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AAPL rises on stock split rumour, manipulation suspected, Apple 'can't actually split stock'

Karen Haslam | Feb. 28, 2013
Yesterday investment manager Doug Kass started a rumour that Apple will announce a stock split. He tweeted: "High above the Alps my Gnome is hearing a rumor that Apple will announce a stock split at tomorrow's shareholder meeting." What followed has lead to claims of stock manipulation.

Why would Apple consider a stock split?

Actually, Apple couldn't split its stock. As Forbes explains: "Based on the number of shares issued at about 940 million and only having authorization to issue 1.8 billion shares the company could not even execute a 2 for 1 split."

"If Apple does split the shares it would have to get a much higher share authorization from the shareholders," suggests Forbes.

A stock split can have a positive psychological impact on a company's stock. However, it's geared more at small shareholders. As Seeking Alpha explains: "While some will argue psychological effects drive a stock's value higher after a split, this really is not a factor for institutional investors which own 64% of the shares."

It could actually be bad news for big time investors as: "A split will actually increase the costs for these institutional investors because they must now buy more shares to invest the same amount of money," adds Seeking Alpha.

The only way a stock split could benefit investors is if they were buying call options - which have to be bought in packs of 100. "After a rumored 10-to-1 stock split though, a 100 share block of Apple would only cost $4,489 before collecting the premium on the covered calls," notes Seeking Alpha.

So what can we expect at the shareholder meeting

It seems unlikely that Apple will announce a stock split. Forbes suggests that what is more likely is "a bigger share buyback" of "$25 billion or more".

Forbes certainly don't expect an announcement that Apple will be taking up Einhorn's iPrefs proposal.

Endpoint Technologies Associates analyst Roger Kay told The Mercury News: "There's this tension going into the meeting between Apple and the investors Einhorn represents. Tim Cook can't avoid talking about it. This is a huge subject and it's right there on the table for everyone to see."

We'll bring you coverage of the shareholder meeting later today.

 

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