updated 12:15 am EST, Sat December 28, 2013
Icahn wants Apple to expand existing $100B program to spend $50B in 2014
As previously mentioned, filings with the US Securities and Exchange Commission have revealed that Apple is recommending against predatory investor Carl Icahn's official shareholder proposal, which has the aim of forcing Apple to accelerate and expand its existing stock-buyback program to repurchase an additional $50 billion in shares over and above its existing buyback program. Icahn's proposal would see Apple required to buy the $50 billion in extra shares during the fiscal 2014 year.
Icahn's proposal reads as follows: "RESOLVED, that the shareholders hereby approve, on an advisory basis, High River's proposal that Apple commit to completing not less than $50 billion of share repurchases during Apple's fiscal year ending September 27, 2014 (and increase the amount authorized for share repurchases under its Capital Return Program accordingly)." While the proposal is a step down from Icahn's original demands to more than double the existing $60 billion repurchase program, it asks for Apple to purchase shares very aggressively on a strict timetable rather than waiting strategically for strong buying opportunities.
Such a proposal, if enacted by stockholders at the company's annual meeting on February 28, would force Apple to go further into debt in order to finance the buyback. While Apple has around $150 billion in cash reserves, most of it -- around $115 billion -- is held offshore. CEO Tim Cook has said that Apple intends to use its foreign earnings for foreign operations and expansion, and will not "repatriate" the funds since the money would, in Apple's view, be "double-taxed" -- and bringing the money into the US would trigger taxes that might claim as high as 35 percent of the cash brought in.
From Apple's perspective, it has saved literally billions by borrowing to finance the current round of buyback purchases, and by timing those purchases to periods where the stock was undervalued. Apple's original proposal was to spend $100 billion in stock repurchases over a period of up to three years, however it has already spent some $43 billion on the program already, capturing and retiring stock during periods of devaluation and paying out dividends. It spent over $23 billion in 2013 alone, buying up devalued shares when the price was lower than it is now.
Icahn himself now holds at least 4.7 million shares of AAPL, roughly a $2.7 billion stake in the company. Despite this, Apple has indicated in its filings that it will advise shareholders to vote against Icahn's proposal, saying that the Board and management team are "fully committed to returning cash to shareholders" but that they are "thoughtfully considering options for returning additional cash to shareholders and are currently seeking input from shareholders as part of the Company's regular review." Icahn's proposal is very unlikely to succeed, despite the short-term rewards to investors, as Icahn's plan doesn't make any strategic sense for the long-term health of the company.
The proxy statement filed by Apple indicates that the company plans to announce changes to the current buyback program -- if any -- following a review that should be complete in March or April of next year. It notes that it is not against the idea of further stock repurchase plans or an expansion of the existing program, but is against Icahn's specific proposal.