Apple last week announced that it would embark on a massive stock repurchasing plan whereby it will purchase US$60 billion worth of its own shares by the end of 2015. In a press release on the matter, Apple called it the “largest single share repurchase authorization in history.”
What’s more, the company also announced a 15% increase to its quarterly dividend, upping the payout from $2.65 to $3.05 per share.
Taken together, Apple’s capital return program is designed to return a total of $100 billion to shareholders.
That’s a lot of dough, but with upwards of $145 billion in the bank, there’s no denying that Apple has the cash to make that happen. There’s just one slight problem — the bulk of Apple’s cash is overseas and would be subject to a corporate income tax rate of 35% should Apple try and bring it back to the U.S.
That being the case, Apple has opted to keep its cash overseas and fund the bulk of its capital return program via the issuance of debt.
Now, just one week after making its initial announcement, Reuters is reporting that Apple has already begun taking steps to secure funding for its capital return program, including contacting both Goldman Sachs and Deutsche Bank and filing the requisite SEC paperwork.
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.
That Apple would turn to the debt market to help fund its $100 billion expenditure isn’t all that surprising. Apple has long lobbied for a tax holiday wherein it would be able to repatriate its cash hoard to the United States at a much lower tax rate.
Besides, if Apple can issue debt on favorable terms, why not take advantage of it?
Apple’s decision to tap the debt market comes at a time when borrowing is cheap. The Federal Reserve is holding interest rates near record lows and the average yield on investment grade U.S. corporate debt is around 2.6%, according to RBS credit strategist Edward Marrinan, who said companies with a AA-rating like Apple’s can borrow at a rate of less than 2%.
As for Apple’s increased dividend, the company will next issue a dividend payout on May 16.
Apple already taking steps to prepare for its upcoming debt sale originally appeared on TUAW – The Unofficial Apple Weblog on Tue, 30 Apr 2013 12:00:00 EST. Please see our terms for use of feeds.