Apple Computer For Sale: Only US$900 Million!

October 13th, 2002 at 3:00 PM - Apple Stock Watch by Robert Paul Leitao

Apple Computer For Sale - Only US$900 Million!

The statement may sound funny, but thatis all a savvy investor might have to pay to acquire Apple Computer. The share price of the maker of hip digital products and easy-to-use computers closed on Friday at $14.51. At that price Apple is valued at about US$5.2 billion dollars. But Apple has US$4.3 billion in cash and short-term investments. A smart investor doesnit need the cash up front to buy the company, just the difference between Appleis market value and the cash on hand. The balance of the purchase could be financed with Appleis own assets.

As of June 29, 2002, Appleis balance sheet reflects US$4 billion in net tangible assets. But to arrive at that figure Apple has depreciated its property, plants and equipment by US$381 million, according to its latest financial filings with the US Securities and Exchange Commission. Most property, such as real estate, actually appreciates in value rather than depreciates in value over time. For the most part, the depreciation amount reported by Apple represents a tax expense rather than a real expense. If one were to add back in most of the accumulated depreciation amount, the cost to acquire Apple falls even more. Real estate owned by Apple could be secured or sold to help finance the purchase. Compared to other PC makers, Apple is a bargain buy. Remember, too, that the value of Appleis brand names, registered trademarks, proprietary technologies and patents are not reflected on the companyis books.

Using the same method to value Dell Computer, a buyer would need more than US$60 billion above the companyis reported net tangible asset value to acquire the Texas-based company. Apple trades at about 130 percent of its net tangible asset value while Dell trades at about 1,500 percent of its net tangible asset value.

So whatis to stop a savvy investor from putting together financing to acquire a value-buy such as Apple Computer?

Letis start with Appleis Board of Directors. Does Appleis Board desire to sell the company at this time? Assuredly no. A potential suitor would need to offer more that the current market value of Apple to entice the Board to consider a sale. Less than three years ago Apple was trading with a market value of over US$20 billion. The Board members would argue in a convincing way that todayis share price is not representative of the companyis past and future value and to accept a purchase offer for Apple at todayis share price would not be in the best interest of the companyis owners. A potential buyer would have a lot of trouble attempting to buy Apple without the support of the companyis Board of Directors, especially without offering a lot more money in what would then be considered a hostile takeover effort.

Whatis the value of Apple without its fiercely loyal customers?

A person might buy Apple Computer, but the loyalty of Mac users is not up for sale. Unless a potential buyer also had the deep pockets to sustain a potentially precipitous dive in revenue after the companyis ownership changed hands, a takeover of Apple without the support of loyal Mac users would, in effect, make the purchase significantly more expensive.

Who owns Apple Computer, anyway?

According to the latest information available to the public, Apple Computer is about 60 percent owned by large, institution-sized investors such as mutual funds, public and private pension funds and other large investment companies. This means that about 40 percent of Apple Computer is owned by relatively small investors. Many of these small investors are among Appleis most fiercely loyal customers. As much as the continued loyalty of Mac users would not come easy to someone who acquired the company, the purchase of the shares owned by these fiercely loyal customers would not come cheap.

Why is Apple priced so low in terms of market value compared to a company such as Dell?

One could ask a dozen experts this question and get two dozen different answers. One reason why Dellis market value is about 15 times greater than its net tangible assets is because the company has a record of predictable revenue and earnings growth. Appleis earnings history has been erratic. Itis difficult for analysts to forecast future revenue and earnings growth without a corporate track record of consistent growth.

Dell places a priority on increasing its earnings per share each quarter. The company has spent close to US$ 3.5 billion over the past several quarters buying back its own shares in order to keep its earning per share rising during a challenging time in the PC market. Apple has chosen to preserve its cash in part to squelch the concerns of more-risk averse consumers and investors who might otherwise be concerned about Appleis staying power in light of its small market share. Appleis share price would most likely move much higher if management could provide Wall Street with solid estimates for future revenue and earnings.

Do you really think someone would offer to buy Apple at this time?

Realistically, weid say no. But no one knows what the future brings. If a substantial offer is made by a company that sees Apple as an enterprise with products, technology and brand value that would fit strategically into its future plans, the Board of Directors is obliged to consider the offer against what the Board believes to be Appleis prospects for enhancing shareholder value as an independent concern.

Where can one find out more about Apple and its activity on Wall Street?

The Mac Observer offers perhaps the most comprehensive coverage of Apple and its financial activities of any independent Mac site on the Internet. The Apple Stock Watch Report is published twice per week along with periodic news reports as major event occur.

For full quotes on all the companies mentioned in this article, we have assembled a set of stock quotes at Yahoo! for your reference. For other stories regarding Appleis stock activity, visit our updated Apple Stock Watch Special Report.