Memo to Apple: Carl Icahn is right

“On October 24, 2013, Carl Icahn [launched] his Shareholders’ Square Table website to help outline his real agenda. Icahn likened corporate governance to a feudalism and fashioned himself as a Robin Hood hero, of sorts. Icahn Enterprises L.P. (IEP) then reported that it had controlled 4.7 million shares in Apple stock, or roughly $2.4 billion of the consumer electronics company. This Icahn Enterprises stake amounted to 0.50% ownership of Apple Corporation,” Kofi Bofah writes for Seeking Alpha. “Still, Icahn clearly felt entitled and well within his rights to dictate terms to Apple management. In summary, the crux of the debate was to acknowledge that the Apple business model has already matured. As such, Icahn is leading a wing of shareholders that demand Apple be managed as a value play. Apple stock has appreciated by more than 10%, in recent weeks, against this backdrop of shareholder activism.”

“Icahn argued that Apple stock was undervalued and proposed an ambitious $150 billion stock buyback program to improve shareholder returns. According to Icahn’s back-of-the-envelope calculations, his plan would add an immediate 33% increase in earnings per share, which the billionaire claimed would directly translate into a 33% advance in stock price,” Bofah writes. “Icahn recommended a $525 tender offer from Apple management, to be financed with a combination of cash and debt.”

“Carl Icahn may need to revise his back-of-the-envelope estimates. Firstly, Apple closed out the November 21, 2013 trading session at $521.14. Again, Icahn laid out his $525 tender offer proposal back in late October, when Apple was trading near $500 per share. A 5% premium above the current trading price may have Apple offering $550 to buy back shares, in accordance with Icahn’s $150 billion plan. At these levels, the immediate and ambitious execution of this buyback may still automatically increase Apple earnings per share statistics by 25%. Apple, and its Standard and Poor’s AA+ credit rating, is very much positioned to add a bit more debt to the balance sheet,” Bofah writes. “Going forward, Icahn and a cadre of Apple bulls may consider actually revising growth expectations downward. Samsung, Google, and even Sony (SNE) have already brought wearable computers to market, in the form of separate watches and glasses. With operations man Tim Cook at the helm, the strategic focus has shifted towards the production of the 64-bit A7 chip and the iPhone 5c value play. Steve Jobs’ legendary reality distortion field no longer commands Apple. As such, Apple shareholders should no longer expect hyper-growth out of Apple. If anything, Apple will settle into a Microsoft – Intel paradigm, where the business generates heaps of cash, but minimal real growth.”

Read more in the full article here.

MacDailyNews Take: Those who underestimate Apple and Tim Cook are due for a rude awakening.

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69 Comments

  1. Apple becomes a value play only by following Icahn’s advice. I prefer (as a long term stockholder) that Tim, et al, continue to invest in their company to produce future growth products.

    1. But they no longer believe growth can happen. The cat is out of the bag: investors believed the silly RDF explanation for Apple’s growth. I’m sorry, but that’s too convenient, too simplistic, not to mention superstitious. They believe other rot as well — the Amazon flip-the-switch theory for example. Asymco brought up the Golden Goose parable recently to explain the thinking of these people. Fairy tales! Who knew that stochastic stock pricing models were just dress-up for the anxieties of childhood, of the collective id?

    2. With guys like Icahn and Buffet, Apple could find itself being an un-intentional player in a Ponzi scheme. Apple best stay away from these creeps. Even Warren a supposed “self-made” man…oh wait his Daddy was a politician in D.C. Trust me, these type of people would gut and filet Apple for a buck.

  2. Crazy. APPL has already bought back a considerable number of shares, as was there plan. This buy-back, however, has shown very little effect on the price of APPL if any. Icahn is wrong. It’s clear that if there is any problem with APPL it is not with the strengths of the company but with perceptions in the stock market. Apple just finished releasing a whole raft of new products that push the field in multiple areas and is duly raking in the cash for its effort.
    The only thing wrong with this company is the way other people see it. Take off your blinders!

  3. If Apple buys back shares, it increases each sharholder’s percentage of ownership in the company. All of you who say that Apple shouldn’t buy back shares are arguing that the stock isn’t undervalued and is a bad investment.

    Right now, instead of buying back shares, Apple has to invest that cash somewhere. For example, they have a REIT that is buying hotels and commercial property. If you think a Holiday Inn Express in Ohio is a better investment than Apple stock, then you agree with the current strategy.

    Apple knows how to make great products. They are aweful at maximizing shareholder value.

    1. @Thomas, rational thought isn’t welcome here. I’ve tried to make the same argument time and time again.

      While I do believe that Icahn is being far to ambitious with leveraging Apple’s business in terms of taking on debt to buy back stock, I do think everyone would be best served if the growing pile of Apple’s cash was either used for buybacks or dividends.

      Don’t worry though, it’s what Apple will eventually do (again).

      I do think it’s funny here, because you’re absolutely correct, the counter argument to what you and I are saying is that Apple’s business is a worse investment than a Holiday Inn or having cash sit in the bank accruing the absolute minimum in interest.

    2. Thomas, the debate is whether or not Apple should borrow more money to finance a larger stock buy back. Most of us say ‘no’ to additional borrowing. If desired, Apple can finance buy backs and increased dividends via its ongoing earnings. There is no need to borrow tens of billions just to satisfy short-term, greedy investors who don’t give a crap about what Apple stands for as a company and what it means to its fans. They just see Apple as a pile of money begging to be looted. Screw them. Screw them all.

      1. Your post needs to be repeated over and over until these shit heads understand it.

        Icon and ALL the wall street scum are looking for is get rich schemes. They would bleed their mothers dry if you let them.

  4. Not to get all tin foil hatty, but the sell-off that preceded this appreciation could have been caused by someone with a lot of wealth asking his journalist “friends” to write hit pieces on Apple just so he could say he built APPL back up again:

    “Apple stock has appreciated by more than 10%, in recent weeks, against this backdrop of shareholder activism.”

    1. Buying today’s journalists is so cheap.

      Their grammar school mediocre writing skills , intelligence, knowledge, shallow perspectives, understanding of any topic they take on make for temporary job security at best. 5 years worth of pay upfront will get them to daily smear and attack anyone, easily.

  5. Seeking Alpha is seeking its own brain. Apple strength is focusing on exceptional products, production and user experience. Robust ecosystem. Notice how nothing is mentioned for maximizing shareholders stocks as a driving force. That will naturally happen as long as Apple continues to operate with its core values and not to bend over and have iCahn and his ilk have their way with Apple without so much as a whimper.

    1. Exactly, Jubei. Just because a company is publicly traded doesn’t mean that the company’s mission must be to satisfy shareholders. Very many would say it should be, because their investments matter to them, but this is not ever going to be the case with Apple. Their mission is, as you and they say, to make the very best products, not the ones a scroungy pack of jackals dictates. Nor should they distribute their cash according to outside clamour, but continue to use it as a tool to further the mission — as they placidly have done, all along, hiding a Cheshire Cat grin.

      1. Apple *does* serve its shareholders – all of its shareholders, not just a few greedy looters who want to make a quick buck by milking Apple for billions, then jumping ship.

        AAPL has appreciated enormously over the years, and AAPL now pays a fairly generous dividend (which I am reinvesting into AAPL). By serving its customers, Apple serves its investors. Apple makes money because its great products attract customers. Apple maintains a strong profit margin to satisfy investors and to accumulate capital for R&D, facilities, supply chain actions, and other activities that keep the company healthy and vibrant.

        1. Better indicated than me. My slant was that presumptions of shareholders don’t conform to business mission statements and practices, and really only reflect their sometimes unrealistic wishes and demands.

  6. …his rights to dictate terms to Apple management

    No one has any right to DICTATE terms to Apple. Just sell your shares folks, please.

    Oh and Carl: You an ATTENTION WHORE. That’s all it’s about, isn’t it. The parasite that nobody loved. And money will never fill your missing heart, or brain.

    Oh and fans-of-Carl: Nice way to sheeple your way into destroying the best company on the planet. Again, the Human Self-Destructive Imperative asserts itself. Enjoy. 😛

  7. Ichan apparently does not understand that the price of a stock cannot be predicted by applying math otherwise we all would be rich. Carl, if you want a return on your investment, sell your shares.

  8. Why does Apple need a share buyback and Google doesn’t? How is Google that much better an investment than Apple? Investors just keep pouring money into that company and I don’t see how Google is going to make up all that revenue with a P/E of 30.

    Wouldn’t it be easier for Apple to increase revenue from a large acquisition than some stupid “throw away money” share buyback. Buybacks just seem so artificial to quickly boost a company’s share price. I want long term results from a stable business that pulls in revenue. I’m not looking for huge gains in Apple stock but it really needs to do much better than it currently is. Microsoft is up a whopping 40% for the year and Apple is down -2%. What happened to all the post-PC era advantages Apple was supposed to have? Apple looks positively sick even when compared to struggling Hewlett Packard which is up 77% for the year. C’mon. This honestly makes no sense at all.

  9. All value stock? Come on, time and time again Apple has shown that is will take on and disrupt markets. It may not translate into massive amounts of direct cash but has an influence on the world. Heck just the GUI is and continues to be revolutionary. Can you imagine how far we’d progress if people had to stick with the CLI (Command Line Interface) of DOS?

    Not to mention the floppies, CD, disk top printing, cameras, mobile phones, music, television.

    Look where everyone is going with their creepy speculation, the iglass, the iwatch. Apple is more the kind of company that would come out with the iwear, a computer that you can wear as a watch, wristband, eyepiece, lapel, a button, ankle bracelet depending on how you want to use it, display it.

    That’s for people who understand Apple’s DNA, for others like Icahn, well when the only tool you have a a hammer, every problem becomes a nail.

    Icahn won’t rest, and neither will Apple. Both makes lots of money, and I know that Apple provides inspiration for the creation and design of products for people to be their best.

    Now Icahn, why don’t you go make some revolutionary products so that you can really talk at the level that is required. Napkin notes indeed.

  10. Carl Icahn is nothing more than in desperate need of attention! Apple has done fine managing THEIR money, without Carl Icahn’s interference! Keep it up Mr Cook!

  11. Does Carl Icahn have any idea how many competitors already brought smart phones to market before the iPhone came out? The same can be said for the iPod. Common wisdom at the time was saying Apple was behind in the mp3 market and missed the boat.

    Any company that puts a considerable effort into stock manipulation rather that on the products they produce, are doomed to a Microsoft paradigm.

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