I agree, this floats somewhere between the highly speculative and the completely insane. But is there anyone out there who would, or even could, run the program to take Apple private through a leveraged buyout (LBO)? The thing is, I can see that almost all of the numbers stack up so that it would indeed be both possible and profitable. There's only one that's a fly in the ointment in fact.
And just to repeat, yes, I realise this verges on the ludicrous.
What's got me thinking about this is the talk of a leveraged takeout of Dell. And if that can be done I am not sure, except for one small point, why it wouldn't also be possible for Apple.
Record-low borrowing costs in the market for junk bonds, where LBOs are financed, is combining with rising confidence in the financial system to boost bets that a successful Dell deal will be followed by others.
So we've low bond interest to pay. That's good.
Private-equity funds have $360 billion of committed unspent capital dedicated to buyout funds in the global market, according to data from London-based research firm Preqin Ltd., providing plenty of firepower for more LBOs.
Of course, no one deal is going to get all of the globally available money. Not even a hefty fraction of it. But that's the capital available don't forget. That's what would get leveraged up by those junk bonds.
“It’s sort of all coming together now: declining uncertainty and banks are ready to fund, and the market is wide open, and interest rates are extremely low,”
So we're at a really good, good, time to launch an LBO of the right sort of firm.
There will be about $135 billion in LBO volume this year, compared with an average of $100 billion during the past two years, and below the $600 billion annual peak of 2006 and 2007, he said.
That's the total market size for the US and Apple would be at that or larger all on its own. Which is where I think our fly in the ointment is.
Any company with cash on its balance sheet, little debt, real estate, a known brand, and a sagging stock, will “be in the LBO conversation,” according to Robert Smalley, a credit strategist at UBS Securities LLC in New York.
Investors are “yield-starved, and banks are willing to lend, so that spells more higher-yielding transactions,” he said in a telephone interview. “The volume’s definitely been turned up.”
But isn't that a good description of Apple right now?
Best perhaps to say why I don't think such a deal is possible: or perhaps I should say very unlikely. Apple's just too big, too valuable. It would just be too large a portion of risk for anyone to want to actually take.
Other than that though all of the numbers do stack up as far as I can see.
After all, they're talking about taking Dell private at its current price earnings ratio (p/e) of 9. And that company has no net debt but very little net cash too. Apple's p/e is 10 but once you strip their net cash position (erm, $137 billion) out that falls to something just under 7. So the underlying Apple business would be cheaper than the underlying Dell one. And I'd wager that the Apple business is rather safer looking forward a few years on a cashflow basis: cashflow being what you're trying to predict with a debt financed takeover.
Apple's not got any large shareholder like Michael Dell to roll his stock into such an LBO, this is true. But that also means that there's no one with a blocking minority either.
I know, I know, it's all entirely ridiculous. Worstall's been smoking something strange in the back room. But the thing is, all of the numbers do indeed stack up. The cash pile, no blocking shareholder, the p/e ratio, the short to medium term outlook, they're all screaming that Apple could be subject to an LBO. The only thing that's wrong about the numbers is that there's just too many of them. Apple is, arguably, just too large for anyone to be able to pull it off.
Something of a pity really, no?
