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Road Less Invested provides investment education and research for improving and sophisticated investors. RLI is founded on a value focused investment philosophy dictating disciplined investment in high quality companies at prices sufficiently below their intrinsic value to provide an adequate... More
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  • AAPL & MSFT: Please Put Something Special In Shareholder Stockings This Holiday Season 0 comments
    Nov 30, 2012 5:30 PM | about stocks: AAPL, MSFT

    The market is closed for the weekend. Let's have some fun. So how do you know when it's time for a special dividend? When you can buy your long-term rival out for cash. Such is now the case with Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). Don't believe us? Here is how.

    Apple is currently sitting on over $121 billion of cash and financial securities (including long-term investments). Unfortunately for Tim Cook, Apple is a bit shy of buying out Microsoft. However, that is where Microsoft comes in. To its benefit, Microsoft has horded its own stash of cash to the tune of approximately $76 billion. With the combined companies holding nearly $200 billion in cash and securities, the gap is narrowed to a measly $27 billion (based on Microsoft's market cap of approx. $225 billion). Surely these underleveraged balance sheets could support $27 billion in debt, no?

    (click to enlarge)Sources and Uses

    In fact, there is no need to raise $27 billion in debt. The combined companies generated over $21 billion in free cash flow in the fourth quarter of last year alone (ignoring a large acquisition by Microsoft). Considering that expected dividend payments this quarter will be under $5 billion, this $27 billion "hole" may narrow to something more like $10 billion by year end. We feel pretty confident that there are some smart investment bankers out there who would salivate to fill that $10 billion hole!

    Obviously this article is meant to facetious. But the fact that it is even in the realm of financially possible should irk shareholders. With tax rates going up, we urge both management teams that this is the year to put something special in your shareholders' stockings.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: AAPL, MSFT
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