3 Mergers That Just Make Sense

With corporate cash piling up, it's time to put that money to work.

Travis Hoium
Travis Hoium
Feb 3, 2011 at 12:00AM

As outsiders, we never really know when mergers and acquisitions will take place. Betting on a takeover can often lead to financial ruin. But that doesn't mean we can't talk about some takeovers that would make a lot of sense, even if they never happen. Here are three buyouts I think should happen sooner rather than later.

Dolby shops at the movies
When an innovative technology company goes shopping for an acquisition, it usually wants to give itself a fresh shot of innovation. That's why I think a Dolby Laboratories (NYSE: DLB) / IMAX (Nasdaq: IMAX) merger makes all the sense in the world.

Dolby is a leader in audio technology, providing movies with the surround sound we know and love. IMAX rules the premium movie experience, and it could gain from synergies with Dolby's audio systems.

A combined company could be a one-stop technology shop for video and audio technology, especially as 3-D televisions continue their slow emergence.

A deal for IMAX would probably cost somewhere around $2.5 billion at $40 per share -- a roughly 50% premium to its current share price. With just $850 million or so in cash and short-term investments, Dolby would need to take on some debt to make the purchase. But since IMAX only has a small amount of debt, the debt-free Dolby should have the capacity to make a deal happen. I'll be the first in line for an IMAX 3-D TV with Dolby Digital surround sound.

It's time for 3M to think outside the box
Under CEO George Buckley, 3M (NYSE: MMM) has been on an acquisition binge, but the targets rarely provide the splash that makes headline news. I think that should change in 2011, and that 3M should put its money where its mouth is with regard to renewable energy.

For years (since I was working there), 3M has talked about investing in renewable energy. Alas, that usually meant providing products it already sells to manufacturers, while only slowly developing new discoveries. Even when new products get developed, 3M considers itself a supplier or technology enabler, not a panel manufacturer.

This year, 3M should change that by purchasing solar efficiency leader SunPower (Nasdaq: SPWRA). Both companies are keen on high technology and best-in-class products, making SunPower a perfect target. Admittedly, First Solar (Nasdaq: FSLR) would probably be a more natural fit; it makes thin-film panels, and film is what 3M does best. But First Solar has a $13.8 billion market cap, and I don't think 3M has the guts to swallow a company that size.

SunPower has a more manageable market cap of $1.5 billion, meaning a buyout might cost somewhere in the neighborhood of $2 billion, plus $585 million in acquired debt, against roughly $280 million in cash.

Related Articles

A buyout would give 3M a foothold in the solar market, a high-growth area the company has already targeted, and would allow 3M scientists to combine their innovative ideas with SunPower's. As General Electric, BP, and even Google make their way into solar, 3M could take a leading position with this purchase, establishing a growth engine for the future. SunPower may lie a little outside 3M's comfort zone, but it's high time to shake things up.

An improved Apple TV
(Nasdaq: AAPL) has to be considering doing something with its massive cash hoard sometime soon, and I have just the company for Apple to buy: TiVo (Nasdaq: TIVO).

I may be in the minority, but I think the Apple TV could be Apple's biggest product -- if it would only provide the features that consumers want. Apple TV is a great idea, but it has to replace something I currently have in my entertainment system to be worth considering. The item that needs to go the most is my cable box, and I want my Apple TV to replace it, with DVR included.

From there, the possibilities are endless. Apple could include a DVD player and sound system, or even add a wireless router to become the digital hub of the entire house.

With a current $1.2 billion market cap, TiVo's an easy target for Apple to take a flyer on. Even if it didn't work out, the lost cash would be a drop in the bucket. But if Apple can make Apple TV into a more viable product, the upside potential could be huge.

Foolish final thought
I have no idea whether any of these deals will happen, but I think all three make a lot of sense. What mergers or acquisitions do you want to see this year? Leave your picks in the comments section below.

Google and 3M are Motley Fool Inside Value selections. First Solar, Google, and IMAX are Motley Fool Rule Breakers recommendations. Apple and Dolby Laboratories are Motley Fool Stock Advisor selections. The Fool has written puts on Apple. The Fool owns shares of Apple and Google.

Fool contributor Travis Hoium owns shares of IMAX, First Solar and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.