Since Apple investor David Einhorn of Greenlight Capital threatened to sue Apple over its failure to offer investors some of its huge stock pile of cash, there has been some speculation as to whether Apple can return anything to investors; what the company might have planned for the money; and what the huge pile of cash could actually represent to ordinary people.
Should Apple return some money to shareholders? Can the company even access the money to return any to investors? Should Apple continue to sit on its cash with the world's economic problems intensifying? Would Apple be wise to acquire Facebook and other big companies? Should Apple invest more into research and development? Should Apple invest in the facilities of its partners? Or should Apple foot the UK defence bill and the interest on our national debt?
We look at what Apple could do with the money, and what Apple won't be doing with the money.
[Background: Einhorn wants Apple to return some of it's $137b (£87b) of cash to investors via a perpetual preferred stock with a 4 percent yield. He accused Apple of trying to get investors to pass a proposal that would prevent the issuance of preferred stock. Apple responded with a promise to "thoroughly evaluate" the proposal, and claimed that Proposal #2 would only prohibit the issuance of such stock without a vote by shareholders.]
Why Apple can't return the money to shareholders
Apple Insider notes that around 70% of the $137b is held overseas."Bringing all of that money back to the US would be a costly move," claims that site.
RBC Capital Markets analyst Amit Daryanani explained that bringing the money back to the States would cost Apple $33 billion because the cash would be taxed at America's 35% rate.
According to the report, Apple has $43 billion in cash in the US. This Daryanani believes, along with another $45 billion in annual free cash flow, could be returned by investors by Apple.
Jobs wanted to hoard the money
According to Seeking Alpha, Steve Jobs consulted with Warren Buffett on what to do with all of Apple's cash. Buffett recalled the conversation in an interview with CNBC last year. Buffett said: "It was an interesting conversation because I hadn't talked to him [Jobs] in a long time. He said, 'We've got all this cash. What should we do with it?' So we went over the alternatives. It was kind of interesting."
Buffet claimed Jobs was concerned that Apple wouldn't "have the chance to make big acquisitions that would require lots of money."
Buffet suggested to Jobs that he felt that the AAPL stock was undervalued then a buyback is a good move. Jobs admitted he felt that his stock was undervalued.
However, Buffet reflected: "He didn't do anything, and of course, he didn't want to do anything. He just liked having the cash."
Why it's better to sit on the cash
As we noted in a report last week, Apple is one of the companies best prepared to weather any economic slowdown because it has so much money in the bank. It is for that reason that some analysts are recommending it as a buy.
What Apple could do with the money
The obvious areas where Apple can invest its money is in its operations, specifically in R&D as it develops the next big thing, and in improving the facilities of its manufacturing partners as it seeks to loosen its ties with Samsung.
The company is already paying back some money to shareholders in the form of dividends – the next dividend payment will be this Thursday.
Acquisitions is another area where Apple could spend the money. A ZDnet report suggests that Apple could "acquire Facebook, Groupon, LinkedIn, Netflix, Pandora, Research In Motion (Blackberry), Yahoo, Yelp, Zillow and Zynga - and have more than $2 billion left to spare."
That report makes some other suggestions that will be closer to home to American readers:
- Foot the bill for US federal spending on education for two years
- Double US foreign economic aid to the developing world for three and half years
We had a look at the UK figures for equivalent government spending. With its £87b in the bank Apple wouldn't quiet have enough for pay for the following (as per the 2012 budget).
The welfare state, which cost the UK around £207 billion in 2012.
Health care costs, which for 2012 were budgeted at £130 billion.
Education costs, which were budgeted at £91 billion in 2012.
However, Apple could easily cover the UK's Defence bill for 2012, at £39 billion.
As well as that, Apple could help out by paying the interest on the national debt, at a cost of about £46 billion for 2012.
Thanks Apple. We'll take a cheque.
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