“We compared the value of Apple Inc. (AAPL) under the company’s ‘current target’ capital structure (estimated by the 3-year rolling average debt to enterprise value) versus an estimated ‘optimal target’ capital structure to determine whether additional leverage would create significant value for shareholders,” Marwaan Karame, IDG Capital Group, writes via Seeking Alpha. “Needless to say, the difference is significant and this is precisely why Carl Icahn has been aggressively lobbying Apple to take on more debt. It was through this process that we realized that the debt capacity for Apple and the significant cash reserves could make a leveraged management buyout, in partnership with a syndicate of financial sponsors, possible.”
“pple seems to have recognized this source of untapped value with the issuance of $17 billion in debt in May of 2013 (Source: Apple Inc. Form 10-Q filed April 24, 2014),” Karame writes. “Although by most standards, $17 billion is a significant amount of debt, it is not nearly enough for Apple. In fact, our optimal capital structure suggests that with a 52% debt to enterprise value, a controlling interest of the company would not be out of the question.”
“With such amazing and innovative products, strong executive team and labor force, loyal customer base, significant capacity for debt, $109 billion of cash in marketable securities, it is surprising that Tim Cook has not already initiated a leveraged management buyout of the company,” Karame writes. “Not to mention becoming a private company might help Apple limit its public exposure and keep the significant levels of cash oversees from becoming a political liability. The good news for shareholders is that the company is still public and there is a significant amount of value that can be created by simply taking on a little more debt.”
Much more in the full article here.