Feeds

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

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

Beginner's guide to SSL certificates

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. ®

The next step in data security

More from The Register

next story
Phones 4u slips into administration after EE cuts ties with Brit mobe retailer
More than 5,500 jobs could be axed if rescue mission fails
JINGS! Microsoft Bing called Scots indyref RIGHT!
Redmond sporran metrics get one in the ten ring
Driving with an Apple Watch could land you with a £100 FINE
Bad news for tech-addicted fanbois behind the wheel
Murdoch to Europe: Inflict MORE PAIN on Google, please
'Platform for piracy' must be punished, or it'll kill us in FIVE YEARS
Phones 4u website DIES as wounded mobe retailer struggles to stay above water
Founder blames 'ruthless network partners' for implosion
Found inside ISIS terror chap's laptop: CELINE DION tunes
REPORT: Stash of terrorist material found in Syria Dell box
Sony says year's losses will be FOUR TIMES DEEPER than thought
Losses of more than $2 BILLION loom over troubled Japanese corp
Bono: Apple will sort out monetising music where the labels failed
Remastered so hard it would be difficult or impossible to master it again
prev story

Whitepapers

Secure remote control for conventional and virtual desktops
Balancing user privacy and privileged access, in accordance with compliance frameworks and legislation. Evaluating any potential remote control choice.
WIN a very cool portable ZX Spectrum
Win a one-off portable Spectrum built by legendary hardware hacker Ben Heck
Intelligent flash storage arrays
Tegile Intelligent Storage Arrays with IntelliFlash helps IT boost storage utilization and effciency while delivering unmatched storage savings and performance.
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?
Beginner's guide to SSL certificates
De-mystify the technology involved and give you the information you need to make the best decision when considering your online security options.