Satisfy Its Investors, Cash-Rich Apple Borrows Money,

¶ … Satisfy Its Investors, Cash-Rich Apple Borrows Money, authors Peter Lattman and Peter Eavis provide insights into why Apple senior management chose to initiate and complete a record-sized bond deal of $17B. One of the primary motivations for amount of bond debt taken on by Apple is to stabilizing their continually dropping stock price, a concern of public and private or institutional investors alike (Mackenzie, Rodrigues, 2013). Apple has said that this bond issue is part of a planned $100B payout to investors by 2015, which is a core part of their strategy to retain institutional investors as the largest percentage of their stock ownership (Seitz, 2013). The intent of this analysis is to provide an overview of the article To Satisfy Its Investors, Cash-Rich Apple Borrows Money followed by an analysis of the article and discussion of its relevance to financial management.

Article Summary

The article provides a synopsis of the series of long-range bond and debt financing strategies Apple is using to stabilize its stock price and ownership, the majority of whom are valued institutional investors. The article makes the point that Apple has committed to one of the largest dividend payouts in modern corporate American history, $100B, in addition to reducing its corporate tax bill. If Apple was to use its own financial reserves to fund the shareholder payout, 67% or two-thirds would be from foreign subsidiaries, which would lead to an exceptionally high tax charge for Apple in the fiscal periods the transfer was completed.

In addition to rewarding its shareholders with a significant payout over the next two years and reducing its tax liabilities by funding the payout in the U.S. (alleviating the transfer of funds from foreign subsidiaries), Apple has also ben able to broaden its base of financial support through a highly successful bond sale. Apple deliberately chose to create six different securities fro the bond offering, ranging from a 3-year note yielding .45% to a 30-year bond that is yielding 3.85%. Apple also chose to have the single largest bond offering of $5.5B be included in a 10-year bond yielding 2.4%. This investment instruments are particularly appealing to institutional and corporate investors, the majority of which have designed their portfolios to capitalize on continued low interest rates. Apple's planning of the bond sale is deliberately designed to attract the highest value and best capitalized institutional investors who are looking for bond returns higher than the U.S.> Treasury with the upside potential of a high performance business driving profitability. Designing the bond issue to align with specific requirements of high-end institutional investors was an excellent strategy, as it reduced the potential risk of Apple's less-than-perfect rating. Demand for the bond sale was estimated at $52B on the first trading day according the Goldman Sachs and Deutsche Bank. Institutional investors have been scouring the bond markets for any issue that shows the potential of a positive return. Apple wisely orchestrated this bond offering to provide a net positive return with little downside risk, distancing itself from the many other debt issues competing for institutional funding today. The net result was a highly successful debt offering that helped to propel the company closer towards its long-term strategic goals and objectives.

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