Apple borrows to fund dividend, share buyback
The 6-part debt offering will be led by Goldman Sachs and Deutsche Bank.
By Antoine Gara
Goldman Sachs (GS) and Deutsche Bank (DB) will lead Apple's (AAPL) six-part debt offering, as the iPhone maker braces to become the largest dividend payer in the world and dramatically increase its share buyback.
In the filing (see SEC), Apple states both Goldman and Deutsche Bank will lead the debt offering, which comes in six maturities starting in 2016 and ending in 2043.
The debt will help Apple return money to shareholders without incurring a tax hit for repatriating any of its over $100 billion in overseas cash.
While the filing doesn't state the size and price of each piece of the offering that Apple plans to sell to investors, Bloomberg News reports the three and five-year floating rate notes in the offering will yield 20 basis points and 40 basis points over three-month floating Libor, respectively, while five-year and 10-year fixed rate offerings will yield a spread about 55 basis points and between 90-to-95 basis points over the Treasury rate respectively.
Bloomberg also reports Apple's 30-year fixed rate offering will be priced at a spread of between 115-to-120 basis points over the Treasury rate.
In first-quarter earnings, Apple said it will increase its quarterly dividend by 15% and increase its share buyback authorization by $50 billion to $60 billion.
Earlier in April, David Einhorn of hedge fund Greenlight Capital applauded (TheStreet) the iPhone maker's decision to finance the dividend increase and boost to its share buyback authorization, after waging and then withdrawing a battle with the smartphone pioneer to pay out a perpetual preferred stock dividend.
"We applaud Apple's decision to borrow money and return excess capital to shareholders, an idea that was off the table only months ago," a Greenlight Capital spokesperson said on behalf of the fund on April 23. "This positive development represents a more shareholder friendly capital allocation policy and demonstrates the conviction of Apple's management and board in the Company's future."
Greenlight Capital titled its preferred stock proposal iPrefs, however, the hedge fund withdrew a shareholder lawsuit surrounding the payout earlier in 2013.
Apple said in its earnings report that it will increase its quarterly dividend to $3.05 a share as part of a plan to return $100 billion in cash to shareholders by the end of 2015. The company's dividend yield is about 3% based on Apple's current share price of about $404. Apple's annual dividend payments will be about $11 billion as a result of a 15% increase to its payout.
"Apple is among the largest dividend payers in the world, with annual payments of about $11 billion," the company said of its increased dividend payout. Apple previously said its bond offering, filed on Tuesday (see SEC filing), will be used to pay for the company's increased dividend and its $60 billion share repurchase authorization.
"In conjunction with the expanded return of capital program, the Company plans to borrow and expects to announce more details about this in the near future," Apple said on April 23. The company's annual dividend payments will be about $11 billion as a result of a 15% increase to its payout, topping Dow stalwarts such as ExxonMobil (XOM) and AT&T (T), according to a Tuesday analysis from Moody's.
In second-quarter earnings, the Cupertino, Calif., company reported second-quarter results that met analyst expectations, earning $10.09 per share on $43.6 billion in revenue. Apple sold 37.4 million iPhones in the quarter compared to 35.1 million in the year-ago quarter, while iPad sales rose 65% year-over-year to 19.5 million units per year. Analysts polled by Thomson Reuters forecast the tech giant to earn $10.01 per share on $42.31 billion in revenue. Analysts surveyed by Estimize were looking for earnings of $10.70 per share on $42.76 billion in sales.
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