Reports of Apple's supposed bid for Universal Music have not been sweet music to Wall Street's ears, sending the company's shares to a 52-week low as the company prepares to announce its second-quarter financial results Wednesday.
Apple shares closed at $13.20 per share Friday, recovering slightly (to $13.29) during after-hours trade.
This reflects confusion among investors as they assess reports of Apple's interest in acquiring Universal Music.
Investors question the synergy of combining technology with music. Wall Street has been burned before; the Time Warner/AOL merger is not seen as a success. Such an acquisition would either deplete Apple's cash reserves, or increase its outstanding debt.
Merrill Lynch analyst Michael Hillmeyer takes a conservative approach to the move: "The purchase of a major music company such as Universal would not make strategic sense for Apple," he wrote.
Lehman Brothers analyst Dan Nile also warns against the move, citing the AOL/Time Warner merger as evidence: "It's not as though the biggest media and technology merger in the world has gone all that well," he said.
AG Edwards & Sons analyst Brett Miller told the LA Times: "The music industry has struggled in embracing the realities of new media. At the same time, the tech industry is in a funk. So you have two industries in trouble, and it's unclear whether you're doing any good by putting the two together."
Catalyzing event Raymond James Associates analyst Phil Leigh is upbeat about the move, telling CBS Marketwatch that Apple is better equipped to build an online music service than the labels themselves and to develop safeguards against online music piracy. "What we are dealing with here is a kind of catalyzing event," he said.
"It would certainly give a shot in the arm to the music industry's waking up to the digital revolution and, obviously, that is the Number One issue that is plaguing the industry today," said kaufman Brothers analyst Mark May, speaking to Reuters.
Perhaps the most ringing endorsement comes from the CEO of the Recording Industry Association of America, Hilary Rosen, who told the LA Times: "There couldn't be a technology company more accommodating to art than Apple. It would be a really interesting, creative partnership if it ever happened."
Decision soon A Reuters report seemingly adds more weight to the story: "Talks between Vivendi Universal and Apple Computer on the sale of Universal Music have entered a crucial phase which will make or break a deal for the world's largest record company, a Paris-based industry source said....'The discussions are quite substantive and have included exchanges on price, but at this point it is far from sure that the talks will lead to a deal,' the source said . 'Apple is expected to take a decision before the end of April.'"
The New York Post, a free advertising-based paper in that city, reports that Microsoft has expressed an interest in buying Universal Music. "Setting up a possible bidding war between the two," it says.
A music-industry source told the Post: "It's wonderful when someone like Steve Jobs - who is generally viewed as a visionary and a futurist - has a genuine interest in music as an investment at a time when everyone is running scared from the music business."
The New York Post also alleges that: "Apple has held talks with firms Thomas H. Lee Partners, Kohlberg Kravis Roberts & Co. and Blackstone Group about making a strategic investment in the computer maker to help finance its deal."
Following up on its original story, the LA Times quotes Creative Strategies president of technology Tim Bajarin, who said: "Never underestimate Steve Jobs."