With all of this talk about companies going private these days, some have questioned whether Apple Inc. (NASDAQ:AAPL) can or should do the same. Of course the company has little in common with the struggling companies which are choosing to go private and fix their problems behind closed doors. However, Carl Icahn’s recent push for a greater share buyback plan is prompting discussion about Apple going private.
How Apple might go private—the best-case scenario
Seeking Alpha contributor Jacob Steinberg thinks the best-case scenario would actually be for Apple Inc. (NASDAQ:AAPL) to actually buy itself out and go private. He said if the company keeps launching “great products” and “adds a couple revolutionary products,” then its operating cash flow will keep growing annually by about 15 percent. Last year the company’s operating cash flow was $50 billion, which would make it $57.5 billion in 2014, $66.3 billion in 2015, and so on.
By 2020, Apple would generate approximately $680 billion in operating cash flow between now and the year 2020. It already has $150 billion in cash, so by 2020, the company would have more than enough cash on hand to take itself private.
Apple’s most likely scenario
Steinberg notes that going private would still be possible for Apple Inc. (NASDAQ:AAPL) even if the picture doesn’t turn out to be as rosy as his best-case scenario. He said although the company will probably still have more than enough cash flow to buy itself out, it may slow down significantly and instead only see its operating cash flow grow by about 5 percent annually, which is just a touch above the inflation rate.
He said because of the 90 percent retention rate the company enjoys among its customers, it makes sense that its cash flow will grow more quickly than inflation even if the volume doesn’t increase very much. This will keep Apple’s earnings at flat to modest growth over the next several years. Nonetheless, it will still have enough cash to go private.
Apple may need a loan to go private
And of course if Apple Inc. (NASDAQ:AAPL) doesn’t grow its cash flow between now and 2020 and is able to generate $50 billion in operating income, which would add $400 billion to its cash reserve, the company could still go private with a small loan. This is actually where Icahn is pushing right now.
The activist investor met with Apple CEO Tim Cook this week to discuss a $150 billion share buyback plan. They didn’t come to any sort of agreement, but Icahn has said recently that Apple should take out a loan to do this massive buyback because interest rates are so low.
How likely is Apple to go private?
Steinberg runs through a number of complications as well which could change the calculations a bit, but he notes that in pretty much any scenario, Apple Inc. (NASDAQ:AAPL) would be able to go private if it chose to do so. But of course being able to go private and choosing to go private are two entirely different things.