Could Apple Use Its Cash To Go Private?

A blog about business and economics.
April 17 2013 4:45 PM

Could Apple Use Its Cash To Go Private?

A worker leans to clean glass panels of the Apple store in the Central Business District of Sydney on Arpil 8, 2013.

Photo by SAEED KHAN/AFP/Getty Images

My colleague Farhad Manjoo asked on Twitter if Apple could use its cash stockpile to take itself private. A bunch of smart tech bloggers are also talking about this on Branch. It's an interesting issue. The answer is almost certainly that it wouldn't work, not because the math doesn't work out but because no bank is big enough to underwrite an operation of that scale.

After today's share price decline Apple's market capitalization is $378.25 billion. Figure a very large aquisition premium of 50% and say you'd need a $567.38 billion loan to take the company private. Junk bond yields hit 5.5 percent this wake, meaning the company would need to generate $31 billion a year in nominal earnings to make the interest payments on the loan. Apple's Earnings Before Interest Taxes Depreciation and Amortization was $59 billion last year—more than enough to make the payments. So if Apple's managers are confident in the company's ability to maintain its 2012 level of earnings into the future they'd be way better off under a management buyout that took the company private than they are as employees of disgruntled shareholders.


The problem here is that in inflation-adjusted terms the largest leveraged buyout in history was KKR's $55.38 billion aquisition of RJR Nabisco back in 1989 (that was $31.1 billion 1989 dollars). Could Apple tap its ~$140 billion in cash reserves to cut down on its borrowing needs and make the scenario more realistic? It sure could. But the problem is that a $512 billion loan isn't really any more realistic than a $567.38 billion loan. It's just way too much money. They say some banks are too big to fail, but Apple is too big to buy.

Now that said, if Apple keeps earning profits and stacking up cash while investors keep getting pessimistic about the company's future outlook the gap does narrow. I'm told that in Japan, it's not uncommon for firms to have cash balance sheets that exceed their total market cap. But Japan has almost no leveraged buyout industry and Japanese law makes takeovers very difficult. This is America. The current trajectory Apple is on, in terms of both share price and management strategy, is toward some kind of eventual management buyout scenario. But we'd need to walk another several hundred billion dollars down this road before that became feasible.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


Sports Nut

Grandmaster Clash

One of the most amazing feats in chess history just happened, and no one noticed.

The Extraordinary Amicus Brief That Attempts to Explain the Wu-Tang Clan to the Supreme Court Justices

Amazon Is Officially a Gadget Company. Here Are Its Six New Devices.

The NFL Explains How It Sees “the Role of the Female”

Amazon Is Officially a Gadget Company

Sports Nut

How Much Should You Loathe NFL Commissioner Roger Goodell?

Here are the facts.


How to Order Chinese Food

First, stop thinking of it as “Chinese food.”

Scotland Is Inspiring Secessionists Across America

The Country Where Women Aren’t Allowed to Work Once They’re 36 Weeks’ Pregnant

The XX Factor
Sept. 18 2014 11:40 AM The Country Where Women Aren’t Allowed to Work Once They’re 36 Weeks’ Pregnant
Sept. 17 2014 5:10 PM The Most Awkward Scenario in Which a Man Can Hold a Door for a Woman
  News & Politics
The World
Sept. 18 2014 1:34 PM Americans Fault Obama for Giving Them Exactly the Anti-ISIS Strategy They Want
Business Insider
Sept. 17 2014 1:36 PM Nate Silver Versus Princeton Professor: Who Has the Right Models?
The Eye
Sept. 18 2014 12:47 PM How One of the Most Prolific Known Forgers in Modern History Faked Great Works of Art
  Double X
The XX Factor
Sept. 18 2014 12:03 PM The NFL Opines on “the Role of the Female”
  Slate Plus
Behind the Scenes
Sept. 18 2014 1:23 PM “It’s Not Everyday That You Can Beat the World Champion” An exclusive interview with chess grandmaster Fabiano Caruana.
Sept. 18 2014 1:41 PM Television for Adults The Good Wife is cynical, thrilling, and grown-up. It’s also TV’s best drama.
Future Tense
Sept. 18 2014 1:24 PM Can the Celebrities Whose Photos Were Stolen Really Sue Apple? It may be harder to prove “harm” than it seems.
  Health & Science
Bad Astronomy
Sept. 18 2014 7:30 AM Red and Green Ghosts Haunt the Stormy Night
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.