With corporate America sitting on oodles and oodles of cash, and the economy slowly but surely recovering, it's time for companies to start adding to their arsenals. That should mean a growing number of mergers and acquisitions, something we've seen picking up slightly in the market.
Here are three buyouts that I think make sense for both companies involved.
General Electric (NYSE: GE ) and First Solar (Nasdaq: FSLR )
Now that First Solar has a measly market cap of less than $4 billion, it seems like a no-brainer for GE to take a big step into thin-film by buying the biggest thin-film manufacturer in the world.
GE has been talking about solar for a long time, recently announcing a 400-megawatt manufacturing plant in Colorado, but First Solar has been building solar modules for even longer. The companies are both pursuing low-cost, low-efficiency modules that are in a tough position in the face of dropping polysilicon prices. But First Solar's recent 37.7% gross margin still blows away its Chinese competitors, and efficiency gains are coming slowly and steadily. It would take years and millions of dollars in investments for GE to catch up to that scale and financial success, even if GE can indeed make slightly more efficient modules.
But the biggest reason that GE should be interested in First Solar is because of the backlog of projects the company has in its pipeline. It would take years for GE to hire a crew to build the same expertise and gain the kind of scale First Solar has around the world. Buying the expert makes much more sense. And the power plant business is something GE is already familiar with, as it's building fossil fuel plants around the world.
A $5 billion buyout of First Solar would instantly make GE a market leader, and it could leverage its R&D capabilities and big balance sheet to maintain a strong market position well into the future.
Apple is sitting on a small country's GDP worth of cash and investments, some $81.6 billion at last count. Eventually it's going to have to do something with that money, like pay a dividend or start making big acquisitions.
Under Steve Jobs, neither of those things seemed like a possibility, but now that Tim Cook has taken over and the cash is piling up, the strategy may change. With a major presence in music, smartphones, and computers, Apple may be looking to expand into new markets, including one of the company's major "hobbies."
If Apple TV is a priority for Apple, content will be a key for the device. That's why I think Netflix (Nasdaq: NFLX ) and Electronic Arts (Nasdaq: ERTS ) make great targets for Apple.
After a series of disastrous missteps, Netflix is now trading at a price that Apple could easily justify given the company's reach. With a current market cap of $3.6 billion, it would cost somewhere around $5 billion to acquire Netflix and grab a leading position in streaming videos along with existing contracts.
Electronic Arts may not seem like an Apple target, but this could unlock some of the potential value in Apple TV. Just imagine the gaming possibilities for owners of an Apple TV, iPhone, and iPad. These devices could interact to make an entirely new gaming experience and Apple could kick-start the process with its own content.
Apple has normally focused on devices and smooth operating systems, but the company does make some applications, so this isn't a tremendous reach. iWork is a competitor with Microsoft's Office; iPhoto, iMovie, and GarageBand have become staples on Apple products.
EA has been one of the most active gaming companies expanding into low-cost games built for the app store. With Apple TV, EA could offer a wide range of products from fr! ee games to high-cost sports games and even get a head start building games for new devices if it were an in-house developer.
Microsoft (Nasdaq: MSFT ) and Activision Blizzard (Nasdaq: ATVI )
Speaking of games, Activision Blizzard can't seem to do anything right in the market's mind. Beating expectations is never enough, record sales of games isn't enough, so it's time to try another strategy. Look for a suitor, and there's no one bigger than Microsoft.
From Microsoft's perspective, there are few expansion plans that have gone well in the last decade. The Zune was a flop and search isn't blowing anyone out of the water, but the Xbox has been a hit and is now core to Microsoft's strategy.
To stay ahead of the game, Microsoft could bring Activision into the fold and begin offering some of the company's popular games exclusively on the Xbox, expand the subscription business, and leverage new devices like the Kinect.
It's not a perfect marriage, with Gears of War and Call of Duty occupying the same space, but the additional games could be too good to pass up. Microsoft needs growth, and Activision could provide it at an attractive price.
Time for you to weigh in
I've put my buyout picks on the table. Am I off my rocker, or do you have other picks? Leave your thoughts in our comments section below.
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