TOYMAKER FOR THE WELL HEELED Apple will avoid $9.2bn in taxes by financing part of a stock buyback with a $17bn bond issue.
Apple's plan to reward frustrated investors includes a $55bn stock buyback programme that will be partly financed by a $17bn corporate bond offering. According to Moody's Investment Services, the bond sale will enable Apple to avoid $9.2bn in corporate income taxes.
Apple could pay for the stock buyback programme with its pile of cash, however since much of its cash is held offshore the firm would have to pay a 35 percent corporate tax rate on money it brought back into the United States.
Instead, according to Moody's SVP Gerald Granovsky, since the interest payments on the bond issue are tax deductible, Apple will save a further $100m a year.
Given Apple's mountain of cash, it is not surprising that the $17bn bond offering was over-subscribed many times over. The firm's decision to use it as a vehicle to avoid paying taxes might have ethical questions attached to it but from a business perspective it was a shrewd move, according to Granovsky, who said, "From a pure corporate-finance theory perspective, this was a no-brainer."
Apple's shareholders have been increasingly frustrated with the firm as it continues to build a big cash balance. While Apple's stock price was rising that wasn't such a problem, but since its 40 percent fall from an all-time high in September, institutional investors want Apple to provide more incentives to keep holding its stock. µ