“The Technology Heist of The Decade” (Palm Beach Letter)

What's Apple going to buy next? Teaser from Paul Mampilly for the Palm Beach Letter

By Travis Johnson, Stock Gumshoe, March 22, 2012

It’s been a few months since I last wrote about a teaser pitch from the Palm Beach Letter, the “entry level” letter from Common Sense Investing that was started in the last year or so by ex-Stansberry pundit Tom Dyson and marketing guru Michael Masterson/Mark Ford.

(Yes, I say “entry level” even though this is their only teased newsletter so far — they’ve just started to publish “upgrade” letters that are more expensive, starting with Palm Beach Income, and I’m sure more will come as they build their marketing list, that’s the business model that all of the Agora affiliates follow).

But they’ve sure continued to tease out their ideas to entice potential subscribers, and this latest one is particularly compelling — no surprise that, since these folks have copywriting in their genes … here’s the lead-in:

“A Company with More Cash than the U.S. Government May Hand You a 53% Payoff … in Less than 4 Hours

“NOTE: This is the most time-sensitive information we have ever published. You must act immediately. News could come as early as tomorrow. Possibly even after the close of today’s market.”

How can you not want to know about this one? No one’s blood runs that cool.

Here’s some more, just in case you’re one of those cool cucumbers who’s not already chomping at the bit. (“Which cucumbers do all the time,” says the mixed metaphor):

“It concerns a report I had written in our most recent issue of Palm Beach Letter about a potentially imminent stock market situation that I believe will make front-page news all around the world once it’s announced.

“If everything plays out as I suspect, this announcement is likely to remove all attention from the Facebook IPO.

“It could distract everyone from the European debt crisis.

“And it’ll probably fuel debate in the media for years to come.

“It could also give you the opportunity to make a 53% gain (or more) in a single day… and even more in the media whirlwind that follows.

“As I said in my report, this situation is extremely urgent… and very fluid.”

So what’s the “technology heist of the decade” that’s being pitched here? It’s a takeover that they’re predicting of some “secret” company by … Apple (AAPL).

Yes, predicting what Apple might do with its cash is a cottage industry in itself — even now, after they’ve decided to pay a small dividend and do a small buyback (no, $10 billion wouldn’t be a small buyback for most … but this is a $500 billion company we’re talking about), they’re still going to generate enough cash that they’ll have something approaching $100 billion in cash on hand at any moment to make acquisitions if they chose.

Some of those predictions include buying high profile companies like facebook, Twitter, Netflix, Research in Motion, and many more — all of which are well within reach of Apple’s cash, with the possible exception of facebook. And of course, we’ve seen the facetious ones, too, like “Apple should buy Greece.”

Despite the fact that Apple has tended to acquire small technology or supplier companies rather than do bigger deals, there’s always speculation that they’ll do something flashier. And this appears to be just that kind of speculation … so let’s check out the details, shall we?

The teaser ad letter is actually from Paul Mampilly, who’s an analyst at Palm Beach Letter, and he’s expecting the …

“Merger of the Decade”

“It’s a situation that involves Apple Inc.—one of the largest companies in the world and maker of the iPhone. And it also involves another famous technology company—a name you probably know and whose product you may even use…..

And then the teaser hints come fast and furious about this potential Apple target:

“As a result of my research, I’ve come to know Apple’s products and partners very well – from the companies in its supply chain to the quiet players behind Apple’s most successful innovations.

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“That’s how I know, for instance, that Apple and the company I think they’ll be buying soon already have a unique and successful partnership. Few people are aware of this, but Apple has been using this company’s technology for several years now to power key features of its computer and iPhone technology – features most people regard as “quintessential Apple” branding.

“This ‘quiet’ partnership, as it were, might be reason enough for me to believe Apple has its sights set on this company (never mind the “monumental events” that have been quietly unfolding behind the scenes the past few months).

“But besides being something of an Apple expert, I know the takeover target company extremely well also.

“Back in the 1990s, I worked on the first-ever Internet stock mutual fund. The fund was begun with $200,000 in 1996. In 1998, that fund was up 196%. In 1999 it jumped up by another 216%. By 2000, it had grown to over $1 billion. One of the first companies the fund bought into was – you guessed it — the company I’m telling you about today….

“… the company I believe Apple wants to buy is trading at a bargain-basement price. In fact, the market is valuing this company for about 36% less than the value of its cash and assets right now….

“Besides costing less than its assets and owning technology Apple is already using, this company has just developed a brand-new technology that could help Apple crack a market it now hasn’t quite been able to crack just yet – movies and television.

“In fact, I believe this new technology is one of the driving reasons behind Apple’s huge interest in this company. It’s a potential game-changer when it comes to linking mobile communications and television media.

“It’s been named the ‘Most Significant Technology, Platform, or Product’ and ‘the best Smartphone App’ for 2011. One tech writer said he was ‘amazed’ and ‘dumbfounded’ when he used it.”

He also uses the recent purchases of Siri as a reason to expect an acquisition here — a former “voice activated assistant” app for the iPhone that Apple loved so much they bought the company, then built it in as a core and very popular part of the new iPhone 4S (I’m still using the old iPhone 4, I’m afraid, I haven’t yet been sucked into the rocks by Siri’s siren song).

And then we get two more hints about this secret “target” company that he thinks Apple will be buying:

“But I believe this newest media platform is transformational technology. Between this and all the other technology and patents this company owns—and the customers who use them—this deal could give Apple access to over 700 million new customers.”

And ….

“Before Jobs died, he promised to wage a “thermonuclear war” on Google because, in his view, Android technology had been stolen from him….

“The next step could be buying this technology company because of the serious damage it could to Google’s existing business. In time, they believe it could squeeze Google’s search business as iPads take share from laptops, and Macs take share from PCs.”

So what’s this merger/acquisition that Mampilly foresees as the next big deal on the horizon, and your opportunity for 50%+ gains in the blink of an eye once that acquisition is announced?

Apple buying … Yahoo (YHOO).

Crazy, eh? Well, I suppose it’s possible. And yes, we all know Yahoo well — most of us use it with some regularity, I still tend to check out Yahoo Finance at least a few times a day, though I don’t believe I’ve ever clicked on an ad there.

So why’s that the match?

Well, you’ve got the 700 million people — that’s how many users Yahoo claims.

And they have that hot new app that’s won those awards they teased, and that has left that one reviewer “amazed and dumbfounded” — it’s called IntoNow, and it’s a synchronized app for screwing around with your friends and celebrity news and etc. while you’re watching TV. I’d call it an underwhelming and stupid way to destroy brain cells as you multitask, but that’s probably because, though I love gadgets, including the iPad, I do from time to time break out in severe and unpredictable attacks of early onset fuddy-duddiness.

IntoNow is an app that was built by a startup group, launched in early 2011, then bought out by Yahoo for roughly $30 million in April last year. It basically builds a huge archive of the audio component of live video and old tv shows and movies, and then uses that so you can press a button on your iPad or iPhone (or Android thingy) and, a few seconds later, it will recognize exactly what you’re watching, feed you relevant info and news, and let you “socialize” that info (if you want to) by sharing it with your friends. Then you can see what they’re watching in real time, and they can see what you’re watching, and, yes, this sounds creepy if you’re over 30 years old or value your privacy, but is probably pretty popular as a way to tell everyone what you’re “into now.” You can see that “dumbfounded” review here if you want.

So that’s part of the idea — that this product that Yahoo bought for $30 million a year ago will inspire Apple to buy Yahoo for $30 Billion. That’s not what Yahoo is worth now, YHOO is currently valued at about $19 billion by the market … but that’s a guess for what it might cost if Apple took them out at a 50% premium as teased.

Which they could certainly do. Crazy as it sounds, Apple could buy Yahoo for $30 billion in cash, no problem — and probably make it even easier by shedding those Yahoo divisions that everyone’s talking about as their “hidden value,” the ownership stakes in Yahoo Japan and Alibaba, among a few other investments they have. I’m sure it would be complicated, since some of that cash is overseas and Apple doesn’t want to bring it home and pay taxes … though of course, much of Yahoo’s revenue comes from overseas, too … and, well, that gets into the details more than is probably worth it for a crazy speculation.

And yes, Apple buying Yahoo sounds like crazy speculation to me. Which isn’t to say it might not happen, or that Yahoo mightn’t be cheap at $15 a share, as several other folks also believe … it’s just hard to imagine such a mega merger for Apple. Apple loves holding cash, the Steve Jobs superstition might have kept them from paying a dividend for years, but they also have good business reasons for holding big piles of cash to backstop their production lines and keep their competitors scared — they can buy out all the memory chips and display screens they want at great prices because they can pay cash up front to retool or expand the factories of their suppliers, and the combination of a small number of core products and a huge amount of cash means they can invest heavily, in the blink of an eye, in new products without anyone catching wind of it. Then there’s the fact that Yahoo effective gave up on their “most likely to hurt Google” business (Yahoo Search) when they merged it with Bing from Microsoft (former villain number one for Steve Jobs).

I wouldn’t say Yahoo is dead or completely unattractive — and they may not even be dying. But they are trying to figure themselves out, and they have missed a lot of trains in the last decade. Still, they do a lot of cool stuff, and you can argue that they aggregate information and news and handle media content at least as well as Google does — check out the Yahoo visualizer for an interesting take on how people are following the news through Yahoo, for example. It’s not hard to imagine that if Apple had Yahoo’s user base they could probably make more money from it than Yahoo does … but that’s not enough of an argument, I expect, for Apple to take on the challenge of a huge integration project that would cost this much money. Not that I can read Tim Cook’s mind, of course, I’m just skeptical.

Yahoo trades at about 1.5X book value, which probably doesn’t accurately capture the value of their foreign subsidiaries/investments — but that information is very much known by Wall Street, which has been trying to help Yahoo “create value” or “monetize” those investments for a couple years now. They may be closer to actually getting something done now, with more talk about strategic planning and some key departures (like co-founder Jerry Yang leaving the board), but I haven’t followed the story all that closely — really, the only reason I’d conclude that they may be closer to getting some kind of deal done to monetize, streamline, merge or re-imagine Yahoo as a whole or its divisions is that … well, most people seem to have given up on them, and that tends to be when things happen. Just ask Motorola.

And Yahoo actually has a decent business at this price — they make about a billion a year in profit off of five billion in revenue, which is weak compared to the margins at Google or Apple but certainly nothing to sneeze at, and they do have those strategic assets, a good balance sheet, some of the most visited websites in the world, and $2 billion in cash … on a bigger, strategic front I just don’t see how Yahoo would give Apple the edge in designing or producing their next great product — Apple uses content (iTunes) to sell their high-margin devices, not to create vast user farms or low-margin content businesses, so I think you’d need to find a reason why Yahoo would improve the iPad or the expected iTV in some substantial fashion before you could argue convincingly that the company would be a no-brainer strategic acquisition.

Though, to be fair, they’d make more money by buying Yahoo and keeping it a separate company than they would by putting their cash in short-term T-bills, so it might be an accretive acquisition even it seems ridiculous.

So I can’t tell you with a straight face that Apple will acquire Yahoo, but that’s the pitch being thrown by the Palm Beach Letter … and perhaps, with the company certainly “in play” to some degree and underloved by investors, something will happen to get that share price moving again now.

It’s your money, though, so what do you think? Expecting a big premium takeover bid for Yahoo, or a big acquisition of someone by Apple? Let us know with a comment below.

Full disclosure: I own shares of Apple and Google, both of which are among my top holdings, and some call options on Microsoft. I don’t own any of those other companies mentioned above, and will not trade in any stock covered for at least three days.


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