Apple Selling .5 Billion in Bonds

Apple is selling $5.5 billion in bonds to fund in part stock buybacks and dividends. The iPhone maker is one of eight companies selling new high-grade bonds Monday. Robert Schiffman of Bloomberg Intelligence is on “Bloomberg Markets: The Close.”

Robert i think i’m just sort of curious if this signals anything to the market or if companies look at apple and think you know what apple’s in a league of its own that we can’t take cues from this to signal the rest of the credit market how do you think about that uh i think you can listen the question people should be asking today isn’t why is apple borrowing the

Question should be why aren’t they borrowing more five and a half billion to apple it’s it’s a relative rounding error relative to their balance sheet size and investor demand you know the floodgates for borrowing have effectively been closed in the first half of the year as as rates have risen inflation beers have risen and worries about a recession have risen

Um but some of that’s starting to go away and certainly um you know from a rate perspective it’s declining and from a credit quality perspective for the biggest names like apple there’s almost nothing to worry about and that’s why they’re able to price uh bonds at at levels that are meaningfully tighter than initial price talk okay so one question there i mean why

Isn’t apple borrowing more a question i have is why aren’t they being more creative with what they’re using these proceeds on i mean buybacks dividends sure but what about some m a would we ever see that out of an apple sure let’s just take one quick step back from from my first day of math camp i learned you borrow when you can not when you have to and when you

Look at apple’s weighted average cost of capital it is clearly skewed towards equity their cost of equity is about 10 the cost of debt on an after-tax basis is effectively zero and that’s why they continue to borrow so much that’s why they have 120 billion dollars of debt the question now really is okay are there better uses of that cash i think if you if you look

Back at what tim cook said in the second quarter um so three months ago he said size is not going to matter and i think there’s a variety of places that they can spend their money on if they can figure out a way to do it they’re small ticket items like buying the rights to the nfl um sunday ticket package um there’s maybe a peloton they could buy wearables but i

Think if you’re really starting to think big i mean i don’t think you can rule out names like a netflix or we’re following microsoft’s uh steps they’re trying to buy activision you know take down an ea um and if you really want to think big um you know start thinking about maybe something like a t-mobile uh or a car company if they don’t want to just build their

Own car the real reason why they’re not doing any of this in size i think is everything to do with the regulatory environment i don’t think the government wants to see apple get any bigger particularly via m a and i think any large deal that they try would more than likely get blocked so the simple answer is you know the best returns on their capital and they’ve

Got so much excess capital is to continue to buy back stock and by the way since they’re generating 100 billion of annual free cash flow not cash flow free cash flow um they’re still going to have a ton in their kitty going forward so um they could always buy one of those big companies a year from now three years from now five years from now depending upon what

Um the regulatory environment looks like robert back to that first day at math camp bond math camp can’t wait to go there myself um talk to us about who would therefore with that mindset on go to the market too well listen there’s a couple of deals that you know are m a related that could use financing um first you know there’s there’s oracle at cerner that deal

Already closed um that was 30 billion dollars we’re waiting for financing there they have a 15 billion dollar bridge broadcom just announced that they were buying vmware for 60 billion dollars half funded with cash there certainly could be a jumbo transaction there i mean if you think about it microsoft um if activision closes they’ll have spent over uh 85 billion

Dollars on two transactions and they could they could refuel and reload their kitty as well so i think there’s a potential for a massive amount of jumbo deals particularly after a first half of the year where tech issuance is down 50 percent year over year

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Apple Selling $5.5 Billion in Bonds By Bloomberg Technology