“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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