Apple Issuing More Bonds to Fund Increased Buyback
You knew it was coming.
Even if the company didn't indicate it on its conference call, after Apple (NASDAQ: AAPL) announced a $30 billion increase in its buyback program and an eight percent increase in its dividend, there was no doubt the company would head back to the debt market.
The Financial Times reported Sunday that Apple would hold a $17 billion jumbo bond sale to fund its shareholder-friendly initiatives.
According to Luca Maestri, Apple’s incoming finance chief, the company would raise, “an amount of term debt financing similar to what we issued in 2013.”
Sure, Apple could pay the $41 billion out of its own pocket but that would dry up its $38 billion in domestic cash and force it to repatriate a portion of its $150 billion of overseas cash at a rate around 35 percent—far higher than what it would pay to borrow the money from the debt market.
Related: Apple Silenced Its Critics Wednesday
The debt sale will likely target the Eurozone where interest rates are lower than in the United States. According to Maestri, the currencies and breakdown of markets for the bond sale wouldn’t be decided until later this year.
Last year, Apple held a $17 billion bond sale--then the largest debt sale in history. Verizon’s $49 billion sale later in the year trumped Apple’s but if the $17 billion number reported by the FT proves to be low, the sale would become the second largest.
Why not use at least some of the company’s domestic cash? Apple made it clear that it expects some major M&A in its near future. Tim Cook said on the conference call that the company was “on the prowl” for more acquisitions.
Investors have wondered why Apple hasn’t bought up larger companies than the 24 companies that would be considered small relative to Apple’s size and cash position.
Apple silenced a lot of its critics when it announced an increase in its share buyback program, a dividend raise, a 7 for 1 stock split, and an $8 billion reduction in its total cash.
Analysts believe that a new debt sale would be wildly popular, despite the fact that investors who bought the paper in its last sale have lost money. Interest rates have risen sharply since that issuance.
Disclosure: At the time of this writing, Tim Parker was long Apple.
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