Apple’s CEO Tim Cook, commenting on the company’s $81.57bn cash mountain, made it clear that the money was not burning a hole in the corporate pocket. “We don’t want to do silly things with our money.”
Apple remains one of the few major companies that hasn’t occasionally done silly things with its money. The corporate world is littered with extravagant purchases that soon turned sour. There is, perhaps, some excuse for spending money that’s sitting in the bank, but the fact is that most large companies invest money they don’t have. They borrow it, often by launching a rights issue. Then, when the going gets tough, the new acquisitions can, and often do, bring down the parent.
This happened in the UK with the Royal Bank of Scotland’s ill-fated takeover of Dutch bank, ABN Amro. The cuckoo in the nest eventually brought down the parent bank. This must go down in history as one of the most ill-advised corporate acquisitions. Within months, if not weeks, of the contract being signed the word plunged into the debt crisis and RBS itself had to be rescued by the Government.
Tim Cook is right not to go mad with his cash pile.¹ Apple has become the world’s most valuable company on the bedrock of innovation and organic growth. If we ever see large sums being spent on acquisition we can start getting worried.
¹ Occasionally Apple does splash out, but not in the billions. In April 2010 Apple acquired Siri, Inc, for an undisclosed sum. But whatever that sum, it will be royally paid back as Siri, single voicedly, moves iPhones off the shelves in the tens of millions.