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Citi Sets Odds For Apple-Netflix Merger


Citi analysts said there is a 40 percent possibility that tech giant Apple Inc. (AAPL) will buy online video streaming service Netflix Inc. (NFLX) in 2018, with the primary reason for a potential acquisition being attributed to U.S. President Donald Trump's tax cuts.

In a research note sent to investors, Citi analysts Jim Suva and Asiya Merchant lay the odds at 40 percent that Apple will buy Netflix this year. Apple, which is sitting on a massive cash pile of $252 billion that is mostly outside the U.S., would need to spend only a third of that cash to buy Netflix.

Netflix, which has market capitalization of more than $85 billion, is listed as the company most likely to be acquired by Apple. However, the analysts have named other companies in a list of other potential acquisitions by Apple.

The Trump tax cuts will enable Apple to repatriate the cash holdings, while incurring only a small tax hit on the repatriation.

The U.S. tax reform bill, known as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. The tax legislation will lower the corporate income tax rates to 21 percent from 35 percent and also impose a repatriation tax on deemed repatriated earnings of foreign subsidiaries.

Prior to entertainment behemoth Walt Disney's (DIS) acquisition of Fox's studio and TV assets, the Citi analysts had pegged the likelihood of Apple buying Disney in the 20 percent to 30 percent range.

The analysts also said that there is only a 10 percent chance of Apple buying game producers like Electronic Arts Inc., Take-Two Interactive Software Inc. and Activision Blizzard.

Apple is striving to produce original video content. In August 2017, the Wall Street Journal reported that Apple plans to invest roughly $1 billion to procure and produce original content over the next year.

Apple already produces some original content including shows like 'Carpool Karaoke' and 'Planet of the Apps,' which debuted on Apple Music in 2017.

With the $1 billion budget, Apple is said to be looking to match the high-quality output of networks like HBO and wants to compete with both cable companies and streaming services.

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