[padmanabhan01]

//Slowly, over time? It's not as though $600B cash is exactly out of reach for Apple

You do know that the cash Apple has in its balance sheet belongs to its shareholders and that Apple can't use that to buy itself and go private?

[brianbreslin]

Actually companies do this all the time. Buybacks are often used to prop up the price of shares in short term, or reduce dividend obligations. Apple could borrow the $600B at dirt cheap rates and go private asap. 20 year loan repayment. might be cheaper than trickling itself back to private.

[padmanabhan01]

//Apple could borrow the $600B at dirt cheap rates and go private asap

Ok, so you mean Apple (the public company) borrows money, and then goes private. Now who would that private entity be? And which entity would be repaying that loan now since Apple (the public company) that borrowed money would no longer be an entity as it went private.. care to clarify?

[gnoway]

Presumably it would be an ownership group like e.g. Tim Cook + some other people borrowing the money, and/or they'd partner with a P/E firm. Isn't that what Dell did a couple of years ago?

[dpark]

Sure. If Tim Cook and "some other people" could borrow 600 billion dollars, they could buy Apple. Turns out that it's really hard to get a loan for that amount though.

And regardless this has nothing to do with Apple running a stock buyback.

[brianbreslin]

the entity is still the same, apple, inc. apple inc can choose how many of its shares are available on the public market, or undistributed, or distributed to existing shareholders. So assume 50% of shares are distributed (assume 500M shares for simplicity sake), they gradually buy back shares, and the outstanding shares can either be worth more or less (usually more).

In the case of Dell, Michael Dell was the largest independent shareholder, he partnered with a private equity firm to buy outstanding shares back, and then the Dell, inc. entity has to pay back the private equity firm with revenues from sales and sales of assets.

[icedchai]

What? It's still the same entity, whether it's public or private.

[dpark]

It would be a self-owned corporation. What does that even mean?

[icedchai]

No, it would be owned by a small pool of insiders.

[dpark]

Do you really not see the problem with this scenario? Apple "goes private" and somehow ends up in the hands of "a small pool of insiders"? How do those insiders end up holding 100% of the stock?

Right now insiders hold maybe 1% of Apple stock. So there's a 99% transfer of ownership happening when the company "buys itself". Does the company lose 99% of its value in this or is there somehow a transfer of about 500 billion dollars into the hands of these insiders? How are either of these situations not entirely terrible?

[mikeyouse]

Name one time a company used its own operating cash to go private..

[retbull]

Didn't Dell do that?

[mikeyouse]

Michael Dell -- Who was a 12% shareholder in Dell, got together with outside investors to raise the rest of the money necessary to buy the rest of the shares on the open market to take the company private. This is very different than Dell the company taking itself private -- which cannot happen. A company cannot own itself.

[maxerickson]

Michael Dell and some others got financing and did it. The operating income made that make sense, but they had to secure financing to do it.

http://www.dell.com/learn/us/en/vn/secure/2013-02-04-michael...

[djrogers]

>You do know that the cash Apple has in its balance sheet belongs to its shareholders and that Apple can't use that to buy itself and go private?

Not really true - what exactly do you think the current stock buyback program consists of? Apple is using it's cash to buy it's own stock from the market.

[padmanabhan01]

Share buy back is one thing. Going private using share buyback is another thing. share buy back cancels the shares that are bought back and that enriches the value of all remaining shareholders. to go private an individual has to buy back shares so his ownership gets to 100% which involves a lot more than a company using it's cash in balance sheet to buy back shares. not the same thing.

[slg]

I assume the definition of "private" that people in this thread are using is no external shareholders. Apple could theoretically keep increasing the buyback program until their are no outstanding public shares and the company is owned by the Jobs estate, Tim Cook, and all the other internal stockholders. Although there is virtually zero percent chance of that happening.

[jameshart]

An AAPL share represents about one five billionth of Apple. Tim Cook owns about 1.7 million of those - so Tim Cook owns about three hundredths of one percent of Apple. Jobs died with about 5.5 million shares, call it one tenth of a percent of Apple. So the value of the shares of Apple which don't currently belong to Tim Cook and the Jobs estate (no idea if they still hold those shares) amount to at least 99.9987% of the value of Apple.

[sokoloff]

Using your assumptions, the math comes to 99.87%. (Your excellent point remains, of course.)

[dpark]

No. As you buy out existing stockholders, the value of the remaining shares increases. That's the entire point of a buyback.

By this logic you could just hold one share of Apple stock forever and end up the sole shareholder if they just keep doing their buyback. Except of course there are many other people who would refuse to sell. And when no one wants to sell, the buyback either fails or becomes a terrible investment.

[slg]

Like I said, I think there is a zero percent chance this happens, but I am trying to explain why other people are suggesting. The piece you seem to be missing is that the value of the company overall goes down during a buyout, it is just that the outstanding shares decrease meaning the value of existing shares go up.

If the market cap of Apple is currently $500 billion and they have $200 billion of cash on hand it means the market thinks the company is worth $300 billion. While spending $200 billion on the buyback will put upward pressure on the price of the stock, offloading that cash will put a downward pressure on the stock. Since the ratio of cash to market cap is so high for Apple, the stock really wouldn't see a huge rise in a buyback. The end result would be anyone who didn't participate in the buyback would now owns a larger piece of a smaller pie. The assumption is that the "internal" stockholders would be in that group. The reason it would never happen is because those investors would have to buyout enough people to amass 51% ownership in the company. That means they would need over $150 billion of the $300 billion post buyout value in cash and stock.

[dpark]

You don't "go private" by amassing 51%. Holding a majority stake is not the same as being s private company. It's not even close. Holding a majority stake also does not allow you to simply take everyone else's shares.

[coliveira]

Of course they can. What they cannot is force people to sell their shares, but they can buy whatever shares are available in the market. And given enough money, anyone will sell anything.

[aetherson]

But people won't sell anything for enough of their own money.

So, look, the value of Apple is A + C, where A is the present value of Apple's business per se (that is, how much you value owning the thing that makes iPhones and sells them), and C is Apple's more-or-less cash stockpile.

Unless you think that A is 0 or negative (which is obviously absurd), Apple can not buy itself. Any money it has just raises the total value of the company. Any money that it returns to investors lowers the value of C, but not A. If 51% of Apple investors want their shares of C, they can literally just choose one of themselves, fire Tim Cook, put that person in charge, and order C returned to investors through dividends -- and they'd still have A.

Given that, why would they accept C money for an asset definitionally worth A + C?

[mikeyouse]

I feel like I'm taking crazy pills -- wtf are these people talking about Apple buying itself? Has nobody here ever taken a finance course?

[laut]

Yeah. Weird, but amusing. And they seem so confident about it too.

[icedchai]

You should do some research. This happens all the time. Companies do this as an alternative to dividends. Where do you think dividends come from? (Earnings.)

[mikeyouse]

Share buybacks are absolutely not the same thing as a company taking themselves private. When a company repurchases shares, that stock is then "treasury stock" which has no voting rights, cannot receive dividends, and must be under a certain legally set value.

A company cannot own itself.

[icedchai]

Yeah I know that. Obviously, it wouldn't own itself. That doesn't make any sense. A small pool of insider investors, the management, would ultimately own it.

[aetherson]

But they'd have to pay for it with their own money. They can't use Apple's cash to pay for Apple. When Apple buys its own shares back, it effectively increases the ownership percentage of its remaining investors -- who still own all of Apple. Spending all of Apple's cash on buybacks wouldn't fundamentally make it any cheaper for anyone to take Apple private.