Apple Stock Watch - AAPL Hammered For 8% Loss On Universal Buyout Rumors

by , 5:45 PM EDT, April 11th, 2003

Apple's stock was hammered today for a loss of more than 8%. The company took a pounding from investors leery of a rumored buyout attempt of Universal Music from Vivendi. The story was set in motion by the LA Times, and has since been picked up by a large number of media outlets in the tech world and the mainstream alike.

While investors are voting with their pocketbooks, analysts have been mixed on reaction to the story. Merrill Lynch's Michael Hillmeyer, for instance, is as negative on the possible buyout as he is on Apple in general. In comments slamming the possible acquisition, Mr. Hillmeyer reiterated his sell recommendation on the stock, saying:

In our opinion, the purchase of a major music company such as Universal would not make strategic sense for Apple.

In fact, there do not appear to be any synergies between a music company and a PC company, even one as innovative as Apple. We do not see the advantage of technology companies owning both a platform and content (very few own both), and believe companies are run best if they can focus on one or the other.

Lehman Brothers analyst Dan Nile, a long time Apple watcher with a good track record on the company, also had a negative outlook. Mr. Nile's main focus was Apple's large cash position of US$4.4 billion in the bank, and the threat to that cash from any large buyout. From a Reuters report:

"To some extent, it's AOL Time Warner Part Two," Dan Niles, an analyst at Lehman Brothers, "It's not as though the biggest media and technology merger in the world has gone all that well."

"People worry that if part of that ... cash hoard disappears because Vivendi wants money to reduce debt. That's a big problem," said Niles. "That cash balance is what has been holding the stock up."

On the other hand, CBS Marketwatch is reporting that Phil Leigh of Raymond James Associates thinks that content and technology are a good match. From the CBS Marketwatch report:

At least one analyst is intrigued by both the idea of an Apple service, as well as its proposed purchase of Universal. Phil Leigh of Raymond James Associates says Apple probably is better equipped to build a service than the record labels themselves. The labels' efforts in this arena, PressPlay and MusicNet, are difficult to use, Leigh said.

As a result, Apple also is better equipped to develop the kind of safeguards that will help Universal fight online piracy of music, which is probably the most difficult issue facing the label right now. The labels were successful in suppressing Napster, but others have sprung up and cut into industry sales.

Leigh says it's better for labels to align with technology at this point.

"I think that what we're dealing with here is a kind of catalysing event," Leigh said. "The labels are trying to impose prohibition. When you try to impose prohibition, you drive users to the bootleggers."

Be that as it may, Apple's stock traded in very strong volume, taking more than 8% of its value. AAPL closed at 13.20, a loss of 1.17 (-8.14%) on volume more than 7 times higher than normal of 24,897,060 shares trading hands.

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