No. Apple and Amazon Aren't Going to Lead a Mega-Merger Boom in 2018

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The combined jackpots of the Powerball and Mega Millions lotteries was recently near $1 billion, and it's always fun to imagine what you would do with the money if you won. Yet with odds of winning either one at more than 1 in 250 million, the chances of hitting the numbers are not in your favor.

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But everyday folks dreaming of lottery-fueled filthy wealth aren't the only ones engaging in wishful thinking. Wall Street analysts are engaging in the same sort of fanciful thinking when they speculate that Apple (NASDAQ: AAPL) is about to buy Netflix (NASDAQ: NFLX), or that Amazon.com (NASDAQ: AMZN) will buy Target (NYSE: TGT). You probably have a better chance of winning the lottery than either of these deals ever happening.

Bite of the apple

The idea of Apple acquiring Netflix was recently resurrected when two Citi analysts speculated that there was a 40% chance of a deal happening. The premise, as always, is that Netflix video-streaming would meld perfectly with Apple's iTunes service. And now, with the possibility of Apple repatriating over $250 billion in profits with the new tax law President Trump signed, it would have the financial wherewithal to do so.

As my Motley Fool colleague Rick Munarriz recently wrote, a Netflix acquisition would just be too pricey. With a market value of around $90 billion, it could require almost half of Apple's profits to make a deal happen, a tall order for a company that's only made six deals out of 68 in over 30 years that have been worth more than $100 million, and the priciest one was for $3 billion. Sorry, but Apple buying Netflix just isn't going to happen.

A few of my colleagues mused the other day that pegging a 40% chance of the deal happening allowed the analysts to garner attention for their speculation without having to suffer any actual repercussions when the deal doesn't materialize. That sounds like better than lottery odds speculation to me.

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Missing the target

There's also little basis for believing Amazon will acquire Target. While a Loup Ventures analyst wasn't so brazen as to say what odds he thought the merger would warrant, he did admit it was his "boldest prediction" for the year and that "Target is the ideal offline partner for Amazon."

Arguably, there's more solid ground for thinking Target could be acquired by Amazon as Amazon's acquisition of Whole Foods Market showed it was serious about the grocery space and challenging the likes of Wal-Mart at every turn. Target's 1,834 stores would be a much more effective spear with which to wage such a battle against Wal-Mart, which has 5,000 locations in the U.S. and more than 11,000 globally. Whole Foods brought only a few hundred stores to the table.

Yet Amazon doesn't really need Target so much as Target needs Amazon. Its stores have suffered from declining traffic, and numerous reboots on merchandise have failed to change the dynamic. Moreover, there's little product Target offers that Amazon doesn't already sell, and simply mimicking the strategy that Wal-Mart has staked out doesn't really add up.

While the estimated $45 billion or so it would require to purchase Target is well within Amazon's capabilities, it's hard to see how Amazon would win going head to head with the king of retail by simply having a larger physical footprint. Although there's still a place for brick-and-mortar stores in the retail landscape, and Amazon is showing it's interested in the space, stores like Amazon Go are probably closer to what we should expect than the current model that Target is struggling to turn around.

Wall Street likes to regularly play this game of wishful thinking, and though it's a fun exercise to engage in, just like wish-spending your imaginary lottery winnings, it's ultimately a waste of time, and neither Apple nor Amazon will be buying these companies.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, and Netflix. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.