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AAPL Stock: 106.74 ( -0.6 )

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Icahn asks for 'immediate' $150B buyback of Apple stock

updated 10:52 am EDT, Thu October 24, 2013

Investor ups stake to $2.5 billion

As promised yesterday, influential investor Carl Icahn has published the contents of a letter sent to Apple CEO Tim Cook. The letter asks Apple to pursue an "immediate" $150 billion share buyback program, expanding on the $60 billion program the company is already engaged in. The latter is due to finish by the end of 2015, and has required Apple to go into debt despite tens of billions in cash reserves.

"When we met, you agreed with us that the shares are undervalued," Icahn's letter reads. "In our view, irrational undervaluation as dramatic as this is often a short term anomaly. The timing for a larger buyback is still ripe, but the opportunity will not last forever. While the board's actions to date ($60 billion share repurchase over three years) may seem like a large buyback, it is simply not large enough given that Apple currently holds $147 billion of cash on its balance sheet, and that it will generate $51 billion of EBIT next year (Wall Street consensus forecast).

"While this would certainly be unprecedented because of its size, it is actually appropriate and manageable relative to the size and financial strength of your company," he continues. "Apple generates more than enough cash flow to service this amount of debt and has $147 billion of cash in the bank. As we proposed at our dinner, if the company decided to borrow the full $150 billion at a 3% interest rate to commence a tender at $525 per share, the result would be an immediate 33% boost to earnings per share, translating into a 33% increase in the value of the shares, which significantly assumes no multiple expansion. Longer term (in three years) if you execute this buyback as proposed, we expect the share price to appreciate to $1,250, assuming the market rewards EBIT growth of 7.5% per year with a more normal market multiple of 11x EBIT."

Icahn notes that he wouldn't actually participate in the buyback, since there is "nothing short term about intentions." Reports observe, though, that he has increased his stake in Apple from $1.5 billion to $2.5 billion. Inflating the value of Apple stock would increase the value of that portfolio, and allow him to make more money from periodic selloffs.




by MacNN Staff

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Comments

  1. machobbes

    Fresh-Faced Recruit

    Joined: 02-13-09

    He should ask Warren for some well founded advice ...

  1. BarTron

    Fresh-Faced Recruit

    Joined: 10-02-13

    All he wants to do is drive up the stock price so he can sell what shares he has. If there is a sudden or "immediate" demand, the price skyrockets, and he cashes out! F*ck You Icahn.

  1. jpellino

    Fresh-Faced Recruit

    Joined: 10-29-99

    How is this not a ransom note? Icahn never spent a day of his life manufacturing a physical product. Look at the investment in manufacturing that resulted in the Mac Pro, iPad Air, etc... Apple needs a cash reserve. Stockholders understand the risk/return that will disappear if Apple is not free to spend their cash on the future of their products. And he should listen to Buffett: buy successful companies that deal in tangibles that everyone wants or needs: chocolate, jewelry, underwear, ice cream, insurance, freight. And the talented people in charge? Leave them alone to do their job. That's how Steve did it too.

  1. NeXTLoop

    Senior User

    Joined: 08-20-02

    I cringe anytime I see this guy interfering in a company's business. He's interested in short to mid-term profit, not in building successful companies that will still be here thirty years later.

    His mentality is exactly the kind of short-sighted greed that causes so many companies to...well...suck.

  1. jscotta

    Fresh-Faced Recruit

    Joined: 06-30-02

    I'm gladdened to see so many that feel the same way I do about Icahn and his 'advice'. If he wants to test the waters of share-holders, maybe he'll read this and other comments on related sites. He could care less if Apple tanked once he got his money out of it.

    It is funny how he says he wouldn't participate in the buyback - nope, he'll sell a lot of shares through proxies that don't directly have his name attached in order to look innocent - the ass.

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