Citi Says 40% Apple will Acquire Netflix

Published on: 03 Jan, 2018

After the Trump administration’s giant corporation tax cut, Citigroup Inc (NYSE: C) analysts Jim Suva and Asiya Merchant say there is a 40 percent chance Apple Inc. (NASDAQ: AAPL) will acquire Netflix Inc. (NASDAQ: NFLX), first reported by Business Insider.

In December, President Donald Trump and Republican lawmakers passed the largest tax reform in over 30 years, which cut corporate tax rates down from 35 percent to 21 percent. While many companies see it as an opportunity to grow and give back to employees, Apple may have a different view.

Apple has approximately $250 billion in cash, but much of it is spread throughout foreign jurisdictions, which prevented the company from bringing it into the U.S. For Apple to acquire Netflix, it will only require approximately a third of its cash on hand.

In a note, Citi analysts wrote to clients also included other potential companies Apple may acquire, such as Disney, Activision, Electronic Arts, and Tesla. Citi analysts projected that the other companies on the list would require a larger percentage of Apple’s equity, with possibly a lower investment return.

"The firm [referring to Apple] has too much cash – nearly $250 billion – growing at $50 billion a year. This is a good problem to have," Suva and Merchant told clients. "Historically, Apple has avoided repatriating cash to the US to avoid high taxation. As such, tax reform may allow Apple to put this cash to use. With over 90% of its cash sitting overseas, a one-time 10% repatriation tax would give Apple $220 billion for M&A or buybacks."

Apple has tried for years to integrate itself into the digital media industry, but has been outshined by other companies such as Netflix or Amazon. The company even created its own streaming service, Apple TV, but with the new tax reform, it would be a perfect opportunity for Apple to acquire a competitor instead of creating its own.

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Danny Abramov

Email: danny@financialinsiders.com

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