Apple raises a bunch more debt to fund its stock buyback program

Apple raises a bunch more debt to fund its stock buyback program

This week Apple managed to complete a bond sale of $12 billion. In short, Apple raised $12 billion in several tranches with maturity dates spread between three and 30 years. The yields on the bonds range between 1.07% and 4.43%. Some Apple followers are curious why they're doing this. In simple terms, Apple has committed to return some of its cash to shareholders and one tax efficient way to do this is buy back its own stock. Here's how it works:

  • Apple uses its cash to buy back Apple stock

  • The number of shares in existence drops (by however many Apple buys for cancellation)

  • The earnings per share of Apple's remaining share rises because the corporate profits are spread among fewer shares

  • The stock price rises because the corporation's value is now spread among fewer shares

  • The result is Apple has returned cash to shareholders in the form of capital gains

If you're interested in some of the specifics around the deal you can read all about it in the Wall Street Jounal.

So why are they raising cash in the debt market? Doesn't Apple have a ton of cash? Yes they do. In fact as of last quarter they held $150 billion in cash and marketable securities. But here's the thing … only $18.4 billion of this cash is classified as "domestic" (in the US). The rest is in offshore accounts, and would require a huge tax payment if Apple wanted to repatriate the cash.

To put the tax in perspective, eBay recently decided to bring home $9 billion of offshore cash. In order to do this, the tax bill was approximately $3 billion. Imagine if Apple wanted to repatriate all of its offshore cash. They'd pay over $40 billion to Uncle Sam.

Seems a bit hefty, eh? Hopefully in time Apple will succeed in pushing for tax reform. Until then, Apple prefers to issue domestic debt and use the cash raised from that debt issuance to buy back stock.

It's tax efficient.

Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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There are 4 comments. Add yours.

BBooDad says:

Good article overall. But I take exception to "Hopefully in time Apple will succeed in pushing for tax reform." Everyone wants good roads, healthcare, and student loans, etc. That ain't cheap, and I for one pay 30%+ of my hard-earned pay. Why should Apple be any different? They make money hand over fist from us (due to having the best mobile tech on the planet!) and ought to be paying tax on it, too, instead of hiding it in Ireland with an office that has ONE person in it only, and similar tax dodges.

Sean Peters1 says:

No kidding. My heart bleeds for the poor, poor Apple shareholders. The gall of the US government, wanting to actually collect taxes.

Richard Nieves says:

I agree. The tax loopholes aren't fair to those that work hard and pay Uncle Sam.

SteveW928 says:

Too bad they can't but ALL the stock back and get out of the public 'market.'