[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.

[slg]

Once again, I'm saying for a third time that I agree this isn't going to happen. I am just suggesting that if it did occur it would have to go down something like this.

It would be easy to get financing to purchase 49% of the company if you had 51% of the company to put up for colleteral. You could even theoretically do a leveraged buyout with a much smaller percentage of ownership. Michael Dell did it with something like 20% of the value of Dell. The reason you might need 51% here is to force it through. The actual price paid on that 49% percent is almost irrelevant to this discussion because of this easy financing. The problem is acquiring the first 51%. That is why I said the following in my last post

>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.

The stock buyback is an important part because it increases the insiders' percentage ownership of the company while not raising the value of the company. If Apple were to purchase a 100 million shares of the company, they would also be spending Apple's money. That transaction is completely balanced, company value doesn't change. If Tim Cook purchased 100 million public shares of the company, the stock would go up because it is injecting new money into the equation.

[dpark]

I'm not disagreeing with you on whether this will (not) happen. I'm telling you that you that hypothetical or not, it does not work the way you think.

> The stock buyback is an important part because it increases the insiders' percentage ownership of the company while not raising the value of the company. If Apple were to purchase a 100 million shares of the company, they would also be spending Apple's money. That transaction is completely balanced, company value doesn't change. If Tim Cook purchased 100 million public shares of the company, the stock would go up because it is injecting new money into the equation.

Tim Cook buying 100 million on the stock market doesn't meaningfully change Apple's price. If he buys 100MM in stick, it just means that he takes ownership of the stock from someone else who walks away with 100MM. There's no new money "injected". If he wants to buy a significant amount of stock, there will be some upward pressure on the price, because you have to find someone willing to sell, but that same condition applies to Apple. They have to buy on the open market just like Tim Cook. If a 100MM purchase is going to push up the market cap by 0.1%, it'll do the same for both.

As for the buyback being important because it increases insider's ownership, no, it doesn't. At least not in any meaningful sense. There's maybe 1% held by "insiders". If Apple buys back 175 billion in stock at their current price/value (a terrible assumption, but whatever), they'll take 33% of the stock back. So the insiders will hold 1.5% instead if none of them sell.

It's not possible for even an extended buyback to drive up the insiders' shares to a significant amount. And I don't mean "not plausible". It mathematically doesn't work. Apple has far more in real estate alone than the insiders' shares are worth. To hand them significant ownership of the company would mean to destroy the company by liquidating everything and leaving them a husk (even the name is worth more than the insiders' shares).

And yes, they could theoretically get loans to buy most of the company, but again, that's no different before or after the buyback. As you noted, the stock buyback is (theoretically) balanced.