An Apple Buyout of Sony Is a Bad Idea: 10 Reasons Why

 
 
By Don Reisinger  |  Posted 2014-04-11 Email Print this article Print
 
 
 
 
 
 
 
 

Apple and Sony could have merged if talks between the companies weren't stalled by concerns over valuation, Oracle founder Larry Ellison reportedly said in Japan on April 9. Ellison claims that Apple approached Sony about the possibility of a merger, only the talks broke down and were never picked up again. This isn't a major new revelation. Rumors have circulated for years suggesting that Apple was interested in acquiring Sony. The truth is that Apple is better off without acquiring long-struggling Sony. While the two companies might have product lines that are complementary, they are on two totally different paths. As much as Apple might want to get ahold of patents in Sony's television business or its gaming division, it makes no sense to try to acquire Sony, a vast Japan-based conglomerate that generated $72.3 billion in 2013 revenue but produced net income of a scant $458 million. However, some advocates of the deal argue that with the sheer amount of cash Apple has stockpiled—well over $100 billion—the company could pluck the things it wants, ditch the rest and replenish its cash coffers in no time. But these are just unproven suppositions. This slide show looks at some reasons why it's a bad idea for Apple to acquire Sony now or in the future.

 
 
 
  • An Apple Buyout of Sony Is a Bad Idea: 10 Reasons Why

    by Don Reisinger
    1 - An Apple Buyout of Sony Is a Bad Idea: 10 Reasons Why
  • Apple Doesn't Do Well With Too Much

    Remember when Steve Jobs came back to Apple and eliminated the vast majority of the company's products? He realized at that time that Apple couldn't survive with so many product lines, and he saw no reason to try to be everything to everyone. Jobs wanted to focus Apple on the products and solutions that mattered. Sony has too many moving parts to be a successful part of Apple.
    2 - Apple Doesn't Do Well With Too Much
  • Sony Would Boost the Price

    If Ellison's comments are to be believed, Sony believes that it's worth more than it really is. And why not? Sony has a long history with a brand that people know across the globe. While Apple should pay for that to some degree, there's a good chance that Sony would want to make the iPhone maker pay more for the brand than it's really worth. Sony is Sony, but it's not Apple. The trouble is, only one of the companies knows that.
    3 - Sony Would Boost the Price
  • The Valuation Doesn't Add Up

    As of this writing, Sony is valued at $19 billion, according to its market capitalization. Assuming Apple would be forced to provide a premium on the current stock price and pay for the "goodwill" Sony has in its brand, Apple could pay a significant amount more than the $19 billion. Considering how much money Sony has lost over the last few years, would anyone really want to pay that much for the company? I think not.
    4 - The Valuation Doesn't Add Up
  • The TV Division Is on Its Last Legs

    Some have said that Apple could derive value from Sony through its television division. Apple is reportedly working on a TV set, and acquiring Sony would expedite that process. However, Sony's TV division is losing market share and hemorrhaging cash. The company's shareholders are calling on CEO Kazuo Hirai to sell it off. Why would Apple want any part of that?
    5 - The TV Division Is on Its Last Legs
  • What Would Apple Do With Sony Music?

    Buying Sony isn't just about electronics. If Apple were to buy Sony outright, the company would be forced to become the owner of the company's own record label, managing talent and song royalties. Such a move puts Apple in direct competition with labels that it relies on to generate so much revenue through iTunes. It doesn't seem practical, therefore, to bite the hand that feeds you, does it?
    6 - What Would Apple Do With Sony Music?
  • What About Sony's Finance Business?

    One of the most important aspects of Sony's business, and part of the reason the company is worth so much, is its Finance business. Sony provides financial services, insurance and related offerings to customers. Apple has no expertise in that industry and would have no reason to acquire it. The division just further complicates an acquisition and reduces Sony's potential value to Apple—something that Sony's executives wouldn't like to hear.
    7 - What About Sony's Finance Business?
  • Apple Doesn't Need to Spend Cash

    Apple might have all kinds of cash in its coffers, but that doesn't mean that it needs to make a blockbuster acquisition, like some suggest. Apple can continue to build up its cash and use it for a safety net, to boost its stock price with dividends, and keep doing what it's doing. To argue, as some analysts have, that Apple should put its cash to work through major acquisitions is nonsense.
    8 - Apple Doesn't Need to Spend Cash
  • Would Sony Even Sell?

    All of this talk about Apple and Sony supposes that Kazuo Hirai wants to sell his company. The truth is Hirai feels that he's on to something with his "One Sony" initiative, and while some units might be up for sale at some point in the future, right now, he wants to stick with what he has. At least publicly, it appears Sony is in no position to even entertain a deal with Apple.
    9 - Would Sony Even Sell?
  • Tim Cook Is Practical

    According to Ellison, the talks between Apple and Sony occurred when Steve Jobs was still running the company. Now that Tim Cook is in charge, the chances of an acquisition feel even less likely. Cook has shown himself to be very practical and risk-averse. In other words, it's highly unlikely that he would want to spend the tens of billions of dollars it would take to buy Sony just to get his hands on a few worthwhile projects or divisions. Cook isn't about spending money; he's about making money. And it's hard to see how Apple would see a positive return on any investment in Sony.
    10 - Tim Cook Is Practical
  • It's a Division-by-Division Play

    Could Sony and Apple eventually come to an agreement? It's possible. But that's only if the companies are willing to make deals by division. One could see Apple having some interest in Sony's PlayStation brand if it wants to build out its set-top box services, and there's even a possibility that Apple would like to get some patents from Sony's television division for any iTV it might have planned. As for everything else, it seems like a hard sell.
    11 - It's a Division-by-Division Play
 
 
 
 
 
 
 
 
 
 
 

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