Thinking Different. How about a leveraged buyout of Apple.

  • Posted: 23 January 2011 03:57 PM

    It may sound wacky, but with its cash pile, cash flow, stellar outlook and probably more than one restless shareholder getting fed up with its undervaluation, never a dividend, etc., it would be OK with me if a consortium came together and just took it off the market.

    Offer $500 a share, would probably fly. Need some serious players and maybe even Jobs involved.

    Bring it on I say.

         
  • Posted: 23 January 2011 04:03 PM #1

    Where would we go? What would become of us? You’re a demented man.

    Is it really only about the money?

         
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    Posted: 23 January 2011 04:04 PM #2

    500 is too cheap.

         
  • Posted: 23 January 2011 04:22 PM #3

    danthemason - 23 January 2011 08:03 PM

    Where would we go? What would become of us? You’re a demented man.

    Is it really only about the money?

    I may just be demented.

    But when you have a company that continues to deliver growth of 60-80% year-in and year-out, which has no debt and over 50 billion in cash, that its single greatest challenge is not demand but production, that has a current PE TTM of 18, 14 ex-cash, and forward PE of maybe 10, and probably a fair amount of investors who are getting fed up with this or find themselves rationalizing that one must accept this because it is a straightforward case of ‘PE compression’, I’d say it is about money now.

    Shareholders of Apple are not realizing the fruits of any sensible, fair value.  There must be another mechanism to unlock.  I can’t come up with any other than a consortium of like-minded folks who believe they could unlock that value for themselves and for the current shareholders by doing a buyout.

    Offer 500 and see what happens.  Its a question of votes.  If it won’t fly, up it, bargain, do something. 

    But I sure would like a crowd to get busy and do it.

    I guaran-damn-tee you that the first peep that something like that was going on in the background would wake this stock up like we have never seen.

         
  • Posted: 23 January 2011 04:27 PM #4

    Mike in Helsinki - 23 January 2011 07:57 PM

    It may sound wacky, but with its cash pile, cash flow, stellar outlook and probably more than one restless shareholder getting fed up with its undervaluation, never a dividend, etc., it would be OK with me if a consortium came together and just took it off the market.

    Offer $500 a share, would probably fly. Need some serious players and maybe even Jobs involved.

    Bring it on I say.

    The break up value is about double that.

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  • Posted: 23 January 2011 04:33 PM #5

    Gregg Thurman - 23 January 2011 08:27 PM
    Mike in Helsinki - 23 January 2011 07:57 PM

    It may sound wacky, but with its cash pile, cash flow, stellar outlook and probably more than one restless shareholder getting fed up with its undervaluation, never a dividend, etc., it would be OK with me if a consortium came together and just took it off the market.

    Offer $500 a share, would probably fly. Need some serious players and maybe even Jobs involved.

    Bring it on I say.

    The break up value is about double that.

    Who cares. 

    The value today should be 500 bucks.  We don’t see that, so how on earth do you believe that anybody will care one iota what the theoretical ‘break up value’ is.

    The value is what a majority shareholders would be will to sell out on any given day, period.  If its no higher than what the market will pay, then the share price remains right where it is.

    What do you think will bait 50%+ into saying ... ‘screw it, I’ll take it and run’?

         
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    Posted: 23 January 2011 04:35 PM #6

    danthemason - 23 January 2011 08:03 PM

    Where would we go? What would become of us? You’re a demented man.

    Is it really only about the money?

     

    Answer to #1 I know I would go to Fiji :drool:

    Answer to #2 Could not be any worse than what we are now. LOL

    Answer to your accusation;  On some days I take demented as a compliment. tongue laugh

    Answer to it being about the money, is there any other reason to have a shareholder stake in any company, the goal is suppose to make money. Life in general is not all about money. My proof of that for me is the great job I walked away from.

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    Posted: 23 January 2011 04:47 PM #7

    Thanks Adam, I have decided to lay low for a while. Needless to say I was quite busy last week trying to save my arse. Combine that with not being able to catch the dog made life tough last week. LOL

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  • Posted: 23 January 2011 04:47 PM #8

    maybe even Jobs involved


                        Not even in ICU, with all the drugs in the pharmacy, would SJ be on board with that.

         
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    Posted: 23 January 2011 04:47 PM #9

    Mike in Helsinki - 23 January 2011 07:57 PM

    It may sound wacky, but with its cash pile, cash flow, stellar outlook and probably more than one restless shareholder getting fed up with its undervaluation, never a dividend, etc., it would be OK with me if a consortium came together and just took it off the market.

    Offer $500 a share, would probably fly. Need some serious players and maybe even Jobs involved.

    Bring it on I say.

    At that valuation, Apple would have by far the world’s largest market cap, more than all of the US investment banks combined. So how does a single investment bank raise 10 times its net worth for an LBO? Apple could buy Goldman Sachs out of petty cash by the end of this quarter.

    “The Corleone Family wants to buy me out? No, I buy you out.” - Moe Greene

    I’d say I trust Steve Jobs running my company a helluva lot more than some dumb bankers who needed mommy to come save them due to their stupidity. You ever heard the expression, “so easy, even a banker could make money off of it”?

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  • Posted: 23 January 2011 05:55 PM #10

    JDSoCal - 23 January 2011 08:47 PM
    Mike in Helsinki - 23 January 2011 07:57 PM

    It may sound wacky, but with its cash pile, cash flow, stellar outlook and probably more than one restless shareholder getting fed up with its undervaluation, never a dividend, etc., it would be OK with me if a consortium came together and just took it off the market.

    Offer $500 a share, would probably fly. Need some serious players and maybe even Jobs involved.

    Bring it on I say.

    At that valuation, Apple would have by far the world’s largest market cap, more than all of the US investment banks combined. So how does a single investment bank raise 10 times its net worth for an LBO? Apple could buy Goldman Sachs out of petty cash by the end of this quarter.

    “The Corleone Family wants to buy me out? No, I buy you out.” - Moe Greene

    I’d say I trust Steve Jobs running my company a helluva lot more than some dumb bankers who needed mommy to come save them due to their stupidity. You ever heard the expression, “so easy, even a banker could make money off of it”?

    1. Who is suggesting a single investment bank buy Apple?  Not me.  I said it needed several players.  BTW, Facebook did do a deal with one player for a projected market value of 50 billion.

    2. Who distrusts Steve Jobs?  Not me.  What does trust have to do with it?  The fact that the company continues to be chronically undervalued has nothing to do with ‘trust’.  It appears to be a buyout candidate because it has huge, unlocked value ... or do you disagree with that?  What do you think the shareholders think about its current market value?

    3. I said that such a move would probably need to involve Jobs, get him on board.

    4. Its never been done before.  Well, if we are using Godfather quotes, how about Hyman Roth telling about his ambitious plan to take over the Cuban gambling business.  ‘Its never been done before.  Michael, we’re bigger than US Steel’.  Put it another way.  If the value of Apple were 250 bucks today, and there was even more shareholder discontent, could a buyout happen then?  At what point will shareholders move to other equities that reflect a better risk/reward?

    5. I said ‘Think Different’. It would take an impressive orchestration effort, and some dealmaking with some larger current shareholders (all kinds of tactics to use whereby that amount of cash would not have to be raised all at once. Think share conversion, warrants, etc.).  Use some imagination.

    6.  Riddle me this, Batman.  What would you speculate the answer might be to a shareholder offer of 500 bucks tomorrow at 10 in the morning?  I am assuming you will say ‘no’, that it is not good enough.  I think a lot of folks would say ‘yes’ to a 50% premium tomorrow than hope for a 75% premium a year or two from now.

    Do I think it will happen.  Doubtful.

         
  • Posted: 24 January 2011 08:09 AM #11

    The achievements of Apple are beyond traditional metrics. The behavior of management has produced super human results. The management has subdued their egos in pursuit of the here- to- for unattainable. And most observers are nervously waiting for the house of cards to come down with each new card added to the structure. These observers do not yet understand that at Apple, there is more to it than money. And management will not let those with money as their only goal reduce this fine construction.

    Pride goeth before the fall, and greed will hasten the descent.

         
  • Posted: 24 January 2011 01:26 PM #12

    Given Horace’s latest post http://www.asymco.com/2011/01/24/wall-streets-infinite-loop-the-tragic-tale-of-apples-valuation/ I commented on his site directly.  Thought I would re-post it here given its relevance.

    Horace - I’ve been following the conversation on the AFB and now on Asymco.com regarding AAPL as a potential takeover target.

    As you know, given my experience working within private equity, I can safely say without a shadow of a doubt that Apple could never be taken private in a PE transaction. The following link is a link to the largest PE deals ever done. You’ll note the dates for a number of these deals were in 2006/2007, which also happened to be the frothiest peak of the PE bubble - since then, the PE market has been pretty much moribund at the larger end of the spectrum and only just about coming back to life in the middle market: http://money.cnn.com/2007/02/16/magazines/fortune...

    Running through the numbers of a transaction involving AAPL, you have a mkt cap of $307bn minus the $59bn of cash on the balance sheet giving a resultant enterprise value of $248bn. Now estimating FY2011 EBITDA for the business at say $30bn (I’ve literally plucked this number from the thin air, you’ll no doubt have a better hold on the numbers than I do). That would give a forward EV/EBITDA multiple of 8.3x. So lets say for the sake of the argument that the deal is a 50:50 debt/equity deal. The combined consortium of PE investors would need to stump up $124bn in equity whilst borrowing a further $124bn in some combination of senior and mezzanine financing from the global investment banking industry.

    Dealing with the equity side, if you take Blackstone as an example of probably one of the largest PE funds on the planet, they currently have FuM of about $24.3bn, and not all of that will be dry powder. Lets assume that they can only allocate 25% of the fund to any one investment (most funds can allocate more so long as they get approval from their advisory boards), that leaves $6bn that Blackstone could theoretically allocate to this deal. To therefore get to the magic $124bn needed, you’d need approximately 20 funds the same size as Blackstone (which there aren’t in existence) to all want to invest in the deal…

    On the debt side, raising $124bn would again be impossible. Never has that much debt been syndicated from one single transaction before. And given the paralysis in the current leverage debt markets, trying to attempt anything like this would be totally impossible.

    It’s a fun exercise to think about, but practically speaking would be impossible.

    Keep up the good work on the blog - I especially enjoy these more financially orientated posts.

         
  • Posted: 24 January 2011 01:33 PM #13

    Note in my above post that I did not even include a bid premium to the takeout price for AAPL.  Add say a further 25% to the Enterprise Value and you get a staggering $310bn valuation…

         
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    Posted: 24 January 2011 01:41 PM #14

    Mike,

    Nobody bite.  You would need to raise the buyout price :evil:.  Only China government can buyout AAPL but even if SJ agrees, the health problem means it is not prudent to do so.  I’ll sell 20% to you at $500, and the other 80% for $1,000, deal?

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    Posted: 24 January 2011 06:21 PM #15

    Mace - 24 January 2011 05:41 PM

    Mike,

    Nobody bite.  You would need to raise the buyout price :evil:.  Only China government can buyout AAPL but even if SJ agrees, the health problem means it is not prudent to do so.  I’ll sell 20% to you at $500, and the other 80% for $1,000, deal?

    Bingo