Apple Inc Bonds Sale Aims to Reward Shareholders as Market Gives Company 'Cheap Money'
Apple Inc has issued $12 billion dollars in bonds in an effort to reward shareholders locked in a cheaper alternative than overseas cash subject to tax. The bonds sale includes $2.5 billion of 3.45 per cent, 10-year notes that pay 77 basis points more than Treasuries with similar maturity, according to Bloomberg. According to a reliable source and with knowledge of the bonds sale, the spread was less than 90 basis points than what was announced earlier in April 29.
Apple seeks to maintain its low tax bill in the United States by taking on more debt with the stock market capitalisation. According to reports, borrowing costs in the bond market are lower than any money to be returned to Apple's balance sheet considered to be overseas.
Apple Inc has said in its recent Q2 FY 2014 earnings call on April 23 that out of $151 billion worth of cash and marketable securities, 88 per cent of the amount is being held offshore.
Calvert Investments Fund Manager Matthew Duch said Apple does not want to pay the tax required to bring it back to the U.S. He was considering buying part of Apple's bonds offering. Duch said the market is giving Apple ''cheap money."
Apple Inc's strong growth and expansion overseas in the recent years has led to the accumulation of its "substantial offshore cash balances." Luca Maestri, who is set to become Apple's chief financial officer, said to bring foreign money back, the company will incur "significant tax consequences." Maestri believes this option will not serve the best interests of Apple's shareholders.
Deutche Bank and Goldman Sachs managed the bonds offering for Apple, according to a source who asked not to be identified. In Apple's regulatory finding, part of the proceeds will be used by the company for dividend payments. The company has previously announced it is slated to increase quarterly dividend by 8 per cent.
Along with the earnings call report, Apple's board of directors have declared a stock split, which means the company's shareholders will get on June 2 six additional shares for every share of stock they own. The board said the split adjusted trading will start on June 9. According to CEO Tim Cook, the stock split will make Apple's shares more accessible to small investors.