Apple gears up for yet another bond sale to buy back stock, fund acquisitions

AppleInsider

Apple's massive share buybacks continue, as the company notified the U.S. Securities and Exchange Commission on Tuesday that it is planning up to a 10-part bond to further finance its capital return program, in addition to funding corporate acquisitions.

As of the end of last quarter, Apple had completed over $153 billion of its $200 billion program, including $110 billion in share repurchases. During its quarterly earnings report, the company promised to be "very active" in U.S. and international debt markets this year, and began to deliver on that promise with Tuesday's filing.

The joint book running managers for Apple's latest bond sale are Goldman Sachs, Bank of America Merrill Lynch, Deutsche Bank Securities, and J.P. Morgan. The filing reveals Apple is planning to sell up to a 10-part bond, but the amount of funds was not disclosed.

But a source familiar with Apple's plans indicated to Bloomberg that the sale will be a multi-billion-dollar offering, with some bonds maturing in 30 years. In addition to share buybacks, the money will also be used to fund acquisitions and other "general corporate purposes."

Apple's 30-year bond is expected to issue seven-year green bonds to back environmentally focused initiatives, such as clean energy.

Apple's most recent bond offering came last September when it issued a euro-denominated sale worth more than $2.25 billion U.S. The company also had bond sales last year denominated in Japanese yen, Swiss francs, British pounds, and Australian dollars.

aaarrrgggh

sog35 said:

Seems like the only party making money from buybacks/selling bonds is...

Short term, maybe.  The way I look at it, Apple has taken $150B off of its market cap to make itself more viable as an investment.  They can maintain some minimal level of growth by buying back shares, and don't have to contend with being the biggest... eventually. 

We won't really know it it works for another 5-10 years.  I think it actually worked for Microsoft in 2000 with their special dividend from a business health perspective.

schlack

I understand there are some near term drivers, such as keeping money oversees and taking advantage of current interest rates...but I wonder what some of the long term less obvious drivers are for Apple issuing bonds when they are sitting on so much cash. I have a few thoughts... 1. getting more income focused, conservative investors, invested in Apple's future (for 30 yrs!) to keep interests of banks aligned with Apple's continued success. 2. governments will buy bonds, perhaps this will soften government hurdles/regulations against Apple when they try to operate and expand oversees. 3. keeps them supremely liquid and cash rich...although to what end I'm unsure...but they can spend out this cash over 30 yrs on their bond paybacks...

emoeller

Apple's financing is actually quite creative:

http://www.businessinsider.com/apples-plan-buy-back-plan-is-saving-despite-debt-2015-12?amp

The markets are  currently irrational with respect to APPL shares, so in my view it is a buying opportunity (PE below 10, excellent cash position, and record sales and earnings).   The fear is that Apple has lost momentum (that being defined as a high growth line going forever, at least in analysts minds).  Nothing goes up in a straight line forever, but Apple has many segments of its business that will accelerate as the number of devices has exceeded 1 billion.  Apple also has the opportunity to "crack" a number of very large markets (IoT and financial being only first two that come to mind) going forward.

nostrathomas

aaarrrgggh said:

sog35 said:

Seems like the only party making money from buybacks/selling bonds is...

Short term, maybe.  The way I look at it, Apple has taken $150B off of its market cap to make itself more viable as an investment.  They can maintain some minimal level of growth by buying back shares, and don't have to contend with being the biggest... eventually. 

We won't really know it it works for another 5-10 years.  I think it actually worked for Microsoft in 2000 with their special dividend from a business health perspective.

Interesting comparison. MSFT had that "lost decade" where the share price didn't move. From what I understand, Balmer doubled the earnings during that decade. (My info might be off a bit.) And of course we've seen the share price rise significantly lately. I could see the same thing happening to AAPL, although on a sped up timeline. 3-5 years, instead of 5-10. 

quanster

nostrathomas said:

aaarrrgggh said:

Short term, maybe.  The way I look at it, Apple has taken $150B off of its market cap to make itself more viable as an investment.  They can maintain some minimal level of growth by buying back shares, and don't have to contend with being the biggest... eventually. 

We won't really know it it works for another 5-10 years.  I think it actually worked for Microsoft in 2000 with their special dividend from a business health perspective.

Interesting comparison. MSFT had that "lost decade" where the share price didn't move. From what I understand, Balmer doubled the earnings during that decade. (My info might be off a bit.) And of course we've seen the share price rise significantly lately. I could see the same thing happening to AAPL, although on a sped up timeline. 3-5 years, instead of 5-10. 

The reason their stock price didn't move even though their earning doubled is because their stock price was astronomical.  It was price for much higher growth than just double.  Now that earning finally catches up with the price yielding a more reasonable pe ratio, you see the price moving again.  Apple is in a much different boat.  They are priced for negative growth.

spamsandwich

It'll be interesting to see how large companies like Apple respond to negative interest rates once they hit the US (as is currently being discussed at low levels by the Federal Reserve).

plovell

sog35 said:

I have no idea how to feel about the buyback/bonds.

Well, here are a couple of suggestions. Much of Apple's cash is overseas because that's where the majority of its business is these days. Bringing it back to the U.S. has a huge tax cost (let's not discuss here the pros and cons of that) but the bond issue means that can accomplish a similar end without paying the tax now. And Apple has to stop growing the cash pile or else it will become the target for some buyout consortium. That's a way off still - between five and ten years at current rates. The return to shareholders needs to rise - returning more of the profit rather than adding to the already-large pile. Increasing the dividend is one way to do that, and that also increases the share price (confidence, etc). Buying back shares means that fewer are in circulation and that indirectly increases the price.

bradipao

schlack said:

I understand there are some near term drivers, such as keeping money oversees and taking advantage of current interest rates...but I wonder what some of the long term less obvious drivers are for Apple issuing bonds when they are sitting on so much cash. I have a few thoughts... 1. getting more income focused, conservative investors, invested in Apple's future (for 30 yrs!) to keep interests of banks aligned with Apple's continued success. 2. governments will buy bonds, perhaps this will soften government hurdles/regulations against Apple when they try to operate and expand oversees. 3. keeps them supremely liquid and cash rich...although to what end I'm unsure...but they can spend out this cash over 30 yrs on their bond paybacks...

In my opionion the obvious reason is that repatriating money would cost a lot, at least an order of magnitude more than interest rates on bonds. So, for what concerns making debts I agree with Apple. But i strongly disagree on buybacks performed during overall stock market sinking and especially during AAPL bad momentum.

anantksundaram

SpamSandwich said:

It'll be interesting to see how large companies like Apple respond to negative interest rates once they hit the US (as is currently being discussed at low levels by the Federal Reserve).

Hmm... weren't you predicting the collapse of the world when the Fed raised rates?

If negative interest rates hit the US -- not a chance that it will -- yawn.

apple ][

anantksundaram said:

If negative interest rates hit the US -- not a chance that it will -- yawn.

The ridiculous country of Sweden has implemented negative interest rates now. Who knows what would happen if a socialist like Bernie were to win.

To be honest, if that were to happen, I think that I'm done with the market, and will just withdraw all of my money, including selling whatever AAPL I have, and keep the cash on the sidelines for 4-8 years.

edited February 2016

crowley

Japan also has negative interest rates and is not socialist.  Monetary policy is typically a tool of conservative governments.

Sweden is not ridiculous because you disagree with its politics.  It's a very well-functioning modern country.

apple ][

crowley said:

Sweden is not ridiculous because you disagree with its politics.  It's a very well-functioning modern country.

I do not agree. Sweden is not well functioning, it's in total chaos at the moment. I also think that in a decade or two, it will no longer meet the definition or fulfill the criteria needed to be called modern, as it's going in the opposite direction.