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Greenlight pushes Apple to offer 'iPref' preferred shares

post #1 of 47
Thread Starter 
Ahead of Apple's annual shareholder meeting, Greenlight Capital presented its sales pitch to investors for Apple to offer preferred stock shares ? or, as hedge fund manager David Einhorn referred to them, "iPrefs."

iPrefs


With Apple's massive cash hoard now at $137 billion and growing, Einhorn and Greenlight hope to get shareholders behind their plan, which they believe will unlock value for investors. Einhorn believes Apple's iPref program could start small, and distribute one preferred stock share for each common share to existing investors.

Under Einhorn's plan, Apple's so-called iPrefs would pay out a dividend of 50 cents per quarter, or $2 per year. Over time, he believes Apple could grow the program to offer a total of five iPrefs per share of common stock.

At five iPrefs per single common share, Apple's preferred stock would double the current dividend offered by Apple.

iPrefs


Einhorn, in a conference call with investors and the media on Thursday, said he understands that Apple plans to be disciplined with its cash. He believes his iPref concept would make that promise to investors explicit. His hedge fund has been an investor in AAPL stock since 2010.

Distributing iPrefs to existing shareholders would reduce the share price of the common stock. But Einhorn believes the combined value of common stock and iPrefs could be considerably greater than the company's current share price, unlocking value and bringing in new investors.

In his calculations, iPrefs could unlock $61 per share more than the next best alternatives, which in his view would be a one-time share repurchase or a special dividend.

Einhorn predicts that iPrefs distributed at a ratio of five shares per one share of common stock would pay out $250 to investors, while also lowering the current stock price from $450 to $350. But the total value of the iPrefs along with the new common stock price would be $600, or about $150 greater than its current value of around $450.

iPrefs


The Greenlight Capital proposal suggests that iPrefs would appeal to individual savers, bringing in new types of investors such as insurance companies, pension funds, and institutional fixed income funds.

While Einhorn's ideal projections call for five iPrefs to eventually be distributed per one common share, he believes Apple should start slow with just one iPref per share. Those preferred shares would be given for free to existing shareholders, but iPrefs could be sold on the market and would have a value of about $50 each.

By starting small, Apple would allow the market time to adjust and determine the fair open price for an iPref share.

Starting at one iPref per share, Einhorn predicts that Apple's common stock price would drop from $450 to $430. But when the value of a $50 iPref is included, the total value to shareholders would be $480, or $30 more than the current common stock share price.

iPrefs


Einhorn believes his iPref concept would allow Apple to keep the bulk of its cash hoard overseas without needing to repatriate it and pay a tax rate north of 30 percent. It also leaves Apple with the ability to do what it does best with its money while returning some value to investors, he said.

"We don't know what Apple's plans are, but iPrefs don't interfere with Apple's using the existing cash hoard," Einhorn said Thursday.

Greenlight's proposal was presented to Apple last year, but the concept was rejected by Chief Financial Officer Peter Oppenheimer, Einhorn said. But now in the last week, Apple Chief Executive Tim Cook has reportedly called Greenlight's plan "creative," and indicated his company will consider it.

The hedge fund manager is also suing Apple over the company's so-called "Prop 2" proposal, which would revoke the ability of Apple's board members to issue preferred stock, instead putting that power into the hands of shareholders.

Calling Apple a "leader in innovation," Einhorn said he believes the company could blaze a new trail by adopting his iPref plan, working with investors in an outside-the-box manner that consumers already associate with the company's products.

"It's not complicated, it's merely unfamiliar," he said. "It's also simple and innovative."
post #2 of 47

Dude thinks he himself runs Apple. He and his ilk are what's ailing my Apple stock.

post #3 of 47
Sounds like a pain. I'd rather Apple just buy back stock so those of us who are long continue to benefit.
post #4 of 47
How about preferred shares for everyone who has held AAPL for 10 years or longer? That would put him right out of commission since he's a short termer.

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #5 of 47

"...His hedge fund has been an investor in AAPL stock since 2010."

 

Ah, one of the long-time/long-term faithful then!

post #6 of 47
I thought I couldn't dislike Einhorn anymore than I already do but iPrefs takes it to a whole… 'notha…level.

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

 

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"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

 

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post #7 of 47
Quote:
Originally Posted by Fotoformat View Post

"...His hedge fund has been an investor in AAPL stock since 2010."

 

Ah, one of the long-time/long-term faithful then!

 

That's why there should be no preferential treatment for known jagweeds like Einhorn.

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #8 of 47

For the average stock holder this would not be good. This would only benefit hedge fund managers. This guys a crook, I would not trust him. Hopefully Apple will keep ignoring him.

post #9 of 47
Total Wall Street hogwash. This sounds like nothing more than a form of Greenmail, and a plan for financiers to generate fees. "Unlock $61 per share more value." This is totally hypothetical, and no guarantee that it will positively impact the actual stock price. As a shareholder, I'll pass. I'd rather AAPL just increase their buyback program. These guys don't care about Apple, or their products. They just want something to brag about to the guys at the club while they do lines of cocaine off of the strippers breasts.
post #10 of 47
Quote:
Originally Posted by kozchris View Post

Sounds like a pain. I'd rather Apple just buy back stock so those of us who are long continue to benefit.

That's certainly one option - and something they should be doing at the current share price.

However, even if they want to distribute the money by dividends, there are better ways than this lame scheme. Simply increasing the dividend by $0.50 per share is far easier to do than issuing preferred shares that pay a $0.50 dividend - and far less confusing.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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post #11 of 47

Think about where the cash is.  This is a global economy.

By doing this, Apple will lose money to taxes or have no money to function in the States:

http://www.fool.com/investing/general/2011/02/22/why-apple-isnt-paying-a-dividend.aspx

post #12 of 47
Utter BS and as a long term AAPL owner will vote down on these. Now that Apple has a cash pile they want to walk in and drink the milk shake and walk away. They milked it for all the growth (they) could imagine, now they want the cash. They know its not good for investors like myself who have owned Apple longer and continue to own it longer than Einhorn. That's why they don't want it to come to a share holder vote. This is an attempt at extortion to arm twist Apple's board to issue these preferred shares at the expense of the majority of owners.

iPref Einhorn GO-Up and Eff himself
Edited by dmarcoot - 2/21/13 at 9:04pm
post #13 of 47

if steve were alive, he'd rip this guy such a huge new asshole. too bad tim isn't mouthy when apple needs it.

post #14 of 47

This Einhorn guy probably believes that by calling it 'iPrefs' he's being just as creative as Steve Jobs used to be. Looking at the design of the presentation, however, it's obvious what it's all about: Greed, greed, greed. And the name 'Einhorn' creeps me out as much as Goldman Sachs' Blankfein does as well. Are there any hedge funds that don't behave like swarm of locusts? 

 

(*corrected spelling of Blankfein)


Edited by macanoid(TM) - 2/21/13 at 1:33pm
post #15 of 47
Quote:
Originally Posted by macanoid(TM) View Post

This Einhorn guy probably believes that by calling it 'iPrefs' he's being just as creative as Steve Jobs used to be. Looking at the design of the presentation, however, it's obvious what it's all about: Greed, greed, greed. And the name 'Einhorn' creeps me out as much as Goldman Sachs' Blanfein does as well. Are there any hedge funds that don't behave like swarm of locusts? 

 

"iPrefs" is just as tasteless and crass as Einhorn himself. What a world-class dingleberry.

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #16 of 47
Apple stock = iFizzle. They need to stop talking about Apple's 'value'. This company's value is an embarrassment to any shareholder. Google headed towards $1000. Apple headed towards $400. Forget it. Apple better learn to cook it's books or something before the value reaches zero.
post #17 of 47
Originally Posted by Constable Odo View Post
This company's value is an embarrassment to any shareholder.

 

That you think stock price is reflective of actual value is an embarrassment.

Originally Posted by asdasd

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Originally Posted by asdasd

This is Appleinsider. It's all there for you but we can't do it for you.
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post #18 of 47
The reason he came up with this (instead of a buyback or just increasing the dividend) is to get around the tax issue on funds held in foreign countries. Whether it would actually do that, I have no idea. I'm not impressed with this plan overall.
post #19 of 47
Quote:
Originally Posted by Constable Odo View Post

Apple stock = iFizzle. They need to stop talking about Apple's 'value'. This company's value is an embarrassment to any shareholder. Google headed towards $1000. Apple headed towards $400. Forget it. Apple better learn to cook it's books or something before the value reaches zero.

You have no idea of what you speak. That you speak of share price proved your a fool. In fact, your entire post is idiotic babble with a childs understanding of Wall Street and investing.


Edited by dmarcoot - 2/21/13 at 2:18pm
post #20 of 47
Is this Einhorn guy Gordon Gekko or what? I can't tell! I don't trust him!

http://www.youtube.com/watch?v=2Mr4mjeZ2ko
post #21 of 47
Quote:
Originally Posted by forangels View Post

For the average stock holder this would not be good. This would only benefit hedge fund managers. This guys a crook, I would not trust him. Hopefully Apple will keep ignoring him.

 

Basically. This round one might give a small amount of benefit since it seems his plan is to give one ipref for every common share. But in later years it seems you'd have to buy them and if you sell you make little to no money since the value of the stock never moves with the market. AND it dilutes the value of common shares. Sure he says all that 'the face value of the iPref balances the drop in value, but what about the new capital gains/loss tax rules. It would totally suck if one sold that preferred stock at $50 and suffered a $60 loss due to taxes. 

 

These kinds of issues and questions are the sort of things the voters will have on their minds. And the sort of thing that will cause many to vote no because they can't see how this benefits them over the hedge funds etc that generally are the only ones that benefit from preferred shares

post #22 of 47
Quote:
Originally Posted by mac_dog View Post

if steve were alive, he'd rip this guy such a huge new asshole. too bad tim isn't mouthy when apple needs it.

 

As a shareholder I feel like Tim is doing this the right way. If he just told this man to kick rocks like Steve would have, it leaves things open for shareholder proposals etc. This way it was a 'vote of the people' and less likely to cause flak.

post #23 of 47
Quote:
Originally Posted by Constable Odo View Post

Apple stock = iFizzle. They need to stop talking about Apple's 'value'. This company's value is an embarrassment to any shareholder. Google headed towards $1000. Apple headed towards $400. Forget it. Apple better learn to cook it's books or something before the value reaches zero.

 

Im a shareholder and I'm not embarrassed about the value. Pissed perhaps but not embarrassed.

 

why pissed? Because the drop in value had nothing to do with Apple, its products etc. it was all about the blogs, the analysts etc talking shit about what apple is doing, should be doing, sales estimates that are based on no data about anything. They need to shut up like yesterday.

post #24 of 47

I look forward to voting down each and everyone of these stupid ideas.

post #25 of 47
I don't understand how he arrives at $50 per share for the new securities. From what is in the article, it looks like he created $30 per share out of thin air.
Just because someone declares that the shares have a face value of some number does not mean the market will value it at that number.
Someone please explain it.
post #26 of 47
Someone tell this guy to go away and actually leave it up to the shareholders what they want to do.
post #27 of 47
Quote:
Originally Posted by quinney View Post

I don't understand how he arrives at $50 per share for the new securities. From what is in the article, it looks like he created $30 per share out of thin air.
Just because someone declares that the shares have a face value of some number does not mean the market will value it at that number.
Someone please explain it.

Easy. Preferred shares are issued at a set price, usually $25 or $50, and move very little from there. The exception is if the preferred shares convert to common stock, a la the new General Motors.

The question you should have asked is how Apple common stock only goes down by $20. Logic has it that if the company pulls $50 of value out of the common stock (as a cash dividend, stock dividend, or issuance of "iPerfs") then the common stock will initially drop by $50.
post #28 of 47
Quote:
Originally Posted by SpamSandwich View Post

How about preferred shares for everyone who has held AAPL for 10 years or longer? That would put him right out of commission since he's a short termer.

You think the rich and wealthy ever have plans that benefit anyone but themselves? This is obviously yet another greed grab and an exclusion of all people by way of classifying some as preferred and some as ... well, not.
post #29 of 47
Originally Posted by dysamoria View Post
You think the rich and wealthy ever have plans that benefit anyone but themselves?

 

Yes. It's not the case here, but yes.

Originally Posted by asdasd

This is Appleinsider. It's all there for you but we can't do it for you.
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Originally Posted by asdasd

This is Appleinsider. It's all there for you but we can't do it for you.
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post #30 of 47

I listened online to his entire proposal and found it interesting. A couple of points I would like to make.

 

1) The issuance of iperfs stock and future dividends would not touch any of Apple's $137B cash hoard. Apple would pay the dividends from future free cash flow. The only way Apple would ever touch the $137B would be if they decided to buy up the iperfs, which this proposal says won't happen. But if it did Apple would pay out about $47B.

 

2) Since this proposal does not touch any of the offshore money Apple has, some $94B, Apple can wait and see if there is going to be a "tax holiday" and if there is then take advantage of the lower tax rates and issue a special dividend or repurchase at that time. If the holiday is like the 2004 one, that would mean Apple, i.e., we shareholders could save up to $30B in taxes.

 

3) As to how he came up with the $430 share price is that he accounts for the effect of paying the dividends on the iperfs which would lessen Apple's future EPS by $2 and using a 10x P/E you get the $20 hit to share price. EPS estimates are $45 - $2 payout = $43 x 10 P/E = $430.

 

4) As a long, long term shareholder (1999) he really got my attention when he stated, "Apple has been innovative in hardware, software, retail and supplier management and here is a way for them to be innovative financially." 

 

5) There would seem a real market for this. A 4% return backed by the financial strength of Apple would be very attractive to value investors. 

 

6) Am I sold? No. I have a number of questions like tax ramifications, legality, etc. But I found the slides and presentation thought provoking and look forward to read other's, smarter than I, tear this apart and see if it makes sense or not.

 

Bottomline, $137B is a wonderful problem to have!

post #31 of 47

Kinda interesting but at the end of the day it really provides very little other than something new for Wall St to trade in.

Count me in the "No need for it" camp.

Return value to shareholders through buy back & divs, so there's a decreasing amount of shares on the market - that'll push the price up slowly but surely over time thereby unlocking value.

Apples BoD dont need any advice they're doing great.

16 B in the last quarter - shheeit.


Edited by RobM - 2/21/13 at 5:02pm
post #32 of 47
Quote:
Originally Posted by leftinaerospace View Post

I listened online to his entire proposal and found it interesting. A couple of points I would like to make.

 

1) The issuance of iperfs stock and future dividends would not touch any of Apple's $137B cash hoard. Apple would pay the dividends from future free cash flow. The only way Apple would ever touch the $137B would be if they decided to buy up the iperfs, which this proposal says won't happen. But if it did Apple would pay out about $47B.

 

2) Since this proposal does not touch any of the offshore money Apple has, some $94B, Apple can wait and see if there is going to be a "tax holiday" and if there is then take advantage of the lower tax rates and issue a special dividend or repurchase at that time. If the holiday is like the 2004 one, that would mean Apple, i.e., we shareholders could save up to $30B in taxes.

 

3) As to how he came up with the $430 share price is that he accounts for the effect of paying the dividends on the iperfs which would lessen Apple's future EPS by $2 and using a 10x P/E you get the $20 hit to share price. EPS estimates are $45 - $2 payout = $43 x 10 P/E = $430.

 

4) As a long, long term shareholder (1999) he really got my attention when he stated, "Apple has been innovative in hardware, software, retail and supplier management and here is a way for them to be innovative financially." 

 

5) There would seem a real market for this. A 4% return backed by the financial strength of Apple would be very attractive to value investors. 

 

6) Am I sold? No. I have a number of questions like tax ramifications, legality, etc. But I found the slides and presentation thought provoking and look forward to read other's, smarter than I, tear this apart and see if it makes sense or not.

 

Bottomline, $137B is a wonderful problem to have!

 

The whole iPrefs idea is stupid.  There is no such thing as unlocking value through "financial engineering."  You cannot restructure the liability side of the balance sheet and increase the value of the company.

 

Apple's balance sheet is strong, pristine, and uncomplicated.  That's the way I like it.  The liability side has only Equity and Cash.  Don't need no stupid preferreds. 

 

Apple is trading where it is because the the entire Wall Street "herd" has come to the conclusion that Apple's growth has slowed and that this is the beginning of the "inevitable" decline.  Inevitable decline, my a$$.  What nobody seems to consider is that even if growth slows and Apple's revenues remain flat, Apple will keep adding $60 to $70 per share in cash every year to its balance sheet.  That is a 15% cash flow yield.  Soon, the "herd" will realize that Apple is a bargain and the stock will rise.  This happens very often, and not just to Apple's stock.

 

This company has the best management team in the industry, perhaps all industries.  They didn't get to be the best by listening to jackasses on Wall Street.  They will come up with products that people will stand in long lines for.

 

Buy the stock.  Have faith.  Be patient.

post #33 of 47

Within a very short period  the preferred will end up in the hands of the super rich and hedge funds.

Theyll ramp the price of those up quicker than anything. No one else would be able to play in that league - then they'll short that too.

What happens when an inflationary period comes along - another vote called by ipref holders - 4% ain't enough we own the company etc;

Cant see any good coming from this apart from short term gain for a few despite what some might think.

post #34 of 47

I am against Apple buying its own shares. It hasn't done anything to date to bring the stock price up or stabilize it. I favor a stock split. I understand why Apple hasn't split the stock in a while. Keeping the price high attracted institutional investors and it thought that would lead to a more stable price. That no longer is working. Apple now needs more small investors. Splitting the stock accomplishes that goal.

 

I would need to know more about the preferred shares idea. Preferred shares if given to all holders of the stock seem similar to a stock split, but with a lower quarterly payout. 

post #35 of 47
Quote:
Originally Posted by dmarcoot View Post

You have no idea of what you speak. That you speak of share price proved your a fool. In fact, your entire post is idiotic babble with a childs understanding of Wall Street and investing.

I believe he is being sarcastic.

 

Companies like Amazon and google are favored over Apple is because of whatever they are doing to their books.

 

People like einhorn and company should also be demanding preferred shares and dividends from them since they are much better prospects at growth than Apple deemed and favored by them.

post #36 of 47

I'd like to see one of these hedge funds back themselves. Ipo the whole 9 yards instead just working the middle.

Einhorn could short sell himself.

post #37 of 47
Everything David Einhorn says is a lie. The real reason Greenlight wants to get their hands on preferred shares is so they can short them. Remember, brokerages have to 'borrow' the shares from somewhere before they can do this. Apple Prefs are rare so this is hard to do. If this goes through you can expect to see a bigger drop in Apple stock because the big boys are going to be paying hard and fast with them.

The whole dividend angle is a smokes screen for current shareholders, as is the 60% added value garbage that Einhorn has pulled out of thin air. If you are holding a 400-500 dollar share for a 2 dollar a year dividend ...
post #38 of 47
Quote:
Originally Posted by SpamSandwich View Post

How about preferred shares for everyone who has held AAPL for 10 years or longer? That would put him right out of commission since he's a short termer.


Agreed. Let's hope he goes on a long vacation after his masterplan fails, or we're sure to see a cheap iPhone and all sort of crap if Apple loses to him on this.

Social Capitalist, dreamer and wise enough to know I'm never going to grow up anyway... so not trying anymore.

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Social Capitalist, dreamer and wise enough to know I'm never going to grow up anyway... so not trying anymore.

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post #39 of 47
Quote:
Originally Posted by igriv View Post

 

Nope. What he is proposing is good for you (and for him). As for a shareholder vote, this would pass with flying colors, since most shares (68%, according to Yahoo finance) are held by institutions, who have people who actually understand what he is proposing, which is: to give each shareholder of record a bond (which is what preferred stock is), which pays 4% on the face value a year forever, for free. 4% is actually too rich if you believe that inflation is going to be 2.5%, the present value of such an instrument is going to be 1.6 times face value, so if you want it to be worth face value, it should pay something like 2.5%. Then, see, if you want to hold AAPL common (and the sequence of insanely great products) forever, you can. Just sell the preferred you get in the mail (actually, virtually), and use the $50 to buy more common. If, on the other hand, you are retiring and can't take the risk, sell your common, and buy more preferred, in the knowledge that the ghost of Steve will prevent Apple from welching on their obligation, and you (and your heirs and successors) will clip coupons for eternity.

 

This is better than a special dividend (which would require repatriating the cash), better than a $0.50 bump in quarterly payouts (since will produce an immediate massive bump in stock price, which a $0.50 bump will not), and similarly with a stock buyback (without repartriating the capital, with all the tax consequences, or depleting the war chest, such a buyback will not have a great effect on stock price).

 

I really don't understand this hatred towards Einhorn, and his proposal. It might be that the board thinks that it's the wrong thing for some reason (quite possible), but there is nothing unreasonable about the proposal.

 

Wow.  Finally someone who understands Einhorn's plan and took the time to listen to the presentation.  I'm shocked at all the hate for Einhorn, and I bet most of these people did not even listen to the presentation or don't understand it.  You need to listen to the presentation to see why this may be an even better option of than standard dividend increase or buybacks.

 

But I'd take Einhorn's plan one step further:

 

1. Issue one share of $250 Preferred to each share of Common.  It will pay 4% per year.

2. Total dividends for the Pref stock would be $10 Billion a year.

3. Stop the dividend on the Common stock, which currently is $10 Billion a year.

4. Now you will have two financial instruments: Common Stock for growth investors and Pref Stock for income investors.

5. If you are a growth investor you can simply sell your Pref Stock and get $250 a share or more (4% rate is excellent return for AAA+ rating Apple)

6. If you are a income investor you can sell your Common and hold the Pref Stock.

7. Or you can hold on to both

8. The value of the Common stock should not go down significantly because the EPS will remain the same (net dividends remain the same).  The common will only be discounting only for not paying dividends which should be no more than 10%

 

Math time:

 

Current Common price: $450

Pref Share Value: $250+

Adj Common share price because of no dividend (-10%): $405

Combined value: $655

EPS: will stay the same as before (net Dividends the same)

Cash Flow/Tax: same, no need to repatriate additional cash

 

That my friends is the real unlocking of value.  Having two separate final instruments allows the investor to CHOOSE what type of stock he wants.  The problem with the Apple stock is that its a tweener: Its growing but not a hyper-growth rates.  Its pays a dividend but not enough.  Now an investor can choose.

post #40 of 47

One more point: One thing that is stopping Apple's share price from going up is its massive cap size.  Its over $400 billion dollars.  When it was $700 a share it was at over $600 billion.  That could simply be too much capital for the financial system to support for one stock.  But by separating the stock you would not need additional cash.

 

Current price: $450 share = 425 Billion

Pref Stock: $250 share = 220 Billion

Total Cap: 645 billion

 

But lets remember that the Pref Stock does not require any new cash from investors.  The net cash paid out for the stock is still $425 Bil even though the combined Market Cap is now $645 Billion

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