Apple Sinks on Rumors of Universal Purchase

The PC maker was reported to be in talks with Vivendi about buying the music label.
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Shares of

Apple

(AAPL) - Get Report

were dropping nearly 8% on a report that the company could make a multibillion-dollar bid for Universal Music Group.

The stock was off $1.08, to $13.29 in early afternoon trading.

The share swoon followed a story on the

L.A. Times

Web site that said Apple is in talks with

Vivendi

(V) - Get Report

to buy its Universal Music Group for up to $6 billion. The piece said discussions had been kept secret for several months and that a bid could be made before Vivendi's April 29 board meeting.

Apple claims $4.4 billion in cash on its balance sheet.

At A.G. Edwards, analyst Brett Miller sounded doubtful about the potential purchase. "Overall we would be very surprised if the deal happens, especially in its rumored form of buying the entire music group," he said in a morning note.

Bringing together two similar-sized, multibillion-dollar companies in the PC and music industries would "present a monumental challenge," he said. "No one has yet demonstrated the consistent ability to make money via a profitable business model when it comes to electronic distribution of content."

A.G. Edwards currently has a hold rating on Apple, in line with the weak consumer PC market. Shares of the company currently trade at 79 times fiscal the firm's 2003 earnings estimate, well above its historical median of 18 to 20 times, notes Miller. The firm does no investment banking for Apple.