What would it take to take Apple private?

1235»

Comments

  • Reply 81 of 100
    nightskynightsky Posts: 43member
    Presumably they wouldn't need shareholder approval if they just keep buying back their own shares every year. How many shares are there? How much would it costs to buy them back at today's market value?
  • Reply 82 of 100
    jpellinojpellino Posts: 673member
    Quote:
    Originally Posted by Rogifan View Post



    Apple reports a phenomenal quarter on Monday and yet the stock is down over 1% on the week. It seems no matter what Apple does it's bad news. If they don't sell enough iPhones that's bad news. If they sell too many iPhones that's also bad news because it means tougher for comps the next year. How many companies beat on the top and bottom line, beat on gross margins, provide better than expected guidance, increase diviidend and share buyback and have their stock drop the next day?



    Not uncommon, especially when the company makes commodity items whose markets periodically get close to saturation.  Investors (short-sighted ones, based on AAPL's history) see good results as a reason to think the next quarter won't be so great.  They model this on individual behavior (hey we each just bought AppleWatches, so we won't each be buying another next quarter) which ignores a lot of other factors.  Of course, last week's news about taptic engine issues didn't help.  

  • Reply 83 of 100
    MarvinMarvin Posts: 14,806moderator
    nightsky wrote: »
    Presumably they wouldn't need shareholder approval if they just keep buying back their own shares every year.

    When stock is bought back and not retired, it becomes treasury stock and doesn't have voting rights so the approval still lies with the shareholders:

    http://en.wikipedia.org/wiki/Treasury_stock

    Apple is retiring the stock so they have nothing after buying it back. They are paying out equity to existing shareholders, increasing EPS and making remaining shares worth more relative to the company, although depleting cash means remaining shareholders will own a larger portion of a company with less equity but they will own a larger portion of future income.
    nightsky wrote: »
    How many shares are there? How much would it costs to buy them back at today's market value?

    The total value of their shares is the market cap ~$750b. Their assets are around $200b but not all short term. Even if they had enough cash to put all stocks into treasury stocks, it's not legal to do this:

    http://en.wikipedia.org/wiki/Share_repurchase
    http://www.investopedia.com/terms/r/rule10b18.asp

    "Volume: The issuer can't purchase more than 25% of the average daily volume."

    If it got down to 4 shares (worth about $188b each), in a given day where each share traded once, Apple could only buy one of them. If it reached 3 shares then they wouldn't be allowed to repurchase any.

    If Apple's value dropped from the iPhone sales dropping to say 25% of current units or revenue, just over 50% of the market cap of $188b could be managed by say 5-10 wealthy investors to vote on taking it private. Icahn did this with TWA:

    http://articles.latimes.com/1987-07-22/news/mn-3478_1_twa

    They'd still need a majority of remaining shareholders to approve:

    http://www.marketwired.com/press-release/seaway-energy-confirms-minority-voters-reject-going-private-transaction-tsx-venture-sew-1614517.htm

    Apple going private can happen if their operation slows down (like with Dell) but it would always be other companies or other wealthy individuals who would make the move, not the people running Apple.

    Non-profit organisations can exist without shareholders but to qualify, the operation would have to be for the public good and not selling products for profit.
  • Reply 84 of 100
    gary deezygary deezy Posts: 19member
    Taking Apple private makes no business sense whatsoever. Leave it alone, let this article die a dignified death.
  • Reply 85 of 100
    dr millmossdr millmoss Posts: 5,403member
    Quote:
    Originally Posted by Marvin View Post



    If it got down to 4 shares (worth about $188b each), in a given day where each share traded once, Apple could only buy one of them. If it reached 3 shares then they wouldn't be allowed to repurchase any.



    If Apple's value dropped from the iPhone sales dropping to say 25% of current units or revenue, just over 50% of the market cap of $188b could be managed by say 5-10 wealthy investors to vote on taking it private. Icahn did this with TWA:

     

    My understanding is that a company with less than 500 shareholders does not have to be listed on an exchange and traded publicly. These in effect are privately-held companies. However, they are still owned by those investors, not the company itself. If the number of investors increases beyond the threshold, SEC rules would require the shares to be listed again. The key take-away point from all of this is that a public company cannot buy itself. In any scenario the remaining stock is still held by investors. 

     

    The going private scenario requires setting up a separate equity capital company (in this case call it "Apple Holdings LLC") which raises the money required to buy a controlling interest in the target company from investment banks and wealthy individuals. More often than not these are hostile takeovers and are leveraged by the assets of the target company. This often results in the dismemberment of the target to pay the debt incurred by the takeover, which was probably the point of the hostile takeover exercise in the first place, the raider seeing more value in the pieces of the company broken up than in the company as a whole (Icahn's takeover of TWA being a perfect example of this).

     

    So even setting aside for the moment the immense financial problems inherent with taking over a company with as much equity as Apple, and the vast hostility it would encounter from existing investors (and presumably the board), it should be understood that a public company going private carries no positive connotations. It is a strategy used by raiders to salvage some value from a sick company where the pieces are worth more than the whole. Does anyone seriously believe this describes Apple?

  • Reply 86 of 100
    conrailconrail Posts: 489member
    Quote:

    Originally Posted by GTR View Post

     

     

    Richie Rich is dead?

     

    Dude, where was your spoiler warning???


    Where did you think Casper the friendly ghost came from?

  • Reply 87 of 100
    cherrypopcherrypop Posts: 86member

    "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?"

     

    Isn't the key question, Does Apple generate the cashflow necessary to service the debt associated with taking itself private?

  • Reply 88 of 100
    desuserigndesuserign Posts: 1,316member
    Apparently AI was frightened by my timely and straightforward post two days ago. What was the nature of the post? I said,
    "Dumbest article ever.
    Followed mostly by dumbest comments ever."

    I stand by my comment which merely points out the increasingly cynical nature of AI's editorial work in story selection and tone. They now seem to publish any asinine story based on zero fact or credibility as long as it kicks the hornet's nest. "Click bait" is the only goal. Informing readers is undesirable. Censoring any comment that points this out is just part of the business plan.
    Stinky!
  • Reply 89 of 100
    MarvinMarvin Posts: 14,806moderator
    it should be understood that a public company going private carries no positive connotations.

    Unless the new shareholders happened to be more in alignment with Apple's best interests but it's unlikely that people with that many assets would be.
    It is a strategy used by raiders to salvage some value from a sick company where the pieces are worth more than the whole. Does anyone seriously believe this describes Apple?

    Apple wouldn't have to be in bad shape. Apple's valuation seems to be mostly based on future earnings and they aren't burning their cash quickly enough. If the iPhone started slipping in numbers like the iPad and the media piled on like what happened a while ago and the stock price fell to half, Apple could end up with assets over $200b and a market cap under $350b. If private investors could put together a consortium to buy up over 50% of the company from a mix of cash and debt ($75b cash + $100b debt) then on gaining control of the company, they could push forward plans to distribute the cash to existing shareholders (which likely wouldn't get much resistance) and repay themselves ~$100b from their assets. They'd then have a significant foothold in controlling the company and all future income would be similarly distributed to shareholders (including themselves). It might not run much differently to how it runs now, their income just wouldn't accumulate in Apple's bank account somewhere, it would accumulate in the shareholders' accounts.
  • Reply 90 of 100
    dr millmossdr millmoss Posts: 5,403member
    Quote:

    Originally Posted by Marvin View Post





    Unless the new shareholders happened to be more in alignment with Apple's best interests but it's unlikely that people with that many assets would be.

    Apple wouldn't have to be in bad shape. Apple's valuation seems to be mostly based on future earnings and they aren't burning their cash quickly enough. If the iPhone started slipping in numbers like the iPad and the media piled on like what happened a while ago and the stock price fell to half, Apple could end up with assets over $200b and a market cap under $350b. If private investors could put together a consortium to buy up over 50% of the company from a mix of cash and debt ($75b cash + $100b debt) then on gaining control of the company, they could push forward plans to distribute the cash to existing shareholders (which likely wouldn't get much resistance) and repay themselves ~$100b from their assets. They'd then have a significant foothold in controlling the company and all future income would be similarly distributed to shareholders (including themselves). It might not run much differently to how it runs now, their income just wouldn't accumulate Apple's bank account somewhere, it would accumulate in the shareholders' accounts.

     

    Valuations are always based on future earnings. I can't recall the last time a public company in good financial shape was taken private. Any effort of this kind, even assuming it was done with the agreement of the board and management, would require leverage, meaning lots of debt. If the stock price was depressed it would be on account of lowered earnings, so you don't get a lower buyout price without reduced cash flow to service it.

  • Reply 91 of 100
    MarvinMarvin Posts: 14,806moderator
    If the stock price was depressed it would<span style="line-height:1.4em;"> be on account of lowered earnings, so you don't get a lower buyout price without reduced cash flow to service it.</span>

    That's not when the buyout would be done though, it could never be an overnight deal, it would take years. That's just to gain a majority shareholding. With majority control, external investors could implement some of the things I mentioned before to reduce income levels and make it appear to be a lower value investment. Then minority shareholders lose confidence, sell up their shares and they all get bought out to take it private. This could only begin to happen if iPhone sales started dropping. I wonder if that's why Icahn invested when he did. He maybe saw some similar things that led him to invest in TWA. He started out with 20% shareholdings with TWA and eventually grew it to over 70%. He has a much smaller amount in Apple though and he probably won't live long enough to see a day when iPhone sales start to drop off.

    Plus there's not much incentive to do something like this. If you already have tens of billions to do something like this, why would $100b be attractive? It's not as if there's anything out of reach financially with what you have. If taking a major company private was so compelling, there are easier targets to go after.
  • Reply 92 of 100
    dr millmossdr millmoss Posts: 5,403member
    Quote:
    Originally Posted by Marvin View Post





    That's not when the buyout would be done though, it could never be an overnight deal, it would take years. That's just to gain a majority shareholding. With majority control, external investors could implement some of the things I mentioned before to reduce income levels and make it appear to be a lower value investment. Then minority shareholders lose confidence, sell up their shares and they all get bought out to take it private. This could only begin to happen if iPhone sales started dropping. I wonder if that's why Icahn invested when he did. He maybe saw some similar things that led him to invest in TWA. He started out with 20% shareholdings with TWA and eventually grew it to over 70%. He has a much smaller amount in Apple though and he probably won't live long enough to see a day when iPhone sales start to drop off.



    Plus there's not much incentive to do something like this. If you already have tens of billions to do something like this, why would $100b be attractive? It's not as if there's anything out of reach financially with what you have. If taking a major company private was so compelling, there are easier targets to go after.



    What you are describing here is a hostile takeover. I don't believe a company can agree to be taken over by the drip system, and I sure don't see Apple's board agreeing to it even if they could. Poison pills in the company bylaws make a hostile takeover virtually impossible. TWA was a company in crisis, which Carl Icahn ultimately took over with the purpose of breaking up, because he saw that the parts were worth more than the whole. I don't see where anything in the history of takeovers (the more accurate translation of the term "going private" being used here) that applies to Apple.

  • Reply 93 of 100
    dr millmossdr millmoss Posts: 5,403member
    delete

  • Reply 94 of 100
    hmmhmm Posts: 3,405member
    Quote:

    Originally Posted by Nightsky View Post



    Presumably they wouldn't need shareholder approval if they just keep buying back their own shares every year. How many shares are there? How much would it costs to buy them back at today's market value?

    You aren't the first one to post that suggestion, but it shouldn't be difficult to figure out why it doesn't work this way. The stocks themselves aren't debt. If you understand that, you'll understand why they can't purchase their own sovereignty. They are effectively using money managed by the company itself on behalf of its owners (shareholders) to buy the stakes of other shareholders. At that point Apple doesn't own that piece of Apple. It's owned by the remaining shareholders, as money managed on their behalf was used to buy out other stakes. Make sense? Otherwise you could have all kinds of corrupt gambits to work against the interest of the company's owners.

  • Reply 95 of 100
    dysamoriadysamoria Posts: 3,430member
    It's not regulations and government that makes me want to see Apple go private. It's wanting to disconnect Apple from shareholder control and influence by of the speculation nightmare of Wall Street.
  • Reply 96 of 100
    hmmhmm Posts: 3,405member
    Quote:

    Originally Posted by dysamoria View Post



    It's not regulations and government that makes me want to see Apple go private. It's wanting to disconnect Apple from shareholder control and influence by of the speculation nightmare of Wall Street.



    Many of those regulations would still apply, including ones that require things such as shareholder meetings. Anyway can you explain how Apple would be in a better situation if it was held by a group of equity firms and investors rather than publicly traded? That's how companies go private. They are bought out. As I pointed out already, Apple doesn't own a piece of itself, because they don't have that authority.

  • Reply 97 of 100
    desuserigndesuserign Posts: 1,316member
    Interesting thing: if you express the thought that an AI article is "dumb" or "click bait," AI immediately removes it. No dissenting options or thoughts tolerated.
    Next time AI presses to be treated the same as traditional media, desiring press shielding and credentials, I'll know better than to support them.
  • Reply 98 of 100
    desuserigndesuserign Posts: 1,316member
    desuserign wrote: »
    Interesting thing: if you express the thought that an AI article is "dumb" or "click bait," AI immediately removes it. No dissenting options or thoughts tolerated.
    Next time AI presses to be treated the same as traditional media, desiring press shielding and credentials, I'll know better than to support them.
    How long will it take for this to be disappeared?
  • Reply 99 of 100
    kenckenc Posts: 195member

    "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."

     

    It's just a thought experiment, nothing more.

     

    As for what the IBers said, it only works that management would consider a buyout and pay a large premium is if they believed that the company was at least undervalued by that much and more. Of course, if you can't come up with the money yourself, and who can, then you have to have equity partners, just like Dell did, and then instead of little shareholders you can step on, you have giant partners who can be even more demanding than the Icahns of the world. Unless you're hugely undervalued, what would be the point of exchanging small taskmasters for a large taskmaster?

     

    And, if an IBer thought that any buyout would value Apple at $2T, then that's what Apple's cashflow must be worth. Either he's full of it, or Apple is way undervalued since it's cashflow is currently valued at only $735B.

     

    Ultimately, as Warren Buffett likes to say, it doesn't matter, since it'll never happen. In the short term, the market is a voting machine (they've voted for $735B), and in the long term, it's a weighing machine (the summation of Apple's future cashflows). If you hold it long term like I have and will continue to do, then you'll get Apple's true weight, aka true market cap. The market cap is supposed to reflect the summation of its future cash flows. The market could get that wrong, which is the part where they're voting on what they think the future cash flows will be. But, if you've followed Apple for long, you'll realize the market has for years been underestimating Apple's future cash flows, their earnings estimates have lagged reality. Who cares? You just have to hold Apple long enough to actually collect those cash flows.

     

    For example, Apple has earned $47.8B in the last 12 months. If Apple were cash balance neutral, in theory, they'd return that $47.8B to shareholders thru dividends or buybacks. The next year they'd return whatever the new full year earnings would be. Let's say in 20 years, earnings don't grow, and they keep earning $47.8B each year, then you'd have a 20 year annuity that paid $47.8B. What would that be worth to  the investor? Of course, professionals, will deflate the future cashflows by inflation estimates. Also, they'll estimate some growth rate, which might change over time. Some estimate higher growth, some lower. Either way, just by looking at Apple's current static earnings, $47.7B, and current market value of $735B, Apple looks comparatively cheap. I bought Apple shares when the company was only worth $75B, so if Apple were to return $47.7B a year, then in less than 2 years, I get all my original investment back. It's really all gravy for us long-term Apple shareholders, but even if you haven't held Apple for long, Apple is generating gobs of money that will likely eventually find their way to you, thru dividends or repurchases. I wouldn't worry so much about valuations, but about how the company is performing, and right now, they're firing on all cylinders.

     

    It may not be long before Apple adopts a cash balance neutral policy, meaning that they will return all excess cash. Right now, the cash balance continues to grow, even though they keep raising the cash return amount.

Sign In or Register to comment.