Apple urgently needs increase debt to raise earnings per share by 13.8%

“Investor Carl Icahn proposed that Apple collects $150 billion in debt to repurchase its own shares through a $525 a share tender offer. Icahn keeps on pushing Apple to return more cash to the shareholders. I agree with Icahn and Apple should collect debt as soon as possible,” Pim Keulen writes for Seeking Alpha. “However, I do not agree with Icahn’s plan to repurchase shares through a $525 a share tender offer. This article provides an insight in the potential way to return cash to the shareholders and the effects of the repurchases on Apple’s earnings per share.”

“Much has been said about the company’s cash pile of $147 billion. This giant mountain of cash provides no additional value for Apple’s shareholders. Further, most of the cash is held by overseas subsidiaries. The subsidiaries are not (yet) subject to U.S. corporate tax. Therefore, Apple wants to keep the cash in the overseas subsidiaries for a while,” Keulen writes. “To return additional cash to the shareholders, Apple needs to add debt to their balance sheet. On September 28, 2013 the company has only $40 billion in long-term debt on its $207 billion balance sheet. The interest rate is currently very low. Apple paid only an average of 1.85% interest regarding the $17 billion in debt collected this year. This favors Apple to collect more debt and increase the leverage of its balance sheet. Apple will also benefit from low interest costs. The company could return the cash collected by the issuance of new debt directly to the shareholders, because the company already has $147 billion in cash.”

“I suggest that Apple collects $75 billion in debt (half the amount Carl Icahn suggested) and return the $75 billion to the shareholders immediately through the combination of a capital repayment and a reverse stock split. This increases the leverage and still keeps Apple’s balance sheet solvent (around 25%). The capital repayment supports Apple’s earnings per share immediately. The total number of outstanding shares decreases from 899 million to 754 million (83.9% of the current outstanding number of shares). For example: a shareholder owns 100 Apple shares. Apple returns 83 shares to the shareholder after the reverse stock split (5 for 6 consolidation) and additionally returns $8.806 (17 times $518) in cash,” Keulen writes. “I compared the reported earnings per share in the fiscal year 2013 with my calculated earnings per share after the $75 billion capital repayment. I find earnings per share can be 13.8% higher when Apple returns $75 billion through a combination of a capital repayment and a reverse stock split.”

Much more in the full article here.

[Thanks to MacDailyNews Reader “Carl H.” for the heads up.]

30 Comments

  1. Wall St. really hates it when companies succeed without them, don’t they?

    If Apple returns cash to its shareholders it will do it its own way, not how Icahn and the other parasites want.

  2. Take on debt so I can have some of your huge pile of money. What a leech this guy is.

    I don’t know much about the financial working of a large corporation like Apple but I do know one simple rule of business ownership; debt is a bad thing. Changing company policy to appease stockholders is such a bad idea. If Jobs were around he would have told Icahn to eft off by now. Buy Apple and go long if you want quick money go somewhere else.

    1. Buying Stocks on credit card is a bad idea, but most Wall Street people would say go ahead sir, Apple needs to never ever meet or talk to these people for any reason.

  3. No, they fucking don’t, and to Hell with these crooks and liars. The global meltdown of the over leveraged economies of many nations wasn’t that long ago. Try to learn from history, morons.

  4. So if I go to Las Vegas, I can put the thumb screws on a casino owner to guarantee if I gamble, I’ll win? Who the hell is this douce bag who owns 1/2 of 1% in Apple stock to be dictating to Tim Cook how to spend their hard earned money? Isn’t this dick wipe already a billionaire? He already has more money than he could spend in 100 lifetimes, so what’s this huge rush for him cash in on Apple stock? Somebody at Apple needs to plant their foot in this guys ass and show him the door. What of value has this asshole ever contributed to society?

  5. Apple doesn’t exist for the shareholders. It exists for the customers. All these people looking to accumulate wealth while caring nothing about the customer need to fuck off.

  6. The Chinese must be laughing their heads off at the West doing so much of their own destructive work for them. Yep lets feed a successful company to its shareholders until it cannot be so successful anymore and that resulting debt becomes an anchor investment declines and those same shareholders piss off whinging about losing money on their shares despite their previous windfall.
    It seems that in the West companies have come to be little more than mechanisms for the endless manipulation of money rather than existing to actually produce something worthwhile to make a profit. And they wonder why companies take their eye off the ball regarding what business they are actually supposed to be in. Trouble is Apple lives and profits from not taking its eye off the ball and investing in the future so maybe Im naive but this whole things sounds like total madness to me and especially so where Apple is concerned. Becoming a financial institution is no way to actually keep the company healthy and innovative which surely is its raison d’être. But then short term is all Icahn is interested in.

  7. Who curates stories for this site because the quality is going way down hill. Sites like Seeking Alpha, Motley Fool, Wall Street Cheat Sheet are crap sites only interested in page views. Stop linking to them.

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