Taking Apple private: Why hasn’t Tim Cook already initiated a leveraged management buyout?

“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.

26 Comments

    1. Or perhaps Tim Cook has no ambition to own Apple. Gee, is that possible? That someone just wants to do his job and not become a power-mad dictator?

    1. Sorry, if the stock value of any company does not keep pace with the rapidly growing company value then anyone can use the company’s own value to take it over. Happens all the time. Ever watch “Pretty Woman”? That was what Richard Gere’s character’s team did for a living. You buy an undervalued company and then strip off it’s assets.

      Wall Street can not keep AAPL at such low evaluations for ever. They need to take their attitudes issues out on some other company. RIMM, Dell, Microsoft, IBM, and their others heroes are tanking in the real world!

      1. We’ll all certainly be glad when Apple gets back to $700 per share again. Hopefully. This time sell your shares and retire. Like you wanted to do two years ago. Then quit your belly aching. We’ve had enough of it. Retire and live on one of those server farms that you constantly talk about.

      1. Seriously, who is this jerk Marwaan Karame ? Writing for seeking alpha and IDG is not an indication of journalistic quality.

        So much is wrong and/or made up with his article I have to wonder who wrote for before.

        Dolly magazine ? National Enquirer perhaps. UFO monthly.

  1. When company management starts making decisions solely based on share holder value, it’s usually managements shares that they’re interested in.

  2. To take Apple private, someone would have to raise over half a trillion dollars to buy out all the current shares in the company. Now, who could raise that kind of money? This talk of taking Apple private is ludicrous. That boat departed over a decade ago.

    1. It would take a lot more than that. If it was a gradual share purchase, share value would rise dramatically as the float decreased, increasing EPS for the remaining shares.

      For a quick buyout, you would need most likely a 30%-40% share premium on a tender for the shares to make it through a shareholder vote.

      It seems that the people writing for seeking alpha know nothing about how capital markets work.

      History is full of companies that went bankrupt by taking on massive debt to go private or just to have “optimal capital structure”.

      The problem with the concept of optimal capital structure is that it is optimal only at a discrete point in time. Once you take on the debt, you are stuck with it even if business conditions change dramatically, and then it is no longer optimal.

      The only one it is really optimal for are the bankers who structure and sell the debt and then move on with their fees with no care as to what happens to the company in the future.

  3. Apple’s market cap would leap to over a Trillion Dollars on take over news, where would they borrow the money from? They’d have to empty an oil nations sovereign wealth fund to do it.

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