received quarterly report along), the percentage of capital deployed overseas grows.
Apple can certainly afford to buy Tesla in an all-cash deal. It would probably have to be all in cash since Tesla investors aren't going to trade in their fast-growing shares for Apple's stock. However, a lot of people repeating that Apple has nearly $160 billion in the bank are misinterpreting how much of that is readily available.
3. Tim Cook won't like having Musk around
Tim Cook is an operations guru, but he's no Steve Jobs. Does he really want Musk around? Does he really want the rumbling of a regime change the next time Cook doesn't wow the audience at a new product rollout or Apple takes a financial dip?
Having Musk around as an ally and perhaps even a board member is one thing. Having him on as an executive is not safe for Cook's health until Apple turns things around in a more convincing fashion.
4. Buying Tesla may be a conflict of interest
Tesla's selling a little more than 2,000 cars a month, a pittance of the overall car market. What do you think the rest of the automotive market would do if Apple became an auto manufacturer?
Google's (NASDAQ: GOOG) Android would be the big winner, since cars would push for deeper Android integration. Yes, Google has made some surprising acquisitions in handsets and more recently smart thermostats that may seem to work against the existing players in those markets, but there would be far more to lose than gain in upsetting the market where tens of millions of cars are sold annually in pursuit of Tesla. Striking technology deals is one thing, but an outright acquisition is something else entirely.
Apple has the money to buy its way out of its present lull in organic growth, but its money is better used in developing its own fleet of products in new categories.
Apple isn't buying Tesla. Deal with it.
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