2013 Deals of the Year: Apple Bond Issue Makes History

Briefly the biggest corporate bond sale of all time, the iPhone maker’s $17 billion offering helps finance a big cash reward for shareholders.

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What a difference 17 years can make. In 1996 computer maker Apple hired Goldman Sachs Group to manage a $661 million convertible bond offering that helped it stave off bankruptcy. Last spring Apple — now the world’s most valuable company — turned to Goldman Sachs again for help with a far better problem: too much money. Kenneth Hirsch, the bank’s San Francisco–based global head of technology, media and telecom investment banking services, helped it float one of the most sought-after corporate bond offerings ever.

Launched on April 30, the six-part, $17 billion issue was Cupertino, California–based Apple’s first since 1996. The debt was intended to finance a $100 billion reward for shareholders through higher dividends and $60 billion worth of stock buybacks to compensate for the company’s tumbling share price. As of late April, weakening demand for iPhones and other Apple products in a cutthroat tech market had knocked the stock down almost 40 percent from its peak of $702 in September 2012.

Apple named Goldman lead book runner for the deal in January after hedge fund manager David Einhorn, founder of New York–based Greenlight Capital, badgered for change. Deutsche Bank, Germany’s biggest lender, later stepped in to share lead duties. Goldman controlled a 72 percent share of the underwriting and was expected to receive an equivalent slice of the $53 million fee.

2013 Deals of the Year
Jim Renwick & Team
Barclays
Antonio Weiss & Team
Lazard
Christian Lesueur & Team
UBS
James (“Jimmy”) Lee Jr. & Team
JPMorgan Chase & Co.
Marco Gonçalves & Team
BTG Pactual
Marisa Drew & Team
Credit Suisse Group
Geoffrey Austin & Team
Moelis & Co.
Anthony Noto & Team
Goldman Sachs Group
Adam Taetle & Team
Barclays
Kenneth Hirsch & Team
Goldman Sachs Group

Hirsch, 47, who joined Goldman in 1989 and was named a partner in 2006, teamed up with fellow managing directors Jonathan Fine and Susan Scher to guide Apple through the bond issue. Taking on debt was cheaper than tapping into the company’s $144.7 billion in cash (as of April), $102.3 billion of which was held overseas and would have faced a hefty 35 percent repatriation tax. Hirsch counseled Apple to lock in long-term funding at historically low interest rates stemming from the Federal Reserve Board’s bond-buying program and to extend short-term debt to satisfy market demand. The $17 billion pricing, initially $15 billion, was spot-on.

As a result, Apple got away with a steal. Investors snapped up its debt despite an AA+/Aa1 rating from Standard & Poor’s and Moody’s Investors Service after a bid for triple-A status failed, buying $8.5 billion worth of ten- and 30-year bonds. The issue’s fixed- and floating-rate notes, spanning in duration from three to 30 years, yielded only 1 percent more than U.S. Treasuries at launch. But buyers have gotten slammed by rising benchmark interest rates: As of December 6 the ten-year bonds were trading at 89.8 percent of face value.

Since the offering Apple has hiked quarterly cash dividends by 15 percent, to $3.05 per share; payments climbed from $2.5 billion in 2012 to $10.5 billion through September 2013. It repurchased 10.4 million shares in its fiscal fourth quarter, accounting for roughly $5 billion of the authorized $60 billion in buybacks, expected to wrap up in 2015. But activist investor Carl Icahn, who owned 4.73 million Apple shares as of late October, believes the company is wildly undervalued and wants a $150 billion buyback.

Apple stock has rebounded too. It closed at $556 on November 29, a surge of more than 44 percent since its 52-week low of $385 on April 19.


Bucking the Trend
With these extraordinary closed and pending deals,
our ten rainmakers earned their keep in choppy markets.

RankDealEstimated
Fees
($ Millions) *
1U.K. bank Barclays follows a £5.8 billion ($9.1 billion) rights issue with a $2 billion hybrid bond offering.$1832
2Warren Buffett’s Berkshire Hathaway and Brazilian investment firm 3G Capital pay $27.4 billion to take ketchup maker H.J. Heinz Co. private.$97–107
3U.S. telecom Verizon Communications agrees to give Vodafone $130 billion for the British carrier’s 45 percent stake in Verizon Wireless.$93–103
4Founder Michael Dell and Silver Lake Partners privatize U.S. computer maker Dell for $24.9 billion.1$82–92
5Brazilian phone company Oi and Portugal Telecom agree to a $15.7 billion tie-up under the former’s name.$70–90
6Cable giant Liberty Global buys the U.K.’s Virgin Media for $25.5 billion.$882
7Advertising firms Omnicom Group and Publicis Groupe agree to a $35 billion Franco-American merger of equals.$50–70
8Social media company Twitter launches a $2.1 billion initial public offering on the New York Stock Exchange.$682
9China’s Shuanghui International Holdings closes a $7 billion buyout of U.S. pork producer Smithfield Foods.$51–61
10iPhone maker Apple issues $17 billion worth of bonds.$532

* Estimates unless otherwise noted. M&A totals only include advisory fees;
debt and equity totals only include underwriting fees.

1 Deal value provided by Dell.

2 Publicly disclosed.

Source: Thomson Reuters/Freeman Consulting Services.

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