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Does Apple's Tim Cook have a lucrative exit strategy?

Rob Enderle | April 29, 2013
Apple profit fell in the quarter that ended March 30. CEO Tim Cook also announced that the company plans to give shareholders $100 billion of Apple's massive reserves.

In the near term, though, the buyback will reduce the number of shares in the market. In addition, offering a huge dividend will entice more people to buy Apple stock. By the law of supply and demand, which a logistics guy like Cook knows backwards and forwards, the end result, regardless of Apple's performance, should be a massive stock price increase. And Tim Cook holds a lot of stock.

If Cook times his departure right, the market will bid Apple's stock even more as he leaves-and, when it's time for him to sell those shares, Apple stock will peak. His forced sale will be tied to his firing, and any related price decline due to his sale will likely be minimal. Then his successor as CEO will take over a company with massive debt, vastly smaller cash reserves and an institutionalized huge dividend that consumes most of Apple's profits. In effect, the firm will be in a nose dive but lack the resources to effectively pull out. Cook will look pretty darn good against what happens after he leaves.

This May Not Quite Work to Plan

While it was expected that Apple shares would increase on the news of this massive stock buyback and dividend, investors actually sold off shares and Apple stock declined instead. It's been all over the map since.

This suggests that the plan is not without risk. Investors may have figured out that the vast majority of what was announced will make Apple less competitive, potentially hastening the firm's downward spiral. If so, Cook's plan could backfire. Rather than increase stock value, it could cause a decline-and, in the process, tie Cook to the company's problems and speed up his departure.

This may serve as a good showcase of three things: Executive compensation can lead to unfortunate executive behavior, Jobs' efforts to assure his job may have posthumously damaged his company, and whoever takes over from Cook is still royally screwed. Actually, there's a fourth thing: Plans that assume investors are idiots don't always work.

 

 

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