Forget the good of society and the interests of the employees. The giant corporations aren’t even acting in the interests of their shareholders anymore, if this emailer is to be believed.
I work for a company that was involved in [REDACTED]. It struck me as strange that a company with the cash pile that Apple has – just over $100bn in their last earnings release – would be issuing debt to raise even more cash, so I looked a little deeper and the below may be something relevant to your blog given some of your recent posts on financialisation…
When Steve Jobs died in 2011 Apple didn’t have a single penny of debt, which was unique among Silicon Valley’s tech giants. That lasted not a full 2 years after his death because in April 2013 Apple conducted the largest non-bank bond issuance in history, raising $17bn in debt (as an aside, Goldman Sachs led the bond issue). The justification for this would likely seem counter-intuitive to those outside finance: Jobs’ successor Tim Cook was supposedly under pressure from investors to return some of its cash to shareholders, which meant a program of buying back shares and paying out higher dividends. However, a large portion of Apple’s then $200bn cash pile was held outside the US and if repatriated would face a 35{c8b69934959f35692add933dfd6e84e28f27befea47b321eb3fcbffc0ec5bc03} tax charge, so it made ‘financial sense’ to keep the cash abroad and raise debt in the US at interest rates of c.3{c8b69934959f35692add933dfd6e84e28f27befea47b321eb3fcbffc0ec5bc03} instead to fund this gigantic shareholder return program. Paying out a 3{c8b69934959f35692add933dfd6e84e28f27befea47b321eb3fcbffc0ec5bc03} charge on cash instead of 35{c8b69934959f35692add933dfd6e84e28f27befea47b321eb3fcbffc0ec5bc03} sounds good, right? Apple certainly thought so, as they continued to issue debt over the next few years.
As we know, Trump’s signature piece of legislation so far is his tax cuts bill. It slashed the rate of corporation tax payable on foreign-held cash reserves when repatriated. Interestingly, Apple duly began repatriating some of its cash held abroad in 2017. So presumably it then stopped raising more debt? Nope. Throughout 2017 and 2018 Apple issued more and more debt to fund payouts to its equity investors. This brings me back to this month’s ‘Green Bond’ issue – the largest of its kind in Europe. Putting aside the virtue signalling aspect of issuing a ‘Green’ bond (the idea is that it’s used to fund initiatives designed to reduce Apple’s carbon footprint), it appears that Apple has become addicted to debt. In short, just 8 years on from Steve Jobs’ death when they were entirely debt-free, Apple now owes around $106bn in debt and pays out around $3.5bn annually in interest payments alone.
There is literally no business case for Apple to be taking on such debt. It is simply sucking cash out of the company. It does not need to raise cash to invest in R&D, hire new staff or expand its business. If you read through the FT, Forbes etc., the best explanations are that “debt right now is cheap, so they may as well raise cash this way to pay shareholders”. Apple themselves state the reason for issuing debt is for “corporate reasons” according to their Italian CFO, i.e. nothing related to creating productive value for the firm. They now hold slightly more debt than cash – a remarkable turnaround for a company that was once debt-free and held over $200bn in cash at its peak. Even more alarmingly, Apple has issued releases saying that they intend to become a “cash neutral” company, i.e. it will pay out any excess cash to shareholders and debt holders, and given Apple’s ever-increasing debt pile it therefore looks as though the lenders will be milking the firm for years to come. The debt vampires have well and truly sunk their teeth into Apple.
There are plenty of arguments one can make on this, but one wonders whether any of this would have happened if Steve Jobs was still alive and running the company.