Feeds

Apple stuns world with rare SEVEN-way split: What does that mean?

The price of a single share will drop by almost 86%

Remote control for virtualized desktops

Apple surprised Wall Street on Wednesday by announcing the most aggressive stock split in its history – and just a month after Google executed its first-ever split.

The iPhone maker's seven-for-one split, due to take place on June 6, will see the fruity firm issue six new shares of common stock for each share currently in existence.

This will be the fourth stock split since Apple incorporated in 1980, and the most unusual. The previous splits – in 1987, 2000, and 2005, respectively – were all of the more typical two-for-one variety.

Stock splits don't change the value of investors' holdings. What they do, however, is adjust the price of an individual share of the stock – in this case, dramatically.

Once the split takes effect, the price of each Apple share will be divided by seven. So if a single share of Cupertinian stock was trading for $525 on June 5 (as it was as of the closing bell on Wednesday), the following day it would trade for $75, along with six new, identical siblings.

To put that into perspective, Apple currently has a market capitalization of around $468bn. That means that at its current trading price, one share of fruity stock is worth about one 891-millionth of Apple's business. Post-split, the value of one share goes down to one 6.2-billionth.

During an earnings call with investors, CEO Tim Cook said the reasoning behind the move was "to make Apple stock more accessible to a larger number of investors."

That sounds sensible enough. And yet some prevailing wisdom – most famously the opinion of billionaire Berkshire Hathaway kingpin Warren Buffett – suggests that stock splits can hurt companies, because a lower share price invites short-term investors who trade shares more frequently, increasing their volatility.

One company that shares Buffett's opinion is Apple's archrival, Google. In 2008, the advertising giant's then-CEO Eric Schmidt told CNBC that he liked to keep the stock price high and there were no plans for a split.

At the time, Google shares were trading for around $235. By the time its stock actually did split earlier this month, a single share was worth almost $1,200. And Google only split its shares two-for-one, leaving them plenty pricey.

Whatever Cupertino's motive for slashing its share price, however, there was some additional, immediate good news for shareholders during Wednesday's earnings report. The fruity firm announced that it would pay a dividend of $3.29 per common share on May 15 (before the stock split), an increase of 8 per cent.

In addition, Apple said it is upping the amount it will spend on share repurchases from $60bn to $90bn – a move that's sure to please so-called activist investor Carl Icahn, who has been pestering Cook to be even more aggressive with the buybacks.

As for the split, although current investors will be issued their new shares on Friday, June 6, Apple's stock won't officially begin trading at its new, lower price until the following Monday, June 9. ®

Secure remote control for conventional and virtual desktops

More from The Register

next story
I'll be back (and forward): Hollywood's time travel tribulations
Quick, call the Time Cops to sort out this paradox!
Musicians sue UK.gov over 'zero pay' copyright fix
Everyone else in Europe compensates us - why can't you?
Megaupload overlord Kim Dotcom: The US HAS RADICALISED ME!
Now my lawyers have bailed 'cos I'm 'OFFICIALLY' BROKE
MI6 oversight report on Lee Rigby murder: US web giants offer 'safe haven for TERRORISM'
PM urged to 'prioritise issue' after Facebook hindsight find
BT said to have pulled patent-infringing boxes from DSL network
Take your license demand and stick it in your ASSIA
Right to be forgotten should apply to Google.com too: EU
And hey - no need to tell the website you've de-listed. That'll make it easier ...
prev story

Whitepapers

Go beyond APM with real-time IT operations analytics
How IT operations teams can harness the wealth of wire data already flowing through their environment for real-time operational intelligence.
10 threats to successful enterprise endpoint backup
10 threats to a successful backup including issues with BYOD, slow backups and ineffective security.
Forging a new future with identity relationship management
Learn about ForgeRock's next generation IRM platform and how it is designed to empower CEOS's and enterprises to engage with consumers.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?
Website security in corporate America
Find out how you rank among other IT managers testing your website's vulnerabilities.