How Apple is staging its own leveraged buyout

“Apple has already spent $80 billion buying its own shares,” Philip Elmer-DeWitt reports for Fortune. “It’s set to spend another $60 billion.”

“Since Apple it hit a split-adjusted high of 6.637 billion shares outstanding in 2012, the company has repurchased 12.09% of its fully diluted shares,” P.E.D. reports. “‘In a way,’ writes Braeburn Group’s Robert Paul Leitao, ‘the massive share repurchase program works as a leveraged buyout for the benefit of long-term shareholders.'”

“Leitao is bullish on Apple,” P.E.D. reports. “He thinks Wall Street still doesn’t get what’s going on.”

Read more in the full article here.

MacDailyNews Take: Wall Street still doesn’t get what’s going on with Apple, that much is sure.

[Thanks to MacDailyNews Reader “Jeff.L” for the heads up.]

27 Comments

  1. this is the stupidest article. First the fast majority of large companies do stock buybacks because it is the easiest way to grow your $ per share profit, which is the main thing share holders look at. So even if you don’t make more money than last year it looks like you did because there are fewer shares. And second if the article is implying apple plans on buying back all the stock to take it private, apple is about $700 billion in cash short.

    1. I’m mostly with wpcrumbley on this one, Cl4.

      First, it is completely incorrect to liken Apple’s stock buyback to a leveraged buyout. A buyback simply reduces the number of outstanding shares. A buyout transfers ownership of those shares.

      Second, and I cannot stress this enough, a corporation *cannot* “take itself private” via stock buybacks. That would require external assets. The buyback funds are shareholder assets. The remaining shareholders still own the company. In the absolute extreme and impractical case, Apple buybacks could eventually result in thousands of shareholders.

      1. Theoretically, Apple could have arranged giant 30 year long loan to buy itself out, then there will be no shareholders as all shares would be owned the company itself.

        However, for that to happen, current shareholders have to agree, ever single one of them. Because if even a shareholder with one share will refuse to sell it to Apple, he/she will turn out to be sole owner of whole company.

        1. By the way, self-owned companies per se are not purely theoretical.

          For example, most universities are monprofict organizations — this means that all profits they earn stays in the company, they do not have to give it away to shareholders.

          For Apple it would mean that they could have cut prices 40% comparing to what they have now (considering gross margin) and totally obliterate all competition.

          Apple’s revenue would jump from $250 billion to maybe $400 billion or maybe even way more.

          1. This makes so little sense.

            There are nonprofit and for-profit universities, and your example implies that if Apple were a non-profit, it could lower prices, and yet, I don’t see nonprofit universities being much cheaper than for-profit ones. In fact, I find it the opposite.

            I understand the concept of price elasticity, but your projection of Apple revenue, is just a total guess.

            1. In Apple’s case, prices would be cut as with all of Apple’s spending, they still have 40% gross margin — this is money they do not need for manufacturing, administration or research.

              Those 40% only exist for shareholders. If Apple would not have shareholders, it could definitely cut prices 40% as Apple does not use those money for its purposes anyway.

              Yes, my revenue growth estimations is just a guess. But if you look at the polls you can see that much more people would like to have iPhones if they could afford it.

              Now cheapest iPhone costs $399 — if you minus 40% from that, the price is going to be $239. It would giant effect on sales. Same with Macintoshes.

        2. dress, if Apple got a loan, and bought back all AAPL stock (somehow), then who would own Apple? Keep in mind that the loan would have to be on the order of $1T, and that would go to the final shareholder in this theoretical thought experiment.

          Companies do not “go private” through corporate stock buybacks.

          1. I know, this is just theoretical musings.

            If Apple would bought out itself, then Apple would own itself. It would become a nonprofit ogranization, just like universities. It would self-govern and would have all of its profits left to the company. And since those profits are not needed — as all expenses, including future investments and research are already accounted, Apple could cut prices 40% and kill nearly all competition.

    2. KingMel, in the “short” run, you are correct.

      The original writer (and I) are partially speaking metaphorically. At least we are generally agreeing on the math. The question is — to what purpose is the buy back.

      Let me approach from another point of view.

      Do you think Apple is doing this for short term, middle or long term benefit.

      1. My assertions are true in the short run or the long run. There are several purposes for the buyback. As stated by Apple, one purpose is to offset the shares issued to senior management and other employees. The buyback offsets that dilution of ownership. Second, buybacks are a way to indirectly return money to shareholders – the reduction in outstanding shares theoretically results in a commensurate increase in price per share for a net zero change in market capitalization. In practice, stock buybacks are generally perceived as confident, bullish moves, so the impact on stock price can exceed the buyback input. Fourth, a corporation has a responsibility to provide a solid ROI to its shareholders. Cash and securities generally do not provide a strong ROI relative to the profits generated by a corporation’s core business. Therefore, when corporations are sitting on a large stash of cash – more than is required for operations, R&D, growth, reserves, etc. – then it tries to find a way to return the extra to its shareholders so that they can find superior investments.

        To respond to your question, I believe that Apple is always looking to the long term. That applies to its core business operations as well as its R&D, culture, and its policies for managing its assets.

  2. If love Apple to go private just like Lego are. They can tell the criminals who call themselves bankers and investors to go fsck themselves and get on with making great products.

    Stock markets are for fools. Greedy, selfish, idiotic fools.

  3. “Leitao is bullish on Apple,” P.E.D. reports. “He thinks Wall Street still doesn’t get what’s going on.”

    Do they ever? That’s why I call it WallNut Street these days. Between the clueless and the deadly parasites, it’s a zoo of cluelessness.

  4. For the past five months, Apple has been pouring billions of dollars back into the company but there doesn’t appear to be any results in boosting the share price. I’d almost hate to think where Apple would be if there was no repurchase plan in place. Apple appears to be doing everything right but only by looking at the EPS can you see any results. Apparently, growing EPS doesn’t translate into a share price rise in Apple’s case. Also, Apple doesn’t seem to have impressed anyone on Wall Street by strengthening its fundamentals. Investors seem to be only held captive by future growth results which Apple supposedly doesn’t have. Analysts continue to raise estimates and price targets but nothing has come of it yet. Let’s see what the end of this quarter is like. Let’s see if Wall Street changes the rules of value again.

  5. Stock buybacks do reduce outstanding shares. If the stock price does not increase as a result then the market cap will go down.
    But Apple would still need to come up with $700+ billion to buy the company outright to go private and that cannot be done with Apple cash or Apple debt.
    It is true that buybacks will increase the share potential for current shareholders. In some respects it did help aapl out of the $400 (pre-split) doldrums a few years back. At this point it does not seem to be helping to increase the stock price and I think that the market is now used to Apple pouring cash into the stock and is taking it for granted.

    1. Apple is a public company. It cannot “buy itself out” with its public held money. The shareholders already own that money. A third party would have to come up with roughly a trillion dollars to buy all the public shares from the shareholders to take the company private. Time to put this ridiculous argument to bed.

  6. Does a word exist for the opposite of a bubble.
    It would be appropriate for AAPL. Tension is building and when it bursts the stock will go up significantly and quickly.
    The only question is: when?

    Or is this me just hoping for such a scenario?…

    1. Same old story. Been long Apple since 2003. You describe the perennial Apple story. The question is: Do you look at the troughs? Or do you look at the (ever increasing) peaks? You can select any two time points and justify pretty much whatever you want. Apple has certainly been an exceptional stock.

      But as John Maynard Keynes famously observed: “In the long run, we are all dead.”

      No balls, no blue chips…

  7. Just to clarify!!!

    Shareholders do not have a right to manage the company or its assets. Instead, they “elect” directors for that purpose. Shareholders can vote on resolutions to constrain management, but that`s not a right to manage the assets of the company. Most votes at annual general meetings of corporations are advisory rather than binding. Directors owe a duty of care’ to the company and not to any individual shareholder.

    Shareholders invest in the hope of getting a return on their investment, but do not have the right to demand income from the assets owned and used by the company. Shareholders can receive dividends but only after directors agree to declare them.

    Shareholders can continue to enjoy the benefits of shareholding, as long as the company remains in existence, but cannot recover the capital represented by share certificates from the company. They can sell their shares to another party and can transfer or bequeath shares to successors, subject to the taxation laws of the country. The share certificates have some value, as long as the company is solvent. But that`s it: a speculative commodity not a control.

    Directors of a company can sell the assets held by the company, but shareholders do not have rights to receive the proceeds. Shareholders do have a residual interest in the event of bankruptcy, assuming that the assets have been sold to satisfy the prior claims of secured and unsecured creditors. However, they might still not suffer the ultimate loss of their investment as the state has bailed-out banks and other corporations.

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