What would it take to take Apple private?
Die-hard Apple fans have long suggested that the company might be better off without the scrutiny that comes with being publicly traded. On the heels of another record-breaking quarter, AppleInsider took a look at what going private might mean for the computing juggernaut.
Apple has a reputation for being perhaps the most nimble "big company" in Silicon Valley -- internalizing risk and prioritizing products over profits, in a manner usually reserved for much smaller firms. In 2010, Steve Jobs fondly referred to Apple as "the biggest startup on the planet."
There's just one difference between Apple and the startups it emulates and inspires: Apple shares are traded on the NASDAQ. When Jobs made that remark, his company was worth nearly $275 billion.
Going public affords businesses a number of advantages, but it also exposes them to a much higher administrative burden. Dealing with federal reporting and management regulations -- not to mention activist shareholders -- can be a major distraction for corporate leadership.
For these and other reasons, Apple watchers often suggest that Tim Cook & Co. should take their ball and go home, leaving the stock market and the Securities and Exchange Commission behind. So what exactly would that require?
Note: For the purposes of this fantasy, we're ignoring the significant regulatory issues that would almost certainly arise with a take-private transaction of this magnitude. We're focused only on the financial aspect.
Apple shares closed Friday at $128.95, bringing the company's total market cap to $751.1 billion. Add 37 percent to that and you get a figure that might make Michael Dell faint: $1.03 trillion.
For Apple, though, that's not likely to be enough.
One investment banker who spoke with AppleInsider believes that an Apple buyout -- taking into consideration Apple's position at the top of its industry as the most profitable company on earth -- would require an offer of at least 50 percent to be viable, which would add another $140 billion to the price tag. Another banker from a rival firm thinks the total cost of a leveraged buyout would approach $2 trillion.
A U.S. $100 bill weighs about one gram. One short ton of $100 bills net approximately $91 million. The Caterpillar 797, one of the world's largest dump trucks, can hold up to 400 short tons.
The Caterpillar 797
Apple's hypothetical buyer would need 55 Cat 797s to deliver the 22,000 short tons of $100 bills for that $2 trillion buyout.
Even if the buyer could scrounge up that many dump trucks, they wouldn't be able to make the delivery. According to the Federal Reserve, there's only $1.31 trillion worth of U.S. currency in circulation around the world.
Nodding back in the direction of reality, the buyer would of course make any transaction of such size via a wire transfer or paper check. Even our more conservative $1.03 trillion estimate would be many orders of magnitude larger than the biggest check ever known to be written, a $9 billion capital injection from Mitsubishi UFJ to Morgan Stanley in 2008.
$526 billion: Google, with Dell's 37% premium. A more economical option for trillionaires who want a Silicon Valley foothold.
$240 billion: The nation of Luxembourg, for four times its GDP. European corporations love Luxembourg's tax policies.
$116 billion: Every team in Major League Baseball, the NFL, and the NBA, along with the 20 most valuable soccer teams in the world.
$80 billion: Privately fund the U.S. Department of Health and Human Services for one year. World's largest charitable tax deduction.
$660 million: The twin Boeing 747 aircraft that serve as Air Force One. Necessary for whistlestop tours of all 112 sports teams.
Sorry, Mr. President.
Together, these clearly sound investments would cost around $966 billion. That leaves $77 billion to be used for typical billionaire things -- private islands, a fleet of Bugatti Veyrons in assorted colors, and tax shelter foundations (made more effective by convenient ownership of a European Union member state).
As it stands today, only Apple could afford to buy itself out. If not for its massive stock buyback program, the company would already have nearly $300 billion in cash (and its stock price might not be quite so high). Even with that head start, they'd have a difficult time finding a bank, or even a consortium of banks, to float the loans necessary to pull it off.
To put it in perspective, the biggest private equity deal in history was KKR's 1989 buyout of RJR Nabisco. At the time, it was valued at just over $31 billion -- or about $58 billion now, when indexed for inflation.
You'd only need two dump trucks for that.
Apple has a reputation for being perhaps the most nimble "big company" in Silicon Valley -- internalizing risk and prioritizing products over profits, in a manner usually reserved for much smaller firms. In 2010, Steve Jobs fondly referred to Apple as "the biggest startup on the planet."
There's just one difference between Apple and the startups it emulates and inspires: Apple shares are traded on the NASDAQ. When Jobs made that remark, his company was worth nearly $275 billion.
Going public affords businesses a number of advantages, but it also exposes them to a much higher administrative burden. Dealing with federal reporting and management regulations -- not to mention activist shareholders -- can be a major distraction for corporate leadership.
For these and other reasons, Apple watchers often suggest that Tim Cook & Co. should take their ball and go home, leaving the stock market and the Securities and Exchange Commission behind. So what exactly would that require?
Note: For the purposes of this fantasy, we're ignoring the significant regulatory issues that would almost certainly arise with a take-private transaction of this magnitude. We're focused only on the financial aspect.
22,000 very literal tons of cash
As with most mergers and acquisitions, the stockholders of a company being taken private will only agree to the transaction if they receive a hefty premium on their shares. Michael Dell paid a 37 percent markup to take his eponymous PC maker private in 2013; Freescale's 2006 sale to private equity fund Blackstone netted a 36 percent premium.Apple shares closed Friday at $128.95, bringing the company's total market cap to $751.1 billion. Add 37 percent to that and you get a figure that might make Michael Dell faint: $1.03 trillion.
For Apple, though, that's not likely to be enough.
One investment banker who spoke with AppleInsider believes that an Apple buyout -- taking into consideration Apple's position at the top of its industry as the most profitable company on earth -- would require an offer of at least 50 percent to be viable, which would add another $140 billion to the price tag. Another banker from a rival firm thinks the total cost of a leveraged buyout would approach $2 trillion.
A U.S. $100 bill weighs about one gram. One short ton of $100 bills net approximately $91 million. The Caterpillar 797, one of the world's largest dump trucks, can hold up to 400 short tons.
The Caterpillar 797
Apple's hypothetical buyer would need 55 Cat 797s to deliver the 22,000 short tons of $100 bills for that $2 trillion buyout.
Even if the buyer could scrounge up that many dump trucks, they wouldn't be able to make the delivery. According to the Federal Reserve, there's only $1.31 trillion worth of U.S. currency in circulation around the world.
Nodding back in the direction of reality, the buyer would of course make any transaction of such size via a wire transfer or paper check. Even our more conservative $1.03 trillion estimate would be many orders of magnitude larger than the biggest check ever known to be written, a $9 billion capital injection from Mitsubishi UFJ to Morgan Stanley in 2008.
What else could they buy?
If someone did have a few banana republics' worth of cash lying around, any financial planner worth their salt would advise diversification, rather than tying up the entire fortune in a single potentially volatile asset. In that spirit, here's an alternative investment plan for the restless oligarch:$526 billion: Google, with Dell's 37% premium. A more economical option for trillionaires who want a Silicon Valley foothold.
$240 billion: The nation of Luxembourg, for four times its GDP. European corporations love Luxembourg's tax policies.
$116 billion: Every team in Major League Baseball, the NFL, and the NBA, along with the 20 most valuable soccer teams in the world.
$80 billion: Privately fund the U.S. Department of Health and Human Services for one year. World's largest charitable tax deduction.
$660 million: The twin Boeing 747 aircraft that serve as Air Force One. Necessary for whistlestop tours of all 112 sports teams.
Sorry, Mr. President.
Together, these clearly sound investments would cost around $966 billion. That leaves $77 billion to be used for typical billionaire things -- private islands, a fleet of Bugatti Veyrons in assorted colors, and tax shelter foundations (made more effective by convenient ownership of a European Union member state).
How would it compare to other buyouts?
Taking Apple private would be an unprecedented corporate maneuver. No company even half Apple's size has ever been through such a transaction.As it stands today, only Apple could afford to buy itself out. If not for its massive stock buyback program, the company would already have nearly $300 billion in cash (and its stock price might not be quite so high). Even with that head start, they'd have a difficult time finding a bank, or even a consortium of banks, to float the loans necessary to pull it off.
To put it in perspective, the biggest private equity deal in history was KKR's 1989 buyout of RJR Nabisco. At the time, it was valued at just over $31 billion -- or about $58 billion now, when indexed for inflation.
You'd only need two dump trucks for that.
Comments
Race cars, lasers, airplanes?
Apple's stock started the week at 132 and ended the week at 128. The low for the week was 124. That was a week in which very good financials were reported. What would the stock do with bad news? What would the stock do if they had a bad quarter. What would happen with the release of a bad product. My guess is they would need far less big dump trucks to for the decreased value of the company. Seems to me that the company holds all the cards and the stockholders are at risk. Are they really in a position to demand a 50% premium?
If Apple were seriously thinking about this then their best bet would be to release a couple of half baked products. That would depress the share price this lowering the price they'd need to pay to take the company private.
Sadly, the SEC etc would not stand idly by and let them artificially depress the share price.
As Baldrick was fond of saying, 'I have a cunning plan...'. It always failed.
I wouldn't be happy if they did what you suggest because I've stuck with them since I bought my shares at $13 through all the ups and downs and am waiting for that big payout so I can enjoy my retirement.
This is a fascinating topic, but the author decided to make a joke of it instead of explaining some of the issues surrounding it. What exactly does buying back one's company entail? What would happen when some shareholders inevitably declined to accept any offer? Would Apple have the power to force such a transaction? What exactly are the regulatory issues that would impede such a transaction? Why wouldn't Apple be allowed to buy back all its shares? Why wouldn't an individual or group of individuals at Apple be allowed to buy up all the shares?
What would happen when some shareholders inevitably declined to accept any offer? Would Apple have the power to force such a transaction?
Actually all they need is 50.0000001% of the voting shares then the holdouts would not matter. They just put the sale to a share holder vote and the hold outs would have no choice.
I've learned a fair amount about investing and markets over the decades, but I keep my portfolio vanilla+ in all kinds of mutual funds, cash equivalents, rental property in an LLC and physical gold, so I know little about the "transactional" aspects of corporations, public or private.
So riddle me this if anyone knows.... ....if Apple took ITSELF private, "who" would the owners be at the end of this process? I.e., I'm not quite sure what it means (or if it's possible) for a corporation to "own itself."
Here's what I would do if I was Apple. I would say "Screw you shareholders, you've done nothing for us except scrounge off us. Here's what your stocks are worth, that's what you'll be getting, don't let the door hit you on the butt on the way out."
You do realize that your "plan" would be completely illegal, right?
In reality, doing a swan dive into a large pile of gold coins would be fatal. Do not attempt at home.
https://www.youtube.com/watch?v=aqqfGXrX__8
It wouldn't work anyway. Apple shares are traded on the open market. The only way Apple can directly determine the price share is by splitting its stock. Indirectly it can determine its price share through its business practices; but even then it has to live with how "the market" feels about the future prospects of the company.
As an Apple long on fixed income, I am delighted with this turn of events, since the more shares are removed, the more the remaining shares are worth. Elsewhere, I've calculated that Apple has given me the equivalent of about an additional >10% share value through this action alone over the time they've been buying back shares.
Will Apple, or more correctly, will some combination of large shareholders ever be in a position to buy out the shares and take Apple private? Maybe. But most likely not until I am no longer shuffling along this mortal coil. Say twenty years from now, earliest. Twenty years from now, I really won't care if someone forces me to take a 30-50% increase in the then stock price in exchange for my few shares. But I can guarantee that, were I still compos mentis, I would just be utterly thankful for all that Apple had done for me in the interim.
So riddle me this if anyone knows.... ....if Apple took ITSELF private, "who" would the owners be at the end of this process? I.e., I'm not quite sure what it means (or if it's possible) for a corporation to "own itself."
The answer - you can't buy yourself. Apple can continue to buy back more of its own shares but each time that happens the remaining ones become more valuable and therefore more expensive.
And I believe that the SEC also has rules about the extent of share buybacks - possibly to thwart exact this type of move.