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Apple expert: 'Sell as soon as you hear about any big M&A activity'

Kif Leswing
Tim Cook

(Getty/Stephen Lam)
Lots of Wall Street analysts see Apple's massive cash holdings, and that leads them to suggest that the iPhone maker should buy another big company.

For example, Citi's Jim Suva floated companies such as Disney, Netflix, Electronic Arts, and Tesla in a note earlier this month. 

One Apple analyst thinks those kind of purchases by Apple are not just unlikely, but if they were to happen, it would be a bad sign for the health of the company.

"Even if they did buy something big, it will fail, I’ll guarantee that right now," independent Apple analyst Horace Dediu told UBS analyst Steven Milunovich during a conference call last week. 

His argument is that Apple doesn't buy companies for its mission, or its business model. Instead, Apple buys companies for its assets, which it turns into resources for developing its own products. 

"It’s extremely unlikely they’re ever going to pay a premium for a priority. They don’t want to buy the mission of another large company. They already have a mission," Dediu said. "It’s a question of buying something that will help them achieve their existing mission. There’s always going to be an allergic reaction to an entity that is not driven by the same maniacal goal that they have."

Apple essentially lays out this point when it confirms buying a smaller company. Its standard statement is: "Apple buys smaller technology companies from time to time and we generally do not discuss our purpose or plans."

During the last week, Apple bought two smaller companies with less than 50 employees: Beddit, a sleep gadget maker, and Lattice Data, a data labeling technology company. Apple didn't buy either for their revenue — instead, it'll use the employees and the tech to contribute new features and improvements to Apple products.

These are the kind of purchases Apple does well. So if Apple ever does end up buying a Time Warner or a Tesla, Dediu has a warning for Apple investors: "Sell as soon as you hear about any big M&A activity."

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