Apple allegedly keeping 'close eye' on possible sale of Time Warner, with streaming TV in mind

AppleInsider

Apple is paying close attention to the possibility of Time Warner -- or parts of it -- going up for sale, potentially with the intent of buying assets to help launch a streaming TV service, according to rumors.

TW is thought to be a "sitting duck" for buyouts because it doesn't have a dual-class shareholder structure, and its shares are valued well below an $85 offer from 21st Century Fox that was rejected a year and a half ago, the New York Post said. Sources told the paper that aside from Apple, AT&T and Fox are also interested in TW.

Apple's head of Internet Software and Services, Eddy Cue -- generally responsible for content deals -- has specifically been keeping a watch on TW, according to one of the sources, described as close to Apple.

The Post speculated that Apple's interest is in the broad swaths of content TW would give it instantly, including Turner Sports, CNN news, popular HBO shows like Game of Thrones, and Warner Bros. movies and TV shows. First-party content would be advantageous to Apple, especially since talks for a streaming TV service reportedly fell apart due to resistance to a "skinny" channel bundle costing less than $30 per month. With TW in tow, a streaming TV service wouldn't need many outside deals, and Apple could more easily dictate pricing.

In practice, Apple is unlikely to want to take over TW in whole or in part, since that would require getting involved in businesses Apple has previously expressed no interest in.

Rumors have claimed that Apple might be interested in producing original programming, much like Netflix, but through recruiting and partnerships rather than buyouts. Cue dodged the topic in an October interview.

"We love working with our partners. We're great at technology, and they're great at creating content, and we think that's a great partnership to have," he said.

gatorguy

Note when discussing that TimeWarner Media and TimeWarner Cable are two different entities. 

ireland

One way to spur interest for their assets is to mention Apple ammirite?

gatorguy

sog35 said:

This is a no brainer.

Apple needs to buy Time Warner. It will only cost about $60 billion. Right now Time Warner makes about $4 billion in profit a year. 

Apple could pay $10 billion in cash and the rest could be Apple stock that they bought back. 
That's right. Apple could reissue $50 billion in Apple stock which they bought for under $100 a couple of years ago. Apple bought back $50 billion in stock at $60-$70 a share in 2013. 

IMO, this is the real power of the buyback.  Buy the stock for cheap in 2013 for $60 a share. Then when the stock is $100, reissue the shares to acquire another company.

Isn't the stock Apple "bought back" retired, not available to reissue? 

SpamSandwich

Sounds entirely like a fabricated story to elevate TW's asking price.

techprod1gy

Does this type of deal really fuel a streaming service? I assume Apple could release a "Netflix" service with no real issue correct? I know this gives them content and content production capabilities...but would this be a game changer for their efforts to re invent the tv experience???? Asking as I do not have a clue what the right answer is.

gatorguy

sog35 said:

gatorguy said:

sog35 said:

This is a no brainer.

Apple needs to buy Time Warner. It will only cost about $60 billion. Right now Time Warner makes about $4 billion in profit a year. 

Apple could pay $10 billion in cash and the rest could be Apple stock that they bought back. 
That's right. Apple could reissue $50 billion in Apple stock which they bought for under $100 a couple of years ago. Apple bought back $50 billion in stock at $60-$70 a share in 2013. 

IMO, this is the real power of the buyback.  Buy the stock for cheap in 2013 for $60 a share. Then when the stock is $100, reissue the shares to acquire another company.

Isn't the stock Apple "bought back" retired, not available to reissue? 

They can issue new shares at anytime. There is an upper limit of shares but last time I check Apple could DOUBLE the shares outstanding without stockholder vote. 

 In return Apple gets a great media company that makes $4 billion in profit a year and adds $25 billion in revenue.
But after buying back $120 billion in shares I see no reason why Apple would be hurt reissue those same shares at a 30-40% higher price.
Sure the stock could go down because the current shareholders will own a smaller percent of Apple.

Again, IF Apple retires the shares they buy back, which is what I think they do, they simply cannot be reissued. They no longer exist so there's nothing to reissue. Of course Apple could simply issue new stock, but that would have nothing at all to do with the stock buy-backs. So your comment about Apple buying stock back cheap and re-issuing is moot. Wouldn't that be correct?

gatorguy

sog35 said:

Apple can 'buy' Time Warner for almost free.

Time Warner is worth about $55 billion right now.
Apple will probably have to pay $70 billion to buy them.

Apple could pay $10 billion in cash and $60 billion in stock.

The $60 billion in stock that will be issued will be taking the place of stock that was bought back in 2013/2014 at ridiculously low levels. I think the average stock price during the backback in 2013 and 2014 was $60. So in other words the $60 billion of new stock issued would have only cost $36 billion (since those shares were bought for $60 but now are worth $100)

They aren't worth anything as far as I know. They don't exist. Think of it in more concrete terms.

Say Apple sells you a new iPhone in 2013. Last year they bought it back from you for $200 and then burn it. This year they sell you another new iPhone for $1000. They didn't just profit another $800 because they bought one back cheap last year. That phone no longer exists so they aren't reselling it. 

But yes,absolutely Apple could and I agree probably would use stock in the purchase. That's of course if they were purchasing in the first place. It depends on how valuable media is to Apple. If would be a significant change from their general reliance on hardware as the source of revenue with services as mostly a supporting afterthought. 

rogifan_old

SpamSandwich said:

Sounds entirely like a fabricated story to elevate TW's asking price.

I don't like it. And CNBC didn't spend much time on it this morning. The stock is basically flat this morning so it doesn't seem like Wall Street is taking seriously.

MacPro

I am not sure myself, but how would such a purchase play with Apple's abilities to attract companies to and retain those already on Apple TV?  Might it be deemed that Apple was now in competition with them?

rogifan_old

sog35 said:

Apple can 'buy' Time Warner for almost free.

Time Warner is worth about $55 billion right now.
Apple will probably have to pay $70 billion to buy them.

Apple could pay $10 billion in cash and $60 billion in stock.

The $60 billion in stock that will be issued will be taking the place of stock that was bought back in 2013/2014 at ridiculously low levels. I think the average stock price during the backback in 2013 and 2014 was $60. So in other words the $60 billion of new stock issued would have only cost $36 billion (since those shares were bought for $60 but now are worth $100)

So the total cost of Time Warner to Apple would be $10 billion cash + $36 billion in stock (cost basis) for a total of $46 billion.

So Apple is getting a cool $11 billion discount of buying Time Warner by issuing new stock.

Some may say that the stock price will go down because the shareholders are getting diluted by about 10% with the new stock issued.
But much if not all of that 'dilution' is made up with the added value of acquiring Time Warner. Time Warner makes about $4 billion in profit and $25 billion in revenue a year. This would also add diversification to Apple's revenue streams, thus a higher PE and less reliance on iPhone.

Do it Tim.  If Apple buys Time Warner they could absolutely change TV and the entire face of home entertainment. It would be a massive cog in the Apple ecosystem that would lock in tens of millions of people into the Apple ecosystem.

I'm not sure I buy this. Apple doesn't know anything about running cable properties. And it's not like Eddy Cue's org is firing on all cylinders. Heck just this week Apple admitted they didn't know how many people were using their news app and were providing inaccurate data to publishers. iTunes needs a lot of work and Apple Music has plenty of its own issues. My concern is too many "analysts" seem to be in a panic of over Apple and silly season is ensuing. So last week Jim Cramer was screaming that Apple needed to buy Fitbit and Harmon and Verifone. Now this week he says Apple needs to create a $199 fitness band with Nike. I hope to god Tim Cook isn't listening to these clowns that are looking for some quick fix because the stock hasn't been doing well.

gatorguy

They could sog35 said:

gatorguy said:

Again, IF Apple retires the shares they buy back, which is what I think they do, they simply cannot be reissued. They no longer exist so there's nothing to reissue. Of course Apple could simply issue new stock, but that would have nothing at all to do with the stock buy-backs. So your comment about Apple buying stock back cheap and re-issuing is moot. Wouldn't that be correct?

yes technically they would not be reissuing the same stock they bought back. But from a cash flow perspective that is exactly what they are doing.

In 2013/2014 they bought back a ton of shares at $55-$60 per share.
Now they would be issuing new shares at $100 per share.

So yes, because Apple bought back shares and then issue new shares they would have saved about 40% on those shares.  We are talking about $15-$20 billion in positive cash flow just because of the buyback.

Apple can issue new shares without buying a single share back. The buyback isn't saving them anything is it? There's no connection between the two AFAIK, tho you still are trying to attach one.  Burning the stock they bought back doesn't make a new stock issue anymore of a positive cash flow.

gatorguy

EDIT: Nevermind. Not worth the effort

canukstorm

sog35 said:

Apple can 'buy' Time Warner for almost free.

Time Warner is worth about $55 billion right now.
Apple will probably have to pay $70 billion to buy them.

Apple could pay $10 billion in cash and $60 billion in stock.

The $60 billion in stock that will be issued will be taking the place of stock that was bought back in 2013/2014 at ridiculously low levels. I think the average stock price during the backback in 2013 and 2014 was $60. So in other words the $60 billion of new stock issued would have only cost $36 billion (since those shares were bought for $60 but now are worth $100)

So the total cost of Time Warner to Apple would be $10 billion cash + $36 billion in stock (cost basis) for a total of $46 billion.

So Apple is getting a cool $11 billion discount of buying Time Warner by issuing new stock.

Some may say that the stock price will go down because the shareholders are getting diluted by about 10% with the new stock issued.
But much if not all of that 'dilution' is made up with the added value of acquiring Time Warner. Time Warner makes about $4 billion in profit and $25 billion in revenue a year. This would also add diversification to Apple's revenue streams, thus a higher PE and less reliance on iPhone.

Do it Tim.  If Apple buys Time Warner they could absolutely change TV and the entire face of home entertainment. It would be a massive cog in the Apple ecosystem that would lock in tens of millions of people into the Apple ecosystem.

" If Apple buys Time Warner they could absolutely change TV and the entire face of home entertainment. It would be a massive cog in the Apple ecosystem that would lock in tens of millions of people into the Apple ecosystem."

That's great for Apple customers based in the USA.  What about international? It's no secret that the majority of Apple's revenues are international.  How does Apple deal with international TV right issues? Buying up cable companies worldwide becomes pretty damn expensive.

canukstorm

sog35 said:

gatorguy said:

 If would be a significant change from their general reliance on hardware as the source of revenue with services as mostly a supporting afterthought. 

This is exactly what Apple needs to do. They need to diversify their revenue streams so they are not 80% reliant on hardware. They need more revenue from services.

Agreed. Or as some would say, they need to monetize their user base.  But is spending $60 billion on a spun-off Time Warner the right way to go about it?

Soli

gatorguy said:

sog35 said:

They can issue new shares at anytime. There is an upper limit of shares but last time I check Apple could DOUBLE the shares outstanding without stockholder vote. 

 In return Apple gets a great media company that makes $4 billion in profit a year and adds $25 billion in revenue.
But after buying back $120 billion in shares I see no reason why Apple would be hurt reissue those same shares at a 30-40% higher price.
Sure the stock could go down because the current shareholders will own a smaller percent of Apple.

Again, IF Apple retires the shares they buy back, which is what I think they do, they simply cannot be reissued. They no longer exist so there's nothing to reissue. Of course Apple could simply issue new stock, but that would have nothing at all to do with the stock buy-backs. So your comment about Apple buying stock back cheap and re-issuing is moot. Wouldn't that be correct?

I recall that when Apple first noted their buyback program, they specifically mentioned that they would retire most, but also use shares to issue to employees and for other reasons.

edit: This doesn't say what will happen to shares, but it does mention that the buyback program will help when it comes to employee equity grants, which are usually stock options. That isn't in any way conclusive as it just means that the buyback is being done to help with the dilution of more shares.

• http://www.apple.com/pr/library/2012/03/19Apple-Announces-Plans-to-Initiate-Dividend-and-Share-Repurchase-Program.html

rogifan_old

digitalclips said:

I am not sure myself, but how would such a purchase play with Apple's abilities to attract companies to and retain those already on Apple TV?  Might it be deemed that Apple was now in competition with them?

CNBC spent about a minute on this story this morning. Jon Fortt thought it was an awful idea (and one that might require Bob Iger having to leave the board) and said if owning content ticket Sony would be ruling the streaming world right now.

gatorguy

sog35 said:

gatorguy said:

They could sog35 said:

yes technically they would not be reissuing the same stock they bought back. But from a cash flow perspective that is exactly what they are doing.

In 2013/2014 they bought back a ton of shares at $55-$60 per share.
Now they would be issuing new shares at $100 per share.

So yes, because Apple bought back shares and then issue new shares they would have saved about 40% on those shares.  We are talking about $15-$20 billion in positive cash flow just because of the buyback.

Apple can issue new shares without buying a single share back. The buyback isn't saving them anything is it? There's no connection between the two AFAIK, tho you still are trying to attach one.  Burning the stock they bought back doesn't make a new stock issue anymore of a positive cash flow.

Why is this so hard to understand?  Lets go over the 2 scenerio's

Option 1: No buyback

Apple buys Time Warner for $60 billion in cash/stock
Cash flow: Negative $60 billion

Option 2: Buyback

Apple buys back shares for $60 per share
Apple pays Time Warner $10 billion in cash and $50 billion in stock when the shares are at $100

Cash Flow: Negative $10 billion in cash. Negative $30 billion in stock. Total is $40 billion negative.

By using the buyback Apple saves $20 billion in cash flow.

This is assuming the stock is $100 when they buy Time Warner.
This is assuming Apple bought $50 billion of stock at about $60 per share.

Sog, I would ask you the same. Why is it so hard to understand.? Under your scenario you need Apple to have an asset created with the buyback. They don't. The stock was burned so to speak.  It was a total loss, no value remaining. Your Scenario 2 does not exist. 

rogifan_old

sog35 said:

gatorguy said:

 If would be a significant change from their general reliance on hardware as the source of revenue with services as mostly a supporting afterthought. 

This is exactly what Apple needs to do. They need to diversify their revenue streams so they are not 80% reliant on hardware. They need more revenue from services.

They do. But they don't have to spend $70B on an old media company to do it. It seems to me some are freaking out over iPhone sales and are now in a rush to find Apple new revenue streams. CNBC spent all of one minute on this story this morning. It's not being taken seriously.

rogifan_old

sog35 said:

rogifan_old said:

CNBC spent about a minute on this story this morning. Jon Fortt thought it was an awful idea (and one that might require Bob Iger having to leave the board) and said if owning content ticket Sony would be ruling the streaming world right now.

CNBC is full of idiots and Jon Fortt is one of them. The last thing CNBC wants is Apple to be a big player in TV.

CNBC also had the former CFO of Pixar on who also dismissed it as a dumb idea. Just ask Steve Case. If owning content was the silver bullet Sony would be ruling this space right now. Going by your logic Apple should buy Visa or MasterCard too. Dumb dumb dumb.

suddenly newton

Maybe Time Magazine's Person of the Year every year can be some Apple exec.