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American Capital Agency Corp. Message Board

  • yourbestfriendintheworld yourbestfriendintheworld Apr 30, 2013 3:39 PM Flag

    What the F is AAPL doing?

    Apple has a reported $145 billion in cash, perhaps a third of it in the U.S., so they're...borrowing $17 billion?

    The claim is that they're going to eventually borrow $60 billion so they can pay some $100 billion to investors. Unclear is how it will be paid. Dividends? Buybacks?

    This is totally screwy. No reason for it. They're going to end up with $100 billion in cash and $60 billion in debt.

    Only thing I can think of is it's a tax dodge. Issue debt to get American cash to pay as dividends instead of repatriating cash that will surely get taxed immediately. Then what? Use the foreign cash to buy substantially identical debt overseas? Then you only pay tax on interest earned on the foreign debt that you repatriate to pay interest on your domestic debt?

    If that's what they're up to, the law needs to be changed to directly tax their foreign profits regardless of repatriation.

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    • YBF ,
      They are borrowing $17 incredibly close to the same rate as the US treasury.
      The corp bond brokers in my shop cannot believe how tight the spread to treasuries are on them. AAPL bonds will be considered a core holding in many bond portfolios.
      They are buying the name( like owning the iphone) not the credit.
      MSFT is Aaa/AAA and their bond offering last week was not as well recieved, meaning the yields are slightly higher on MSFT with a higher credit rating.
      AAPL is stealing the money.


    • Companies like AAPL that make it big do it on the backs of people who would not normally get along in the large company corporate culture. But when they created the company that culture didn't exist so it didn't matter. Large companies tend to groom "yes men" and these are not the kinds of people you can expect to innovate. In fact they do just the opposite which is get in the way of innovation because they want to follow the old recipe of how they did things in the past instead of forge new ways of doing things. You can expect them to make minor changes but you cannot expect them to do things that are disruptive because to do that they would have to fight everyone around them and they would never have gotten to a position of influence in a large company culture if that was their personality in the first place.

      This is why you don’t have very many 100 year old companies. GE is an exception. Who would have imagined that GE would have become one of the largest makers of wind turbine generators? Most companies develop into large companies with large company cultures that lose their ability to make disruptive innovations and as a result they slowly die off eventually as younger companies take away their market share. These large companies even realize this. They will even send their employees to special training classes on how not to end up like this but to no avail. The fact is that innovators tend to shy away from large companies.

      Steve Jobs was the innovator at AAPL. And unless he specifically hired people to take his place from the kind of people that normally would not be attracted to a large company then I suspect that AAPL will go the route of most large companies, eventually. But who knows. Maybe they will surprise us all. But it looks to me like they are trying to jack up their stock price by means that are not based on product innovation lately and I’m not sure this is a good sign long term.

    • Apple & others are waiting for a one-up-manship repatriation tax holiday from Obama, so he can look better than Bush in 2004-2005!

    • Stupid question, but is "cash" actually cash, or is it (collateralizable) investments yielding quite a bit more than the small ding from the borrowed interest?

      • 1 Reply to p9ing
      • yourbestfriendintheworld yourbestfriendintheworld Apr 30, 2013 5:21 PM Flag

        They're not dumb enough to keep it all in cash. $12B cash, $27B short-term investments, $105B long-term investments.

        The long-term designation means Apple may actually be reluctant to sell. Or they may merely be saying the cash is banked overseas and they can't just do anything they want with it, whereas they can use the cash here or send it abroad at will.

        The apparent restriction on the $105B, and their intent to distribute a lot more than the $42B they have their hands on here, suggests that maybe they're trying to avoid being squeezed by some mechanism (not just whining shareholders), and the bond issue is their way of getting out of the vise. But that would imply that someone who doesn't have a hundred billion to throw around has a way of forcing someone with a hundred billion to do something they don't want to do. And the only people I can think of who sound like that are the American and Chinese governments.

        Either that, or the $105B is a lie.

    • See if you can get the law changed.....until then many companies will utilize this ploy to support share value.

    • It's cause they can get a cheap rate and they don't want to be caught without any cash in the U.S.

      Their money overseas makes money as well
      It wouldn't surprise me if they make as much or more as they will pay on the bonds.

      Unclear is how it will be paid. Dividends? Buybacks?
      They raised their dividend and announced a buy back.

    • Over half their money is over seas and they will be double taxed if they; bring it back. This also gives them "flexibility" - analysts term, not mine - to buy companies, weather down turns, etc. Microsoft did the exact same thing several years ago.

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