Taking Apple private

Matthew Yglesias has a couple of Slate articles about Apple:

My colleague Farhad Manjoo asked if Apple could use its cash stockpile to take itself private. A bunch of smart tech bloggers are also talking about this. 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 fifty percent and you'd need a $567.38 billion loan to take the company private. Junk bond yields hit 5.5 percent this week, 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.

I got a fair amount of negative reaction from Apple fans to my post yesterday about the irrationally high profit margins they're reaping on their Macs. This gets to be touchy emotional terrain for some people, so I want to be clear. I bought an iPhone the first week it was released. I own an iPhone 5 and an iPad 3 and a MacBook Air and a Thunderbolt Display and an Apple Wireless Keyboard and an Apple Wireless Trackpad. I'm not an Apple-basher and I don't want the company to "be like Dell" or "be like Samsung". But one of the oddities of the increasingly partisan tech commentary world is that somehow Apple's customers have become cheerleaders for high prices and giant profits. That's odd. As a fan of Apple products, I'd like them to be cheaper so I can buy more!
Running a company isn't like some kind of board game where the firm with the largest stockpile of cash wins. The idea of making a profit is to do something with it. Do what? I don't know. Earn returns for your shareholders. Pay yourself a lot. Upgrade your corporate jet. Invest it in world-changing products. Retain flexibility to make strategic aquisitions as needed. Ensure that the firm itself can survive hard times and live forever. I can't tell you or Tim Cook or anyone else what his goal in life ought to be.
But my point from yesterday was that Apple already has an awful lot of cash. Getting even more cash is not particularly useful for any goal at this point (diminishing marginal utility). So they ought to do something. One smart thing to do would be to make a strategic investment in Mac OS market share since, with its current rather small market share, Mac profits are not a particularly important part of overall Apple profits, but Mac could and should be an important part of Apple strategy. Right now Microsoft is very strong in the PC marketplace, but very weak on mobile. Google is strong on mobile, but very weak in PCs. Apple is strong on mobile, and sort of in-between on PCs. That Apple can ship desktops and laptops that sell in substantial numbers at high profit margins show that Apple has strong products in the PC game. But they're still a very small share of the overall market. By slashing margins to gain market share, Apple would become the onlly strong player to bridge the mobile/desktop divide and gain a useful strategic edge. How useful? I'm not sure. But it just has to be useful enough to clear the "more useful than even more money in the bank" bar which is pretty low at this point.

Rico says he just wants Apple to come out with a smaller, non-monitored CPU, like a half-size Mac Pro, that Rico can use with his existing monitor...