“Lately, there are a lot of discussions about whether Apple (AAPL) should increase its proposed buyback program in order to reward the investors more,” Jacob Steinberg writes for Seeking Alpha. “In the recent months, despite the strong rally in the highly-inflated market (thanks to the QE), Apple continues to be deeply discounted. When deciding whether a company is cheap or expensive, one could say many different things by looking at many different metrics. There is one thing that’s for sure though: if a company is cheap enough to buy itself, that company is probably a good bet.”
“Buybacks or not, Apple is likely to have a balance sheet strong enough to go private, if it chose to do so. This is especially true if the investors continue to ignore Apple’s achievements and keep the company deeply undervalued,” Steinberg writes. “In 2012, Apple’s operating cash flow was $50 billion. In the best case scenario, Apple continues to grow its operating cash flow at an annual rate of 15%. This would increase the company’s operating cash flow to $57.5 billion in 2014, $66.13 billion in 2015, $76.05 billion in 2016, $87.45 billion in 2017, $100.56 billion in 2018, $115.65 billion in 2019 and $133 billion in 2020. Combined together, the company would generate about $680 billion in operating cash flow between now and 2020. Add that to the company’s current cash balance of $150 billion, and the company would have more than enough cash to buy itself out and become private.”
Read more in the full article here.
I’ve always wished Apple could go Private with Steve Jobs at the helm. Would still be great if they could with the current team in place.
There are no serious cases of companies completely buying themselves.
If that could theoretically happen, this would mean that Apple should not be caring about making huge net profits as much because employees will get all the money and they can decide to price products cheaper.
I recall that Harley-Davidson had a management buyout from AMF back in the 80s
“Management buyout” is not buy out the article talks about.
“Management buyout” is like what happens with Dell now. Management borrows/collects money/investors to buyout company’s shares from free open market and own it.
And the buyout the article talks about is when company itself buys its own shares. This is kind of theoretical concept because the very last shareholder should agree to sell its own shares to the company while being sole owner — which is kind of crazy.
I’ve asked this question of numbers of business guys and never got a good answer. How is it possible for a company to buy itself? It seems that when the number of shareholders is reduced to just one then that person is the owner and could vote in their own officers. So if I refuse to sell my shares and Apple keeps up the buy backs eventually I will be a majority shareholder.
So I see these articles about Apple buying itself but I don’t see how it could possibly happen. More likely is that as the buy backs contine the pool of shareholders will be reduced to a group who won’t sell at hardly any cost and the price will sky rocket as the pool of available shares shrinks. In other words, the problem is self correcting.
If we assume the very unlikely scenario when the last shareholder would agree to sell his/her shares to the company itself, then company will theoretically function as ever before, except for its board of directors — which represent shareholders — will be assigned by the owner, which is the company itself. The board of directors will be assigned by executive management, which are Timothy Cook and his vice presidents.
As a plus side, all of profits are going to stay within the company as it does not have to transfer it to shareholders. This means Apple could cut prices to all of its products by margin value, which is about 37% — with all of the employees keeping the same wages as they have now. Alternatively, Apple could raise wages by about 50% (which is reverse-calculated 37% margin). Or go to intermediate among two things.
As a minus side, too much will be controlled by higher management and it could be never replaced since CEO reports to shareholder which is the company itself, represented by CEO himself.
Better version of this system would be that highest executive power would be voted by whole company’s staff. But this change is not guaranteed by buyout process itself.
In the end, this all is a fantasy — even though it would be interesting to see how it would unfold.
Not so. When any company of any size builds it’s assets up and CASH, they open themselves up to a hostile takeover. It happens all the time. When you get some time, watch “Pretty Woman” again and pay attention to what they male actor does for a living. “Edward is a rich, ruthless businessman who specializes in taking over companies and then selling them off piece by piece.”
This power struggle will happen long before 2020 if these idiots on Apple’s board do not let Apple spread out and takeover more markets and companies faster. Any group will be able to takeover Apple with Apple’s own assets.
Apple, you can’t do 1 new market every 3 to 5 years. Start doing several. “Think Different” or someone else will for you. Even I can help your development groups with this! MAN UP!!!
But.. but… this is how they’ve always worked! While other companies like Google just sling crap out there to see what attracts flies, and companies like Samsung just slap together me too products as fast as they can, Apple has always seemed to move slowly and methodically. Years of R&D lead to Macintosh, and iPod, and iPhone, and iPad and so on. They don’t just enter new markets, they redefine the markets they enter. Then they begin another long period of evolution over revolution. Seems to be working to me.
Not so. When any company of any size builds it’s assets up and CASH, they open themselves up to a hostile takeover. It happens all the time. When you get some time, watch “Pretty Woman” again and pay attention to what they male actor does for a living. “Edward is a rich, ruthless businessman who specializes in taking over companies and then selling them off piece by piece.”
This power struggle will happen long before 2020 if these idiots on Apple’s board do not let Apple spread out and takeover more markets and companies. Any group will be able to takeover Apple with Apple’s own assets.
Apple, you can’t do 1 new market every 3 to 5 years. Start doing several. “Think Different” or someone else will for you. Even I can help your development groups with this! MAN UP!!!
Why do you wish Apple could go private? It would not change their modus operandi for developing products. It would not benefit shareholders that own stock for the long term except for having to figure out where to invest the proceeds from selling their stock … in fact it hurts the stockholders who like the generous dividend that Apple pays. The only people who are helped by a buyback are short term investors looking to churn their investments.
I don’t give a flying fuzzy rats behind about the shareholders. I care about the great products that Apple makes.
Can’t shake the feeling that if Apple weren’t so distracted by APPL and WS, they could focus more time, energy, and resources into doing their job, which btw, is to make great products, NOT kiss the collective butt of WS, shareholders, tech journalists and knowitall bloggers.
If shareholders want more money, or are not happy with Apple (or APPL) they are free to move their money and get the hell out. Simple as that. Apple owes them nothing, other than to create great products. Any ‘value’ or lack of in APPL is the fault and responsibility of WS. Apple is not APPL, and vise versa
Just curious…What sort of benefits (aside from a stable company) would be offered to employees in place of stock benefits if they were to become private?
Private equity.
Checkout The John Lewis Partnership, which operate the John Lewis UK department stores. Roughly speaking, all employees become partners. They have a say in how the company runs and have a yearly bonus on top of their salaries, which can be quite significant.
Unfortunately, not soon enough to prevent Vulture Investors like Carl Icahn to extract his pound of flesh from Apple.
He may look like an ant compared to Apple right now…But he is a Termite…When once he gets in, he will destroy the whole structure.
I second that emotion. The guy has personal problems for which he over-compensatings out here in the real world. He has no business having ANYTHING to do with Apple, which I find to be one of the few sane businesses surviving today. So there Carl! Please get some help. 😀
He is like a cheap prostitute….Spreads the disease all over the industry….Leave him alone and don’t let him in,,,,,He will die with his own disease
Agreed 100%
Also, I hear a lot of “investors” telling us here that we don’t understand how the markets work and to keep our opinions to ourselves, as if the suppression self-serves them.
But seriously, what do the analysts, the shorts and the Carls of the world really bring to the table?? A company like Apple, there are few, if any other companies that produce as well and have restored power rightfully where it belongs, in the hands of the end-user.
I am sure there might be a business case that Apple needs to remain public, but I am curious to see how going private is detrimental, especially when they have to expend so much energy dispelling the myths of the haters and I’ll-informed side of tech media.
Pushing the envelope on everything is in vogue everywhere these days, they don’t bring much but anarchry to the table.
Killing. the goose that lays the golden eggs is an exercise in ‘what if’, so typical of people who live in a virtual world .
It’s like all the red lines ae being tested by idiots that don’t understand that playing with fire will actually burn you…
If Apple was a private company, it might be rid of all the FUD makers and parasitic manipulators including the paid lying tech press.
Going private has nothing to do with how much money AAPL has. Some other entity has ti have thst mich money. Apple cannot own itself. Geeezz. These people might as well hypothesize about Santa clause’s time machine.
I was recently told that a company couldn’t “buy” itself back. As they buy back stock, outstanding shares would contain a higher percentage “ownership” So if Apple were to buy all the stock back, but couldn’t get to the last shares that Ichan has, then he effectively would gain controlling ownership of the company for a reasonable price of 2 billion dollars.
I think they should buy and sell stock to “float” the stock value and keep it stable. So they neither loose or gain much, but ultimately maintain public trust.
Too many greedy people trying to “immorally” game the system. And if it’s not illegal already, it should be. Ichan has already said too much and should be investigated for trying to manipulate the market and insider trading.
Apple should relist on the German or Japanese stock market and relocate its headquarters there. Just keep the design in America.
Then it would have a P/E of about 40 and the Japanese or the Germans would be extremely proud to have such a jewel of a company in their country.
America does not deserve Apple. When complete parasites like David Trainer or Peter Misek or Carl Icahn or the 3 clowns of Citicorp analyzed your stock it’s time to relocate.
Wall Street is the worst stock market of all. Overseas, there is much more “wisdom” and healthy thinking on stocks like Apple which can trade at $800 in Germany or Japan by all metrics.
America hates its own creatures so Apple please relists and relocate.
@XYZ: Yes that is a great idea that Apple should relocate and relists in Germany/ Japan.
And also Yes it has been a bad year for AAPL, but how much did the media and market get wrong, and how much was purposely wrong to suppress share prices?
• The market says Apple is losing its relevance – sales and web usage says differently.
• The market says no return of wealth to shareholders – Apple does buy back, retires millions of shares to increase EPS and gives a reasonable dividend. Sounds like a good start to me.
• The market says Apple growth and profit has stalled, but quarterly reports say differently.
• The market says no innovation – Apple comes out with amazing Mac Pro, 64 bit iPhone, M7 coprocessor, useable fingerprint security. The list goes on… A recent poll of 1500 senior execs across a range of industries says Apple is still the most innovative company in the world – for 8th year in a row.
• The market and media says not enough new choices, Apple needs a bigger phone and one that is cheap. – 9 million consumers seem ok with new choices on the very first weekend.
• The market says no China Mobile deal – now everyone knows this is around the corner.
• The media and Wall Street and tech companies laughed at the first iPhone, iPad, gold iPhones, others – they don’t laugh in private.
• The media says iOS is outdated. New iOS has an adoption rate explosion. And the OS stacks up better than Android versions in ease of use by objective 3rd party testing.
• The media says China labor misuse taints the company – Apple is doing more to correct labor issues than any other Western company.
• The media says Apple is not charitable – the truth is that Apple and its employees give a lot, more under Tim Cook.
• The media says Android will destroy Apple – not so far. Not ever.
• The naysayers say that Apple copies and Samsung did not steal from Apple – the patent office and courts say differently.
• The analysts call for numbers based on lies and errors – they are never right.
I doubt there has ever been a company that has been organizable attacked with such vigor yet remained so successful. So many expected it was doomed, and yet Apple shows resilience through innovation, focus on great consumer products, leadership and marketing. With all this evidence of how the market and media have it so wrong, it is no wonder that AAPL investors are so frustrated. But Wall Street and the media can only suppress AAPL for so long – like pushing a basketball under water, it is just too much effort.
Apple will still have billions of dollars in loans to pay in 2020. If I recall correctly the initial buy back had loans extending to 2040. This is the reason Apple will not quickly take a loan to purchase 150 billion in stock. Taking a loan out to purchase stock is good only under the assumption the company will grow and remain profitable over the 30 years. Do you think Icahn will be around in 2040. He won’t give a rats a$& about Apple once the buy back is finished.
It would be nice but it’s not going to happen. Another genius from Seeking Alpha. Amateur hour just looking for hits.
That’s all these financial ‘wizards’ do – extrapolate.
Let’s extrapolate some more; if Apple keep growing their iPhone marketshare, they’ll wind up with over 100% of the market. Completely idiotic – and they get paid for these ‘insights’?
LOL- Over 100%. Only analyst can make numbers like this appear correct. So funny.
Sounds great, except of course that the remaining shares will get exponentially more valuable as the buyback continues. I’m sure we’d all love to be the sole owner of the remaining $600bn AAPL, and that’s the problem.
Apple will have zero cash on hand of it goes private, Icahn will see to that. What does he do with all his money?
Please make the private price at $1000 . Look at how cheap the go private price of blackberry is !!!
No, no, no, no, no, nononononononono!! It does not work that way. A corporation cannot “buy” itself. As the corporation uses its assets to purchase shares on the open market, it concentrates ownership within a smaller number of shares. But those shares would still likely represent hundreds of $B in market cap. The remaining shareholders, which would still likely be in the tens of thousands, would still share ownership of Apple as a corporation. If some group could arrange financing, they might be able to tender an offer for AAPL at a substantial premium to its market value. But it takes a lot of financial chops to make a buyout play well in excess of $500B, possibly in the $1T range.
In my opinion, if Apple goes private, it would only occur because the company had declined so far that it would not be worth owning unless the buyer was a turnaround artist extraordinaire hoping to salvage a brand like Indian Motorcycles, for instance.
Besides, Apple is also issuing shares to employees and management every year. The current buy back won’t substantially shrink the number of outstanding shares of commons stock. Even an additional $150B buy act would leave over 2/3 of the existing common shares outstanding. This is just a ploy by Icahn to make a quick buck. Screw him.
Woooooooaaahhhhh! Look at all the experts in here!
If that’s what it takes to dump Icahn and other Wall Street parasites, then do it!
I’m starting another rumor. Apple is letting share price fall and won’t prop it up. When the price is low enough, Apple will buy all outstanding shares and go private. Of course Apple can be thwarted by rising stock price. 🙂
What kind of incompetent fool wrote this article? He should go back to school and finish his Finance 101 class before writing anything so wrong! A another erroneous and ridiculous piece by Seeking Alpha.
Wallstreet does not deserve Apple.
Didn’t read every single comment, so maybe someone who knows what they’re talking about chimed in.
Businesses go from public to private all the time. The key difference here is that it generally comes from a place of weakness rather than strength. Most go private to avoid the glaring eyes of shareholders and analysts.
When businesses go private, they don’t have to go out in the open market and buy every share at market prices. They create a tender offer, generally at a nice premium, under which everyone sells their shares at the pre-arranged price. There are no “last shareholders” holding out.
Apple will never be a hostile takeover target like in Pretty Woman. They quite simply are too damn big. It would take a HUGE group to get organized and coordinated, and would take roughly 15-20 more financing than has ever been done before.
The going private scenario here would be unprecedented, but is both plausible and probably sensible. No more outside influence from an impatient lot.