At Apple's last earnings call earlier this April, the company announced that it would be massively expanding a program to buy back stock, authorizing an additional $50 billion for a total of $60 billion in its buyback program. Despite near-continuous record-breaking growth, Apple's stock has suffered in recent months, with shareholders unhappy about what they see as declining momentum and insufficient dividends. In September, Apple was trading at around $700; early this year, it dipped below $500 and has stayed there ever since.
By buying up shares, though, Apple can help raise the overall stock price by making the remaining ones more valuable. Counterintuitively, though, the company isn't funding that buyback with its massive pile of cash — it's indicated that it will take on debt instead. The Wall Street Journal reports that although the final amount hasn't been decided on, Apple is planning to issue over $10 billion in bonds as early as Tuesday, while Bloomberg says that number could be closer to $17 billion.
$AAPL borrowing is clever. If they reduce sharecount by, say, 10%, and pay a 3% dividend, even 4% borrowing costs would return 9%.— Cory Johnson (@CoryTV) April 24, 2013
The deal could potentially be one of the largest-ever bond offerings of its type, but it pales in comparison to Apple's cash balance, which was $145 billion as of earlier this month. So why is Apple using debt instead of its existing reserves? One big reason is that as of last year, nearly 70 percent of that reserve was overseas. As long as the funds remain overseas, Apple doesn't need to pay US taxes on them, but bringing money back to the country would require it to pay out an estimated 35 percent. For Apple, offering a return on its bonds — and continuing to avoid US taxes — has emerged as the cheaper option.
Update: Bloomberg now reports that the sale has gone through as it expected: Apple has raised $17 billion in a record corporate bond sale.