By Stephen Howard (stephen_howard@macweek.com) and Leander Kahney (leander_kahney@zd.com)
The Apple-buyout rumor mill has started up again, with new grist provided by Oracle Corp.'s Larry Ellison.
The multibillionaire CEO launched what he called a "trial balloon" in an interview published today in the San Jose (Calif.) Mercury News when he suggested he might raise funds for a hostile takeover of Apple. In a follow-up interview with the paper, Apple CEO Gilbert Amelio dismissed the idea as "nonsense," and said, "We're not entertaining any bids." Apple declined to comment further.
Ellison told the newspaper that he and unnamed investors will consider paying Apple shareholders 60 cents on the dollar with the remainder held in Apple stock, firing Amelio and current upper management, and replacing the board of directors with a group that would include Ellison and his close friend Steve Jobs.
The paper estimated the initial cost of the purchase at $1.25 billion, though Apple's share price lifted $1.87 - and the subsequent takeover cost jumped by $234 million - the day the story appeared.
"If you have a plan to buy a company, you don't announce it to the public," said Barry Bosak, senior analyst with Smith Barney Inc. in New York, who gave little credence to the story. Bosak added, however, that investors would likely agree to almost anything that increased the value of their depressed Apple stock.
According to the paper, Ellison said, "I'll make a decision in a couple of weeks," after gauging interest from major Apple shareholders. Those currently are Apple vice chairman A.C. "Mike" Markkula - whom Ellison accused in the interview of destroying the company - American Express Co.'s financial services division, Barclays Bank PLC and the Ohio state teachers' retirement system.
Ellison has said several times before that he is interested in taking control of Apple, and according to papers filed in a lawsuit against Oracle, the company board of directors approved a takeover bid in 1994. However, neither Ellison nor Oracle tendered a bid for Apple.
Apparently seeking a wider range of input, Oracle also set up an e-mail account - saveapple@us.oracle.com - to gather public feedback on Ellison's latest idea.
Michael Murphy, editor of the California Technology Stock Letter in Half Moon Bay, Calif., said Ellison's comments were probably idle speculation. By going public, Murphy thought Ellison was not only attracting potential investors but more importantly, turnaround ideas.
"Everyone in the Valley has ideas for turning Apple around. Planning a turnaround is a Silicon Valley parlor game," he said. If Ellison were seriously considering a takeover, the problem would not be financing the deal but managing the company better. "No problem is intractable, but this one is very difficult," he said.
"It's an interesting fantasy," said Tim Bajarin, president of Creative Strategies Consulting International Inc. of San Jose, but added, "trial balloons are often filled with hot air."
Bajarin said the proposed deal sounded weak: Not only is Ellison offering to buy Apple at a very low price, he's asking investors to sacrifice 40 percent of their shares' value in return for putting their faith in an Ellison-engineered turnaround.
"It doesn't make any sense as a business issue," Bajarin said. "And there's no guarantee he would do any better than Amelio or anyone else."
Charlie Wolf, director at Credit Suisse First Boston Corp. in New York, said investors would welcome a takeover at this stage because they had little faith that current Apple executives will deliver a turnaround.
"I think the investors would rather have the company run by Larry and Jobs than Amelio," Wolf said. "The problem isn't the technology or the products, it's the management."
Wolf thought there was a 30 percent to 40 percent chance investors would accept Ellison's proposal at last week's stock price of about $16.75 per share and a "better than 50 percent" chance if Ellison upped the offer to around $20 per share.
