[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.

[slg]

You are right, 51% doesn't allow them to take peoples shares. But it does prevent the whole people refusing to sell problem you stated earlier. Once they control the company, they can agree to take the company private. The actual cash changing hands could them be borrowed to force through a leveraged buyout.

[dpark]

So somehow Apple is going to shed their entire cash hoard, bringing their market cap down to, say, 300 billion, and then Tim Cook is going to call up Wells Fargo and borrow 150 billion to buy 51%. Then he's going to offer to buy the whole company, vote yes, and finance it with another 150 billion from Bank of America.

The problem with this scenario is not that Tim Cook and a small circle of insiders can't get 300 billion in loans (though they can't). The problem is that this scenario has nothing to do with the stock buyback. If Tim Cook can get a loan for 300 billion to buy Apple stripped of its cash, he can certainly get a 500 billion loan to buy Apple before the cash is gone. The 200 billion loan will be paid with the 200 billion cash, so that's the easiest part to finance.

Even the need to pay a premium over the current price isn't gone in the 51% scenario. If Took Cook holds 51%, he can vote to sell. But if he votes to sell to himself at a price less than the other 49% would agree to, he will absolutely be facing a 100+ billion class action lawsuit. You cannot use majority ownership in a company to take further ownership from others at a price less than they would otherwise accept. To do otherwise is to steal from the other stockholders and no different functionally than voting for a sale to yourself at a discount. If this strategy were legal, you could indeed buy 51% and then force a sale for pennies per share.

Besides all this, the 150 billion to hypothetically buy 51% of Apple stripped of its cash is not meaningfully different than 250 billion to buy 51% of Apple with 200 billion in cash intact. The additional loan amount for the cash seems like the easiest part to finance. If "buy 51% and force the rest to sell" were a legal strategy, you could pursue this strategy as easily before the cash is gone as afterward.

So again, the viability of Apple going private has nothing to do with the stock buyback.