Photographer: Xaume Olleros/Bloomberg
Tech Companies Aren’t Waiting for Tax Changes to Reward ShareholdersBy
Apple, Oracle tap bond markets to fund buybacks, dividends
‘They’re just front loading repatriation,’ one analyst says
A U.S. tax overhaul may happen this year, but some of America’s largest technology companies aren’t banking on it.
Apple Inc. and Oracle Corp., two S&P 500 companies with some of the most cash overseas, are tapping bond markets to reward shareholders with stock buybacks and dividends even as House Republicans consider a tax proposal designed to bring that money back home. According to the plan, companies would be charged up to a 12 percent tax on the overseas profit, compared with the 35 percent they would pay if they brought that money back home now.
House Republicans are aiming to enact the new tax laws by year-end, but companies haven’t shied away from the debt markets in the meantime. Investment-grade tech companies are ramping up their issuance and buying back debt, showing how companies are taking charge of their balance sheets now instead of waiting for legislation to come through, said Dorian Garay, a money manager in New York at NN Investment Partners.
“Either they don’t expect any material changes in the near-term, or they are skeptical that the tax reform will ever happen and they are borrowing now instead of waiting to find out,” Garay said.
Kristin Huguet, a spokeswoman for Cupertino, California-based Apple, and Deborah Hellinger, a spokeswoman for Redwood City, California-based Oracle, didn’t immediately return messages seeking comment.
Oracle is selling bonds in as many as five parts to help pay for stock repurchases and dividends, as well as other items such as debt buybacks, the company said in a filing Tuesday. That comes on top of Apple’s $7 billion offering Monday, which will help fund a program that’s returning $300 billion of capital to shareholders by the end of March 2019. Oracle has 87 percent of its cash abroad, and Apple 94 percent, according to data compiled by Bloomberg.
Repatriation has been talked up by politicians as a way to stimulate economic growth, as companies that bring back cash may use it to invest in capital expenditures and new jobs. The money could be spent to reward shareholders.
For Peter Boockvar, chief market analyst at Lindsey Group, the repatriated funds could be used to pay down the debt now being borrowed for buybacks and dividends.
“All of these big tech companies are raising debt as fast as they generate cash,” he said. “The repatriation has then essentially already been front loaded.”
With borrowing costs the lowest in three years, the funding could also be a reflection of opportunistic timing, said Jordan Chalfin, an analyst at CreditSights.
“These companies are not waiting on tax reform,” he said. “Even if it does come through, they’re not going to regret issuing right now.”
Tech and pharmaceutical companies have long been seen as immediate winners from repatriation given their large overseas cash balances. Some, like drugmaker Gilead Sciences Inc., have been enticed to borrow shorter-term, according to Bank of America Corp. strategists, as it wouldn’t make sense to borrow for a decade if companies expect to be able to use cash brought back from overseas to pay off debt in the next few years.