[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.

[slg]

>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.

The injected money (or I will admit more accurately injected value) comes from increased demand. The only effect of Tim Cook buying shares in increased demand for Apple stock. Meanwhile Apple buying shares will be coupled with a decrease in value of the company's assets. Tim Cook's purchase only provides upward pressure on the market cap. The buyback provides downward pressure as well.

>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 2% instead if none of them sell.

Personally I would say doubling your ownership percentage is meaningful. But like I said earlier the whole thing relies on the insiders having $150 billion in stock + cash which they almost assuredly don't and likely can't raise. You keep on ignoring that condition. I am arguing a hypothetical situation in which they do have that money. You seem to be arguing that even the hypothetical is impossible because they don't have that money.

[dpark]

> The injected money (or I will admit more accurately injected value) comes from increased demand. The only effect of Tim Cook buying shares in increased demand for Apple stock. Meanwhile Apple buying shares will be coupled with a decrease in value of the company's assets. Tim Cook's purchase only provides upward pressure on the market cap. The buyback provides downward pressure as well.

Sure, the buyback applies some downward pressure on market cap in addition to the upward pressure. In theory it all evens out anyway. If cash is valued correctly by the market, then a buyback has no effect on price at all.

> Personally I would say doubling your ownership percentage is meaningful.

That was a mistake on my part. It's only a 50% increase, not a 100% increase.

> But like I said earlier the whole thing relies on the insiders having $150 billion in stock + cash which they almost assuredly don't and likely can't raise. You keep on ignoring that condition.

What you're ignoring is that the buyback is irrelevant if you assume Tim Cook has access to absurd amounts of loan money. If he can get hundreds of billions of dollars to buy Apple after a buyback he can certainly accomplish it before the buyback.

Frankly the initial "insider" status is also irrelevant. Tim Cook can spend 150 billion before the buyback for 33% of the stock or 150 billion after the buyback for 50% of the stock and the result is the same assuming the market values cash on hand correctly. He spends 150 billion and ends up with 50% of the smaller company.

You also keep saying 150 billion as if it's somehow sufficient to buy the company. It isn't. It isn't even close. If you assume the market cap will drop to 300 billion after the buyback, 150 billion gets you majority control. But to buy you need 300 billion plus a premium over the trade price so you don't get sued to death. So call it 360 billion total (20% premium). This is not much lower than simply buying Apple outright before the buyback for 600 billion (20% premium). Cancel out the cash and you're at 400 billion. So all you've done is erase the 20% premium from the cash on hand (which the market would presumably do for you anyway).

Or to put it another way, the buyback is irrelevant.