Apple would have to come up with enough money to buy it out of the stock market. This typically comes at a premium as well.
AAPL currently has a market valuation of 425 billion dollars. Therefore, one could postulate that Apple would need to come up with over 500 billion in raw cash in order to take it private (assuming AAPL's market cap falls tremendously as well).
Over the next 5 or 10 years, it is tough to tell. If Apple can continually bank 50 billion per year while having it's stock grown 0% YOY (close to where we are at today), than certainly.
Remember though, Apple is at a low cycle in it's P/E valuation. It has dipped into the 10/11 range before, but has always rebounded back into the low 14s. At this point in time, it seems unlikely, but anything is possible.
But as you no doubt know, if Apple continues to bank $50 billion a year for years, its stock won't stay in the $400s, it would rise quickly.
Basically, a company can't earn money to take itself private. The money has to come from outside. In this case, something on the order of half a trillion of outside cash. Basically nobody except governments have that kind of money. So it is not possible for a private equity fund or management to take Apple private. It is just too big.
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It doesn't work that way nor should it. Look, we all see the value in Apple stock and as a company. But as a publicly traded company, Apple is responsible for generating as much value for our stocks as they can. Sitting on all of that cash is not generating any additional value. And without all these analyst and fund managers there is no way in hell Apple would have achieved the value it currently has. You don't cut off your nose to spite your face. What Einhorn is doing is smart. Because now he is indirectly putting Apple in a place where they have to do something or at some point the shareholders will begin to revolt.
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And everyone seems focused on proposal #2 and that is not what the judge ruled on. Apple tried to bundle three different issues into one vote. This is the same crap Congress pulls with their pork filled bills. Einhorn simply sued to make sure all three issues were voted on separately rather instead of one bundled vote.
Just because 2 of three sound great shouldn't force shareholders to vote yes that includes a yes vote for something they may not want. The only way this lawsuit is silly is if the shareholders would have voted yes on all three issues anyway but that doesn't give the Apple BOD the right to take away the shareholder's voices or votes. Every one deserves a vote on each issue just not as a combined/bundled vote. It's only fair and there is a reason the rules are in place.
Proposal Number 2 was all three of those issues combined. It is a confusing coincidence that the second of the three issues was the controversial preferred stock restriction. But this lawsuit is just about Proposal 2 and nothing else. There is now an injunction against considering Proposal 2. Apple could appeal this, but the shareholder meeting is this week, so there is fairly little time and the ruling is probably unlikely to get overturned anyway. Apple is just going to drop this. They can unbundle these issues and put them to a shareholder vote next time easily enough.
Otherwise, I totally agree with what you are saying. I suspect there is a good chance that Apple raises its dividend or does an additional stock buy back. No chance they issue preferred shares though. No particular compelling reason to do that instead of just a bigger dividend. And certainly board would look stupid and pushed around if it did exactly what Einhorn suggested. But a dividend or stock buyback gets Einhorn into the same place he wants.
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A floor is not what Einhorn wants. He wants the value to go up.
Issuing preferred stock raises capital, so it doesn't. Let's say they issue one share of preferred stock at $50. Then they only pay you $0.50 out of that $50 every 3 months. The net cash is +$50 right off the bat.
No, preferred stock does NOT dilute shareholder value unless it's converted. That's the whole purpose of issuing preferred stock - to not dilute the common stock - while raising working capital.
Einhorn is not suggesting issuing preferred for cash. Apple has cash and getting more in any form stock issuance would just exacerbate the problem. Einhorn is suggesting each shareholder get issued a preferred share for "free". Then shareholder can sell that preferred share if it wants cash (presumably the pref shares would sell for something around $50 (more or less)) or it can hold on to the preferred share and receive 4% of $50 each year forever (or until Apple goes bankrupt or redeems the preferred shares). Net cash out for Apple is just the yearly dividend. No cash in.
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This brings up an interesting question about the best way for a company to reward its shareholders. If it pays a dividend then the shareholders will be taxed on it at their standard tax rate, which varies based on your income.
If it does a buyback of shares then the stock price may go up and the shareholders will have a larger unrealized gain (assuming they bought in low). In this situation there would be no taxable event until the shareholder sells his shares, which could be years from now (capital gain). The tax rate will depend on what the long term or short term rates are, which changes all the time with new presidents and congress. But I believe those rates are lower than the standard rate that would be taxed for dividend income.
A rule of finance is to always defer taxes, so I would think that a buyback/capital appreciation would be better than a larger dividend now.
Just my $0.02 but what Einhorn did is great for shareholder rights. You fanboys who are complaining about this shouldn't be playing in the stock market if you can't appreciate the core issue of the lawsuit.
Dividends are also taxed at a different rate than standard income. It was 15% last year and is now 20%. For most shareholders (who are by and large well to do folks) this is substantially lower than their income tax rate.
Share buy backs don't trigger any tax result unless you are one of the folks selling your shares. So yes it is often viewed as a better way to return cash.
But for actual long term shareholders, it just raises the value of the shares, which does very little for those of us who don't expect to sell for years if not decades. Those holders would prefer a cash dividend and just deal with the taxes.
