When Apple & Facebook Plotted Finance’s Downfall

Apple was unhappy. Despite giving the world a slew of droolable products and doing its bit to improve quality of human life, there seemed to a growing chorus of voices against the technology industry. Stung by what it thought were unfair allegations, Apple came to believe that this wave of vilification was perpetrated by the Finance industry.

After years of being castigated publicly, Finance had fallen in the eyes of the world. Apple thought that in a bid to redeem its deteriorating image, Finance was inappropriately employing tools of new-age technology – its own products, Facebook, Twitter – to spread the Word. Something had to be done before matters got out of hand.

Apple had nearly $100 billion in cash in its bank. On desultory evening walks, it frequently scratched its half-bitten head for avenues to put this money to work. During one such errand, Apple bumped into Facebook. After hastily exchanging pleasantries, an evidently excited Facebook filled Apple in on its upcoming share offering. Would Apple be interested?

A plan took shape in Apple‘s smart head. It seemed the perfect idea. So designed that all parties involved would walk away with a smile. And, Finance would be dealt a striking blow. As Finance was using Technology to spread its word, Apple decided to employ complex Finance to exact revenge. It felt that the best strike against Finance would be to employ speculation for immediate gains, at the expense of folks who took the opposite side in the proposition. Finance would then be blamed.

Apple suggested that it would be interested in taking Facebook‘s entire share issue on offer. Facebook gloated but it didn’t appear to express much gratitude.

Facebook was looking to raise $10 billion. Apple would spend $10 billion acquiring this stake, a fraction of its $100 billion cash hoard. Things seemed simple so far. But motivated by considerations of vengeance, it decided to unleash complex instruments of Finance. Apple thought of Exchangeable Bonds*.

* Exchangeable Bonds are debt instruments that pay a coupon/interest, and give bondholders the option of converting the bonds into shares of a company nominated by the issuer. Apple, in this case, would be the issuer.

Apple would then make an offering of Exchangeable Bonds for $14 billion. Further, it would offer holders the right to convert their Exchangeable Bond into shares of the hot Facebook. Facebook‘s happiness grew some more on hearing this. Apple investing in Facebook would further fuel euphoria. Besotted by the prospect of its IPO, Facebook did not pause to appreciate Apple’s ingenuity in this innocuous offer. For the Exchangeable bondholders, this would be an indirect way of getting their hands on Facebook‘s shares, which would otherwise be difficult to obtain given the euphoria. Moreover, Apple would pay them (interest payment) to have the right of owning Facebook shares!

Apple felt this would be a coup. Scores of eager beavers wanted a piece of Facebook‘s IPO. Euphoria was so high that no price was deemed too high for Facebook’s shares. The shares would sky-rocket, when they began trading. As shares soared, Apple would let its exchangeable bondholders have their Facebook shares. Meanwhile, it would have discovered a way of making $4 billion without investing a dime ($10 billion spent on Facebook, offset by $14 billion received from its Exchangeable Bond). The money made could be fuelled to creating new products that would sell on (more) euphoria.

To execute these transactions, they would engage every known investment banking company on the planet. Always warm to the prospect of making doubloons, no investment bank would spurn their proposal.

Apple would be happy. Facebook would be happier, and Apple’s shareholders would be the happiest. An alluring prospect, indeed.

The strategy played out as planned. To a point.

…then everything began going awry.

The numerous Likers on Facebook grew tired and spent less and less time on it. Its shares tanked.

Apple’s ingenious transaction was predicated on Facebook‘s shares rising in value. When the share price fell, Apple was in a hole. Its $10 billion investment in Facebook‘s shares went underwater; and it had to pay interest on its Exchangeable Bond plus the $14 billion principal when it fell due.

Apple had orchestrated a euphoric strike on Finance but was promptly consumed by it. As revenge overcame reason, Apple failed to consider the consequences if things went wrong. Finance provided a means of laying off this risk, but in an atmosphere of euphoria, prudence died a quiet death.

The world, once again, pilloried Finance as the Great Evil. Anti-Finance voices added adherents and decibels. The same voices chorused against Facebook and Apple. The latter were blamed for fanning hype and euphoria, leading to widespread distress.

In the Great Battle of Technology and Finance, there was no winner.

Meanwhile, the central protagonists in the drama of euphoria, who were now railing against the above ills, never paused to point a finger at themselves.


10 thoughts on “When Apple & Facebook Plotted Finance’s Downfall

  1. I wonder why I was immediately reminded of this:

    “Little Birds are sleeping
    All among the pins,
    Where the loser wins:
    Where, I say, he sneezes
    When and how he pleases…
    So the Tale begins.

    (“The Pig’s Tale” by Lewis Carroll)

    Also, rather than buying convertible bonds (does that mean when it rains, the top folds into the trunk?) I’d better instead get my butt outside and fill my garden with ‘futures’ that are edible. 😉

    1. ‘Little Birds are tasting
      Gratitude and gold,
      Pale with sudden cold:
      Pale, I say, and wrinkled-
      When the bells have tinkled,
      And the Tale is Told.’

      …From the same gem. Quite apt! Thank you for sharing this.

      This convertible is such that when it rains, the top gets blown away!

      ‘Soy, quite an amaizeing bet on the ‘future’ there, Sire!’


      1. The top gets blown away!? You mean things are not always what they seem? As in…

        He thought he saw a Banker’s Clerk
        Descending from the bus:

        [Leading to…]

        ‘A fact so dread,’ he faintly said,
        ‘Extinguishes all hope!’

        The Mad Gardner’s Song

        (Soy? Actually I was thinking potatoes, and maybe a pig or two…but only to unearth truffles, of course.)


    2. Some of these things have a way of blowing up at the worst possible time. Quite amusing for an onlooker (but ugly for the parties involved).

      Rearing podgy potatoes and pigs is a potently powerful policy (uh, got carried away with that alliteration). 🙂

  2. dont know much about finance world but loved the post. 🙂
    my brother loves to give apple good thrashing once in a while, on their technical ground though. i draw a blank on that field too, i have never used an apple gadget till date.

      1. my email ids (or will i be precise if i say wordpress) are acting crazy, so please guess that i made the comment when you read my comments. i will either use sharmishtha/sharmishtha basu/trisha/trisha basu as name, the blog will be any one of my seven wordpress blogs and the email id the first name i could imagine.

      2. i am trying the “log in” mode at present, its bothering to no end, getting disconnected again and again, but i will try it till my patience runs out.

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