Apple Without CEO Jobs Gives Cook $28 Billion to Deal: Real M&A

Without Steve Jobs, Apple Inc. (AAPL) may start to embrace dealmaking after spending less on acquisitions than any of its biggest competitors.

Jobs, who transformed the near-bankrupt personal-computer also-ran into the world’s largest technology company, used less than a billion dollars for takeovers in the past decade as he unveiled the iPod, iPhone and iPad. Apple’s largest U.S. rivals have shelled out more than $15 billion on average to buy companies over the same span, according to data compiled by Bloomberg. Microsoft Corp. (MSFT) has lost a fifth of its value even after spending 10 times as much as Apple on acquisitions.

Apple became a $350 billion company as Jobs introduced devices that revolutionized the computer, music and mobile phone industries. Jobs, who was diagnosed with cancer and had a liver transplant, is now turning Apple over to former Chief Operating Officer Tim Cook. Boosting acquisitions in entertainment, patents and security with its $28 billion cash hoard may help Apple fend off Google Inc. (GOOG) and Samsung Electronics Co. without Jobs, the University of North Carolina and Stewart Capital said.

“Time will come for acquisitions for sure,” Arvind Malhotra, an associate professor at the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School, who has taught Apple’s business strategies for a decade, said in a telephone interview. Jobs “always grew from within. If lack of his vision and availability of his position causes the future pipeline not to be there, that’s when the acquisition model comes into play. They’re sitting on a cash pile,” he said.

Acquisition Detail

Steve Dowling, a spokesman at Cupertino, California-based Apple, declined to comment on whether Jobs’s resignation as chief executive officer this week will encourage the company to make more acquisitions.

Apple advanced 2.6 percent to $383.58 today, becoming the world’s largest company with $356 billion in market value. It eclipsed Exxon Mobil Corp. (XOM), which ended the day at $353 billion, data compiled by Bloomberg show.

America’s 10 largest technology companies have paid more than $140 billion on acquisitions of businesses in the past decade, net of any cash received, data compiled by Bloomberg and filings with the U.S. Securities and Exchange Commission showed.

Apple, which introduced the iPod music player in late 2001, has accounted for less than 1 percent of those purchases with $910 million in takeovers, the data show.

Even without a single billion-dollar acquisition, Apple’s value under Jobs increased by more than $300 billion in the past 10 years. Jobs has also doubled Apple’s net income every two years since the company reported its last annual loss in 2001, according to data compiled by Bloomberg.

Apple Versus Microsoft

Microsoft, the maker of the Windows operating system that was founded by Bill Gates, fell 21 percent in the past decade through yesterday even after spending more than $12 billion on acquisitions to bolster earnings and boost shareholder value.

The total excludes the company’s $8.5 billion agreement in May to buy Skype Technologies SA, the world’s most popular Internet calling service, which has yet to close.

Jobs, who founded Apple with Steve Wozniak in 1976, was ousted by the board in 1985 amid differences over strategy. When he returned 12 years later, Apple had run up $1.86 billion in losses over two years. It was 90 days away from bankruptcy, Jobs would later say.

Apple’s shares surged 9,020 percent from July 29, 1997, the day before the San Francisco Chronicle said that Jobs would be interim CEO, through his resignation this week.

The company’s equity value rose to $349 billion from $2.1 billion under Jobs, making it the largest technology company.

Smartphones to Music

Microsoft of Redmond, Washington, which at its peak in December 1999 was worth more than a half-trillion dollars, is valued at $212 billion. Armonk, New York-based International Business Machines Corp. (IBM), had a market capitalization of $202 billion, data compiled by Bloomberg show.

After returning, Jobs had led Apple’s transformation into a seller of everything from smartphones to music. He engineered the company’s comeback by honing its industrial design, tightly integrating software and hardware, and pushing into new markets.

The iPhone, introduced in 2007, has become Apple’s best- selling product and turned the company into the world’s biggest smartphone maker. After winning customers away from Research In Motion Ltd. (RIMM) and Nokia Oyj (NOK1V), Apple is now sparring with Google for leadership in the market for mobile-phone software.

Jobs was appointed chairman this week after resigning as CEO and recommended appointing Cook, 50, as his successor. He was on medical leave since Jan. 17 after combating a rare form of cancer since 2003 and surviving a liver transplant in 2009.

Day of Reckoning

“I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know,” Jobs, 56, said in a statement on Aug. 24. “Unfortunately, that day has come.”

Apple may now need to spend more money acquiring products to replace those built using Jobs’s ideas, said Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania.

Cook, who has worked at Apple for 13 years and focused on an expanding list of operational roles, including manufacturing, distribution, sales and customer service, hasn’t yet shown he can be an inventor like Jobs, Polley said.

“I don’t think it’s clear who the visionary is absent Steve Jobs,” he said in a telephone interview. “Cook has done a good job operating the company from a business management perspective, but I don’t know if he’s the product visionary Steve Jobs is. You could do that via acquisition.”

‘Blunt the Force’

The company is going to have to add products to “blunt the force” of Google’s Android platform, said Michael Yoshikami, chief executive officer and founder of YCMNet Advisors, which manages $1.1 billion in Walnut Creek, California.

Android was the best-selling smartphone operating system worldwide in the second quarter with sales rising more than fourfold to give it 43.3 percent of the market, led by Samsung and HTC Corp., according to Gartner Inc., the research firm based in Stamford, Connecticut.

Netflix Inc. (NFLX), based in Los Gatos, California, would allow Apple to boost revenue from streaming live videos and television shows and keep users dependent on its products for a wider range of media, the University of North Carolina’s Malhotra said.

Steve Swasey, a spokesman for Netflix, declined to comment on whether it would consider a sale to Apple or whether the company has been approached by Apple about an acquisition.

Apple may also look at deals to increase security of its computers as they become more popular, according to Stewart Capital’s Polley.

‘Logical Progression’

Howard Ward, who helps oversee $36.1 billion at Gamco Investors Inc. in Rye, New York, says that Apple doesn’t need to pursue more acquisitions to remain successful and that Jobs will still have influence over the company as its chairman.

“The last thing they want to do right now is make it appear as if they’re changing their stripes with Steve resigning as CEO,” he said in an e-mail. “Steve is still chairman.”

Still, Apple is already stepping up its purchases by leading a group of six companies in acquiring Nortel Networks’ patents for $4.5 billion at the end of June. The $2.6 billion that Apple is paying is almost three times the amount it spent on acquisitions in the previous 10 years.

“Apple has been reinvented at least twice already now,” Peter Sorrentino, a senior money manager at Huntington Asset Advisors in Cincinnati, said in a telephone interview. The firm oversees $14.8 billion, including Apple shares. “Could they reach a point in time where, without Steve there, they are not the magnet for creative talent? It would be a logical progression.”

To contact the reporters on this story: Danielle Kucera in New York at dkucera6@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net.

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