updated 09:00 pm EST, Wed February 5, 2014
Icahn, CalPERS at odds over buyback strategy ahead of shareholders' meeting
The close of the market today, which saw Apple's stock rise $3.80 to close at $512.59, marked the beginning of the company's "ex-dividend" period, where no new trades of AAPL will be included in dividend calculations. Shareholders of record will receive $3.05 per share beginning Thursday, February 13, with the annual shareholders' meeting scheduled to take place two weeks later. The question of how Apple manages its enormous cash hoard has become something of a public spat between two large-volume investors, Carl Icahn and the California Public Employees' Retirement System (CalPERS).
In addition to increasing its dividend from $2.65 to the current $3.05, Apple has also sought to return cash to investors through increased stock buybacks. From an initial program to buy back $60 billion, the company is now planning to spend a total of $100 billion buying back stock across this year and next. It has already spent around $43 billion of the total on buybacks already, but its cash hoard continues to grow because of the company's success.
That money pot has set up something of a feud between activist investor Carl Icahn, who has been pouring money into his holdings of AAPL (now up to $3.6 billion) and CalPERS, a long-time institutional investor with holdings of about $1.6 billion. Icahn, who tends to wage public campaigns to influence boards, wants Apple to accelerate its stock buyback program by pumping another $50 billion or more into it immediately, with a goal of pumping up the stock price. CalPERS believes the existing programs approved by the board are sufficient, and expressed concern that Icahn's plan would hurt the company's long-term viability in the interest of short-term gain.
A spokesperson for CalPERS told CNBC on Wednesday that they see Icahn as an investor "with a very short-term agenda" whose opinions should not be "steering the board of Apple, which is a very big company with a long-term future which many people are relying on." Apple's board of directors has recommended that shareholders vote against Icahn's proposal, which would increase Apple's short-term debt. The board has pointed out that it will eventually spend more than even Icahn has proposed on buybacks, but that it wants to carefully consider strategic buying rather than be forced to spend the money quickly.
Icahn attacked the CalPERS representative in a rebuttal, saying he is seeking to improve "corporate governance in this country, which CalPERS is in a postion to [help with]," reiterating his long-held position that Apple's board are too subservient to the executive team. Icahn, notably, did not refute the CalPERS suggestion that if Apple pumped up its stock price, he would cash out and leave the company with debt and longer-term financial issues. He did say, however, that he doesn't consider himself a short-term investor -- though his track record is mixed in this regard.
Icahn also pointed out that his more aggressive style of investing has resulting in a significantly higher average rate-of-return over the past ten years (26.6 percent versus CalPERS' 7.1 percent). Nevertheless, his tendency to buy huge quantities of stock, advise boards and then move on to other opportunities has mostly been seen in the past as detrimental to long-term investors.
The annual stockholder meeting will be held on February 28 at Apple's headquarters. Shareholders will vote on Icahn's proposal, though traditionally investors have been very supportive of Apple's board recommendations.