Why Apple Should Pay $100 Billion to Buy Facebook

By Eric Jackson02/23/11 - 11:54 AM EST

NEW YORK (TheStreet ) -- Apple(AAPL_) currently has a $315 billion market capitalization, with $60 billion in cash on its balance sheet. Analysts speculate it will use the money to start paying a dividend, do stock buybacks, or do an acquisition. There is one company that should be on the top of Apple's shopping list: Facebook -- and Apple should be willing to spend up to $100 billion to get it.

Last October, Steve Jobs made an unexpected appearance during the quarterly analysts' call and was asked his intentions for the cash pile.

He responded: "We strongly believe that one or more very strategic opportunities may come along that we're in a unique position to take advantage of because of our strong cash position." In other words, they will only use this money for acquisitions.

Until now, Apple has only made small, sub-$100 million acquisitions like music streaming service Lala. A year ago, it bought mobile advertising company Quattro Wireless for $300 million. Although there were rumors six months ago that it might make a play for chip-makerARM Holdings(ARMH_), Apple has never done a $1 billion acquisition.

But, we shouldn't mistake inaction for inevitability. What could a "very strategic" opportunity be for Apple to acquire? A chip-maker would help them increase their gross margins, but it isn't a game-changer.

In my view, the only company out there that could represent a huge increase in the opportunity set in front of Apple for the next 10 years is Facebook.

Interestingly, a week before Jobs' appearance on the analyst call last year, the LA Times reported that Jobs invited Facebook CEO Mark Zuckerberg to dinner at his house. The topic of conversation reportedly centered on Apple's new social networking service called Ping.Although the service was initially designed to allow iTunes users to share their song preferences with their Facebook friends, Jobs pulled the plug on this after Facebook tried to impose "onerous terms" on Apple.

Enabling Facebook to connect with Ping could certainly be lucrative for Apple. One media executive told me recently their traffic went up 30% immediately when they enabled this feature to their site. However, this alone isn't sufficient grounds for justifying a Facebook acquisition.

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Apple and ARM

By Eric Jackson
RealMoney Contributor
4/22/2010 10:53 AM EDT
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There has been speculation overnight that Apple (AAPL - commentary - Trade Now) may be interested in purchasing ARM Holdings (ARMH - commentary - Trade Now) for $8 billion. ARM is the company behind much of the intellectual property for microprocessors embedded within mobile phones. ARM was up yesterday on the rumors, while Apple was flat for the day after announcing its blowout earnings on Tuesday night.

As an Apple shareholder, I would support this kind of deal. Here's why:

1) Apple gets a pass from shareholders to stockpile its cash, but any normal company would feel the heat to do something with it.

On Tuesday night, Apple told us that it had just under $42 billion in cash on its balance sheet. To put that in perspective, Microsoft (MSFT -commentary - Trade Now) has $33 billion of cash,Google (GOOG - commentary - Trade Now) has $27 billion and Berkshire Hathaway (BRK.B -commentary - Trade Now) has $31 billion. Does Apple really need 35% more cash to fund its business than Buffett?

The press likes to talk about the cult of Apple and how all the analysts on the Street worship this company. Obviously, given its performance, admiration is deserved. But all companies -- even the most successful ones -- deserve to be questioned. And someone with authority should legitimately ask Steve Jobs and Tim Cook why they don't do something with their cash.

Some value-oriented shareholders would like to see Apple dividend this cash out, either through a one-time mega-dividend (which did nothing for Microsoft a few years ago) or through an ongoing large yield. Paying a dividend goes with Valley companies as well as a three-piece suit. Therefore, I think it's highly unlikely.

What else can Jobs and company do with it? Buy something. Some shareholders worry that Apple's never been an acquisitive company and that it would foolishly spend its cash if they went after a big prize. However, may I humbly ask: what was the last stupid decision Apple made? Sure, Apple TV hasn't fully panned out (yet), but that hasn't cost shareholders. When was the last Iridium-like decision that Apple has made? Probably Newton. And when was that? Pre-Steve Jobs' return. My point is, give AAPL some credit to make a smart acquisition. And, to me, ARM sounds like a smart acquisition.

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