Apple Preps Bond Sale for Stock Buyback Initiative

[MacRumors]

Ahead of last week's earnings release, Apple announced that it would more than double its capital return program from $45 billion to $100 billion, with a 15 percent increase in dividend payments and a massive stock buyback initiative.

To facilitate the expanded capital return program, which will amount to a share repurchase of $60 billion, Apple must take on debt, a process that the company initiated today. According to Reuters, Apple has begun investor calls, led by both Deutsche Bank and Goldman Sachs, and it has filed the necessary SEC paperwork for a debt offering.

The only major tech company without a penny of debt on its books, Apple stunned the markets last week by announcing it could sell debt for the first time to help fund a $100 billion capital return program for shareholders.

Any bond offer from the makers of the iconic iPhone and iPad would be highly sought after by investors, and it is believed the company could raise funds at a cheaper rate than even Triple A rated Microsoft.

Apple has a long history with both Deutsche Bank and Goldman Sachs. According to Bloomberg, the former advised Apple on its takeover of Next Computer, while the latter has been advising Apple on a cash plan. It is unknown if one of the two banks will lead the upcoming bond offering.

Though Apple has a cash pile that exceeds $145 billion, only a portion of that is available in the United States, leaving the company unable to fully fund its stock buyback. Borrowing money will allow Apple to avoid the taxes that it would incur moving money from overseas.

Article Link: Apple Preps Bond Sale for Stock Buyback Initiative

 

[ct2k7]

As an Apple shareholder, I am intrigued and I'm not completely convinced by this.

 

[SmoMo]

"..more than double its capital return program from $55 billion to $100 billion.."

Hmmm..?

 

[Chupa Chupa]

As an Apple shareholder, I am intrigued and I'm not completely convinced by this.

Convinced of what? The buyback or the borrowing to pay for it?

At any rate this is a tip of the hat to mutual, hedge, and pension fund managers who want to see some $ if they are to keep positions in AAPL.

 

[GFLPraxis]

Ooh, I like this idea.

As crazy as it sounds, could Apple go private? If they sell corporate bonds at a set interest rate, and take all that money to buy their stock back, as well as the money in the bank...

Their market cap is 399 billion. They're halfway there if they sell 100 billion in corporate bonds.

 

[pancakedrawer]

Good move by Apple. The stocks are extremely low right now and with the Apple TV around the corner they'll be paying it back in no time.

 

[oneMadRssn]

"..more than double its capital return program from $55 billion to $100 billion.."

Hmmm..?

haha. Math fail.

 

[50548]

As an Apple shareholder, I am intrigued and I'm not completely convinced by this.

The moment you start taking on debt is the moment you lose your independence.

What makes this move even more moronic is the basic fact that Apple, of all companies, is the ONLY one with zero debt and zero need to borrow money.

Of course, the usual "investors" looking for a cheap buck will praise this move as the main enabler of fat dividends and artificially-higher stock prices.

Remember when SJ used to tell us how Apple had no debts whatsoever? Where is he when we need him?

Tim Cook = Michael Spindler Redux.

 

[Squilly]

Yeah, buying back its stock...
To give to chief executives.

 

[kk08053]

"..more than double its capital return program from $55 billion to $100 billion.."

Hmmm..?

They are probably referring to the total amount of stock to be repurchased, not the overall dollar value. With the price decline of the stock they see an even larger opportunity

 

[goobot]

I find it interesting that now when people mention apple they call them the makers of the iPhone and iPad rather than the makers of the iPod iPhone iPad, the iPod is arguably the thing that saved apple. I guess the iPod is just basically dead.

 

[camnchar]

Apple should just create an overseas bank and loan the money to itself.

 

[DesertEagle]

Apple should just create an overseas bank and loan the money to itself.

Overseas? As in Cayman Islands?

 

[LFMNX]

haha. Math fail.
Image

$45B to $100B - read fail

 

[jonnysods]

I'm not sure I fully understand this concept. Can anyone explain it in a few sentences? Thanks MR!

 

[mcalevy]

Absolutely brilliant.

Apple should just create an overseas bank and loan the money to itself.

Question you gotta ask, is where is apple holding this money overseas that they consider safe? The bank of cypress? All deposits in European banks are now considered a loan to the bank, not a deposit, and subject to becoming a defaulted loan if the bank fails.

I find this as evidence that apple is being blackmailed into sharing with the big boys. The fees paid for this bond offering is pure payoff.

$100 billion invested in gold for immediate delivery would destroy the world financial system. Same thing would happen if they withdrew the entire amount from whomever is holding that money for Apple into its Apple's own bank.

 

[Davvid]

thats how it goes when you lose a visionary and hire a bean counter.

 

[snowhite22]

The moment you start taking on debt is the moment you lose your independence.

What makes this move even more moronic is the basic fact that Apple, of all companies, is the ONLY one with zero debt and zero need to borrow money.

Of course, the usual "investors" looking for a cheap buck will praise this move as the main enabler of fat dividends and artificially-higher stock prices.

Remember when SJ used to tell us how Apple had no debts whatsoever? Where is he when we need him?

Tim Cook = Michael Spindler Redux.

You should consider taking over from TC...seriously.

 

[bazinga!!]

The moment you start taking on debt is the moment you lose your independence.

What makes this move even more moronic is the basic fact that Apple, of all companies, is the ONLY one with zero debt and zero need to borrow money.

Of course, the usual "investors" looking for a cheap buck will praise this move as the main enabler of fat dividends and artificially-higher stock prices.

Remember when SJ used to tell us how Apple had no debts whatsoever? Where is he when we need him?

Tim Cook = Michael Spindler Redux.

Try to read up on the finance subject. Apple will gain a massive tax reduction because of the intrests they are going to pay, and it will be much cheaper than moving all their cash back to the US.

 

[Peace]

So instead of bringing cash into the U.S. and paying tax on that cash Apple decides to take on debt instead.

Am I wrong in thinking the debt effects the bottom line ?
Apple would rather take on debt than bring some of it's cash back into the U.S.

 

[Mike Valmike]

I've simplified it quite a bit but it is not straightforward to bring overseas money home, particularly for a company like Apple that has so much of it.

Good post, but you reminded me of something with this part, and I wanted to emphasize that:

Let's say Apple has $40BN in China. I doubt they're holding so much in that particular place, but let's say, for the sake of argument. They also have expenses there, expansion, new factories to build (or rent/license/subcontract), new advertising to pay for, local payroll, and so on. Why would a company bring a ton of money OUT, paying a cost to do so, when they have to turn around and send a bunch of it BACK to where they had it, for use in operations?

Yes, I readily concede Apple has SO MUCH money stashed all over, that they are unlikely to have an empty wallet in any given country. Clearly because of the degree and volume involved, this analysis never really reaches any granularity. But it's just another example of why, if there's a cost to move something, you tend not to want to make that move until the result is going to be semi- or entirely-permanent. If you're waiting for your new house to be built and you've already moved out from your old house and you are temporarily living in a condo in the meanwhile, odds are you left some of your more cumbersome possessions in storage. No sense installing your home theater in the walls when two months of free-standing TV and no 7.1 surround amount to tolerable temporary inconvenience.

 

[Gasu E.]

So instead of bringing cash into the U.S. and paying tax on that cash Apple decides to take on debt instead.

Am I wrong in thinking the debt effects the bottom line ?
Apple would rather take on debt than bring some of it's cash back into the U.S.

Apple has a mountain of cash that is effectively useless right now. They would like to give it back to the shareholders, who will find a better use for it.

A large chunk of Apple's bondholders will be overseas. As Apple retires this overseas debt, the repayments can come out of the cash mountain.

 

[Peace]

Apple has a mountain of cash that is effectively useless right now. They would like to give it back to the shareholders, who will find a better use for it.

A large chunk of Apple's bondholders will be overseas. As Apple retires this overseas debt, the repayments can come out of the cash mountain.

So Apple won't be selling any of these bonds in the U.S. market.

 

[Gasu E.]

So Apple won't be selling any of these bonds in the U.S. market.

Who said that?

 

[neuropsychguy]

Let's say Apple has $40BN in China. I doubt they're holding so much in that particular place, but let's say, for the sake of argument. They also have expenses there, expansion, new factories to build (or rent/license/subcontract), new advertising to pay for, local payroll, and so on. Why would a company bring a ton of money OUT, paying a cost to do so, when they have to turn around and send a bunch of it BACK to where they had it, for use in operations?

Exactly, that's a great addition. Money overseas is not necessarily sitting idle, particularly for a company like Apple with a huge market overseas. Most of Apple's money will soon be coming from China (if it's not already), which means much of it will stay there, untaxed in the U.S. (and it definitely should not be taxed in the U.S.).

So if someone says overseas profits should come to the U.S. My first question is: "Why?" If it's so it can be used here, then fine but then how about we make it cost effective for Apple and the other hundreds of companies in similar situations to bring their money home so they will invest in projects here in the U.S. Otherwise, the money will sit overseas and create jobs there (which can be a good thing because it grows the business and markets and provides additional profits).