Apple Could Go Sour if Jobs Has to Step Down

Jan. 3.07 | About: Apple Inc. (AAPL)

A symbol is a symbol, and don’t give us any nonsense about options backdating. That was the message delivered by investors last Friday, after Apple Computer Inc. (NASDAQ:AAPL) disclosed how the magician Steve Jobs had backdated the options of several of his executives. Apple ended the session up 5%, and next week, at the company’s showcase event in San Francisco, Macworld Conference & Expo 2007, Jobs will take the podium at the Moscone Center, and produce a new surprise from the pocket of his jeans to tumultuous applause.

Jobs will celebrate in San Francisco, while Comverse Technology (NASDAQ:CMVT) founder Kobi Alexander will continue to lie low in Namibia. This is something that I have also seen in sport, especially American basketball. Over the years, there have been cases of American basketball players/symbols who were addicted to gambling and drugs and were even suspected of rape, but no one managed to strip them of their icon status.

Putting aside new reports about what else Kobi Alexander may or may not have done aside from the options backdating, with regard to that particular issue he and Jobs are suspected of almost the same thing. The difference is that Alexander wasted no time in exercising his options while Jobs prevaricated. Essentially, both men are suspected of trawling previous years for convenient dates on which to set the options prices. To be more precise, Jobs, as CEO, was aware of what was going on, although he didn’t engage in it himself.

Apple’s official announcement states that Jobs himself did not benefit from backdating, while there will be those who will say that Alexander did make a lot of money out of it. But anyone who takes a good look at what happened at Apple, based on the company’s report to the U.S. Securities and Exchange Commission [SEC] last Friday, will learn that Jobs got nothing out of it simply because the stock price took a tumble. It did not take long for him to realize that the options were still worth nothing, despite the backdating. They were eventually converted into restricted shares. Apple also admitted that the options approval was not even on the agenda of the board meeting on the date recorded in its books.

Apple stock has, I feel, become extremely risky in light of these incidents, which will be the subject of further in-depth inquiries by the SEC and perhaps other authorities too. Pixar, the company that Jobs founded and managed, and which was later sold to Walt Disney Co. (NYSE:DIS), is also investigating the options allocation mechanism employed before it went private. Investors may now be feeling more reassured, but the same cannot be said of Jobs, whose spokesman just announced that he has hired a lawyer. I do not know of many companies like Apple whose success is totally identified with their CEO. If Jobs is forced to step down, the stock is likely to fall significantly.

Apple 1-year chart:

Published originally by Globes [online], Israel business news -
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007. Republished on Seeking Alpha with full permission.