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. Apple should easily be able to satisfy its own needs and shareholders as well as any other profitable company is capable of. Apple has plenty of money to put to work overseas instead of just holding it in a bank and collecting low interest. Apple could take a small portion of that money and start building server farms overseas for selling cloud services. That money sitting in the bank would go pretty far in certain countries. So, Apple doesn’t intend to touch most of that overseas money unless a tax holiday is instituted? If Apple is using it for something, then at least let shareholders know how it is being used instead of keeping us in the dark. I think that’s just common courtesy.

    As a shareholder, I’m not asking Apple to take on mountains of debt to artificially boost the share price. I’m talking about useful services to expand Apple’s revenue base. The way some of you commenters talk it’s like Apple can’t do anything reasonable to put shareholder value into the company. There has to be something that investors would be interested in for long term investment in Apple. No profitable company should be driving investors away like Apple is doing. There is no way it makes any sense that the DJIA has climbed to 16000 and yet Apple’s value has fallen into a pit. An anti-Apple conspiracy? I doubt that.

    There must be something big investors are looking at and seeing there’s some fault with Apple’s business model and are just avoiding it. I’m only saying that Apple should at least rectify that somewhat. What makes Google so attractive to investors? Greater growth potential? Is their business model far superior to Apple’s? Google’s lobbying has greater impact on investors? I don’t know but I just think Apple could do something or at least make it clearer why they can’t. Me trying to guess is useless.

  2. it’s like apple is a shooting gallery decoy sporting a bull’s eye in lieu of a logo; on the other side of the counter, queuing up, impatiently waiting their turn are these panting, self-proclaimed snipers, a strip of discounted tickets in one hand and a rifle with faulty sights in the other.

  3. Oh, and I should say that it’s obvious they want debt so they can buy it themselves and profit from it because otherwise they’d be pushing Apple to do things like: layoff lots of people to save costs, outsource everything, lower the quality of the products, making products in every shape and size, etc.

  4. It’s funny. I’ve been with Apple for decades. Apple was always talked about as a vertical company in that it made both the hardware and the software.
    These days, Apple is even more a vertical company owning and manufacturing first-hand much of its product.

    I’m very happy. Icahn should leave the company alone.

  5. “Icahn keeps on pushing Apple to return more cash to the shareholders.”

    The fundamental flaw is the basis for that statement. Apple CANNOT *RETURN* cash to shareholders! Apple did not get that cash from the shareholders — ever! EVER! There is no cash to RETURN.

    This is the problem with Wall Street, Icahn, and the rest of them. They talk like Apple must *return* cash to them. How much money did Icahn actually give to Apple? ZERO. ZILCH. NADA. NONE. One divided by infinity raised to the infinity power. So on a very fundamental basis, how can Apple return *anything* to Icahn?

    Until Wall Street and the rest come to realize that Apple owes them NOTHING, articles like this will keep coming and coming and coming.

    So on that basis why should Apple *ever* take on debt to do something that is truly impossible: return something they never got in the first place.

  6. Apple needs to URGENTLY smash Carl Icahn in the mouth with a chair. IF Apple ever even acknowledges Icahn exits, it’s a huge loss for ALL Apple shareholders.

    If Carl wants to Vote, OR dictate ANY terms of what Apple does, he needs to bring the rain. And analysis this week highlighted the FACT the if Carl wants to force the issue or have any say, ALL OF CARL’s wealth – total wealth – represents LESS THAN .5 % of Apple’s market value. So Carl, here’s the message, GO AWAY YOU CARPET-BAGGING TRASH HEAP.

    1. You, Pim Keulen who writes for Seeking Alpha, are only slightly less parasitic.

      I’m so pleased these money suckers do NOT work at Apple. Instead, they convince me more every day how much better off Apple would be if it bought itself off the stock market.

  7. I am a shareholder of Apple and would like to understand what additional value to me as a shareholder means. I thought that as a shareholder I actually already own a piece of the company. I am not interested in my company taking on debt to artificially inflate the price of the shares. As we all know the value of the shares has nothing to do with anything other than what you are prepared to pay for my shares or what I am willing to do to sell them to someone. I bought my shares for a long term goal and at the end I will sell them and make a very good and I mean good profit and in between i will use some really good products produced by my company. When Icahn and Einhorn you actually run a real business that produces something like apple I and others may actually listen to you. Until then sell your shares and go stuff up some other company.

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