Apple issues $6.5B bond to fund buyback, acquisitions
Apple is taking advantage of historically low interest rates with a $6.5 billion bond sale that will go toward corporate initiatives like stock buybacks, payment of dividends and acquisitions.
Announced in a filing with the U.S. Securities and Exchange Commission, the $6.5 billion bond is broken into four parts set to mature between 2028 and 2061.
Apple sold $2.3 billion of 1.4% bonds scheduled to mature in 2028, $1 billion of 1.7% bonds that will mature in 2031, $1.8 billion of 2.7% bonds that mature in 2051 and $1.4 billion of 2.85% bonds that mature in 2061. Interest on the 7-, 10-, 30- and 40-year notes will be paid semi-annually on Aug. 5 and Feb. 5 of each year beginning in February 2022.
The company expects proceeds from the sale to come to about $6.46 billion after deducting underwriting discounts and our offering expenses.
Apple in today's filing said funds raised will be used for "general corporate purposes" including stock repurchases and dividend payouts, funding for working capital, capital expenditures, acquisitions and repayment of debt.
Goldman Sachs, BofA Securities and Barclays are running the offering.
As noted by Barron's, Apple had $113.8 billion in long-term debt outstanding on June 30, counting $14 billion raised in a bond offering in February.
Read on AppleInsider
Announced in a filing with the U.S. Securities and Exchange Commission, the $6.5 billion bond is broken into four parts set to mature between 2028 and 2061.
Apple sold $2.3 billion of 1.4% bonds scheduled to mature in 2028, $1 billion of 1.7% bonds that will mature in 2031, $1.8 billion of 2.7% bonds that mature in 2051 and $1.4 billion of 2.85% bonds that mature in 2061. Interest on the 7-, 10-, 30- and 40-year notes will be paid semi-annually on Aug. 5 and Feb. 5 of each year beginning in February 2022.
The company expects proceeds from the sale to come to about $6.46 billion after deducting underwriting discounts and our offering expenses.
Apple in today's filing said funds raised will be used for "general corporate purposes" including stock repurchases and dividend payouts, funding for working capital, capital expenditures, acquisitions and repayment of debt.
Goldman Sachs, BofA Securities and Barclays are running the offering.
As noted by Barron's, Apple had $113.8 billion in long-term debt outstanding on June 30, counting $14 billion raised in a bond offering in February.
Read on AppleInsider
Comments
The other possibility is simply the cost of money being low, and it is VERY low. Apple gets to keep their cash/easily converted securities on hand while using the low interest rate/yield bond(debt) to continue to fund increasing operations. I'd liken it to this: you have a million dollars. You have a 500,000 dollar mortgage at 2% APR. Would you take half that million to pay off the debt (saving 2%) when the cash itself will equal a 3% return in savings?
https://www.cnbc.com/2021/01/27/apple-q1-cash-hoard-heres-how-much-apple-has-on-hand.html <--
Apple doesn't maintain all cash, fyi. I think gross cash on hand is about 80billion. The rest (a lot) is is in easily converted securities (probably T notes/bills/bonds or corporate bonds).
The other angle is that AAPL dividend payout is now about .6% at $145 a share. Which would be near the historic low as AAPL share price is near its historic high. So even now, with the shares Apple buys back, they save .6%, which goes toward paying the interest on the money used for buy backs. Apple do not have to pay out a dividend for the shares they buy back.
I remember a while back when Apple borrowed money with an interest rate that was a little less that the percent of the dividend payout (at the time). So for every share they bought back with borrowed money, they were making money by not having to pay the dividend on those shares. In the mean time, the cash they didn't have to use to buyback shares was still in an account collecting some interest. The interest collected might not even beat inflation, but its something. The cash would eventual be use to pay back the loan.
I did the same thing with a margin account backed mainly by my AAPL stock holding. I would borrow money from my margin account at about 8% interest to pay off in full any monthly credit card debt that would had been financed at 15% to 22% interest, instead of selling any stock. In the long run, the AAPL shares that I did not sell at the time to pay off CC debt, was worth way more that the total debt it would had paid off, the interest and the interest on the interest. Now this only works with stocks or a stock portfolio that in the long run, goes up by more than the interest.
When my friends look at my stock portfolio and inquire how did i know what stocks to buy, I always tell them, it's not a matter of knowing what stocks to buy, but knowing what stocks not to sell.
All of the antitrust activity is focused around their actual customer-facing services, like the App Store. It's not about some obscure startup that Apple acquired for their search algorithm.
Apple doesn't try to buy AMD, Marvell, Texas Instruments, Netflix, etc. They buy companies like PA Semi and Intrinsity and spend years incorporating that expertise in their own products.
Issuing a bond is a strong consideration because using someone else's money is pretty much cheaper than using your own -- at least with current interest rates.
With COVID-19 delta variant cases exploding, Apple likely realizes that the Fed will not be motivated to hike interest rates quickly. Anti-vaxxers are probably giving Apple (and other major corporations) an extra 3-4 years on corporate bond issuance because a slowed recovery will stifle interest increases.
It is unwise to predict Apple's based on the financial landscape twenty or thirty years ago. If you just look at Apple itself, it is a vastly different company than it was in the Nineties. If they hadn't adapted to the changing world, they certainly would not be a $2 trillion market cap company.
And it's not just Apple, the entire financial world has changed. We saw a blatant and stark demonstration of this last spring when the investment markets took a massive dive and various central banks worked together to thwart a depression. There's a new sheriff in town and the Fed isn't going let a repeat of 1929 happen. Some economists predicted a V-shaped recovery for the stock market and that's what actually happened due to an unprecedented central bank intervention worldwide.
With globalization and the emergence of large foreign markets like China, multinational corporations like Apple often generate large amounts of cash elsewhere. There were relatively few companies like that fifty years ago. Repatriating cash to the USA wasn't a major issue in the Sixties.
Apple has plenty of cash to acquire new companies but they are very choosy about what they acquire. A lot of other companies buy stuff willy nilly and many of those purchases are ill-conceived. Look at Verizon Media's stupid acquisition of AOL and it's subsequent boneheaded acquisition of Yahoo. They basically lost half of their investment, about $5 billion according to their 2018 writedown. Go ask the Verizon shareholders if they would have preferred to have received that $5 billion in dividends.
Apple doesn't make those kind of boneheaded acquisitions. Acquiring things for the sake of acquiring things is not a sane strategy albeit one that many companies pursue.
Let's remember that a publicly held company's primary responsibility is to increase shareholder value.
And it's clear that you don't understand the concept that cash can be used in multiple ways: a company can use some for dividends, some for share buybacks, some of capital investments, some for R&D, some for M&A. Just because Apple has a big pile of cash doesn't mean they need to spend ALL of it acquiring companies. In the same way, you don't need to spend everything in your checking account on videogames, lettuce, toilet paper, or socks.
If you look at Apple's debt history in the last decade, the debt load has been around $100-120BB. They haven't really increased debt load just added to it when earlier bonds have been paid off.
The scale still freaks me out a bit but I trust Apple knows what it is doing.
The other point is that Apple is reducing the share base. This is making each share more valuable in term of percentage of the company.
Yes, borrowing is exceptionally cheap right now. But to borrow and then just give it away?
Had they given it to those 7 million unemployed or about to be evicted it would have done some good. But they gave it to those who have little need for it.