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Icahn turns up heat on Apple, hints at proxy fight over $150B buyback

Gregg Keizer | Oct. 28, 2013
Billionaire trading activist and agitator Carl Icahn is turning the heat up on Apple, saying he would "test the waters" with a proxy fight if the company's board doesn't yield to his demand for an historic $150 billion stock buyback.

Icahn, who typically buys a stake in a company to demand changes and advocate the use of cash reserves to boost the share price, again argued that Apple should borrow billions to fund the buyback. While Apple has a massive cash reserve, much of it stemmed from foreign sales and is banked outside the U.S. The company has resisted calls to repatriate it to the U.S. because it would have to pay taxes on those monies.

Icahn's new website, Shareholders' Square Table, portrays his investment activism as storming the corporate castle controlled by greedy boards and CEOs. (Image: Shareholders' Square Table.)

"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," Icahn wrote Cook.

EBIT represents "earnings before interest and taxes."

As Icahn noted, Apple is in the middle of an aggressive share buyback program. Last year, Apple said it would use $10 billion to fund buybacks that would retire shares and thus increase the value of those still remaining. In April, the Cupertino, Calif., company increased the buyback program to $60 billion, which is to be spent through 2015.

Apple borrowed some of the money it will use on its current buyback arrangement.

Icahn claimed that a $150 billion buyback would push Apple's share price to $1,250 within three years. The stock opened at $531 Friday morning.

The activist also took aim at critics, saying that their reasoning was "patently absurd" and "idiotic," and showed "they don't know how to read a balance sheet." Many of those who oppose Icahn's buyback have argued that Apple should not touch its huge cash pile because if its business turns south, it may need the money.

"That's like saying Bill Gates shouldn't fix his house because he might need the money for charity," Icahn countered.

Both average Americans as well as some financial managers were puzzled, at best, by Icahn's involvement in Apple.

"Icahn should leave #Apple alone & spend more time like Bill Gates. If #Icahn's so smart, use it to help people not yourself," tweeted Bill Gross, another billionaire and the co-founder and director of PIMCO (Pacific Investment Management Company), a bond management firm that handles nearly $2 trillion in assets.

Comments left on most news stories about Icahn's repeated demands trended toward the negative. "Really, he should go help Amazon and just leave Apple alone. As an Apple shareholder, I don't want his help," wrote Terry Grosenhelder in a comment appended to a New York Times story.

 

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