Carl Icahn Backs Down on AAPL Buyback Demands

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If big name investor Carl Icahn was playing a game of chicken with Apple, he just lost. Mr. Icahn has been pressuring the iPhone and iPad maker to aggressively increase its stock buyback program, but on Monday morning he dropped his campaign saying he saw "no reason to persist."

Carl Icahn: Never mind on my AAPL stock buyback plansCarl Icahn: Never mind on my AAPL stock buyback plans

Mr. Icahn's announcement came after the proxy advisory company Institutional Shareholder Services, or ISS, advised Apple's shareholders to vote against Mr. Icahn's proposal. Apple has been opposed to Mr. Icahn's proposal, too, and company CEO Tim Cook thinks the board is already acting aggressively with buyback plan.

Apple is in the middle of a US$60 billion stock buyback plan that Mr. Icahn has felt needs to be much bigger. He initially proposed pushing the program up to $150 billion, but later scaled his proposal back to $110 billion.

In an open letter to investors, Mr. Icahn said,

While we are disappointed that last night ISS recommended against our proposal, we do not altogether disagree with their assessment and recommendation in light of recent actions taken by the company to aggressively repurchase shares in the market.

In their recommendation, ISS points out, and we agree, that 'on the spectrum of options for allocating capital, the board appears to have been sluggish only in returning excess cash to shareholders,' and even though the company has in place 'one of the largest buybacks in history' we agree with ISS that this effort seems 'like bailing with a leaky bucket' when 'given the scale of the company's cash reserves.'

Mr. Icahn added that he was pleased to see Apple spend $14 billion over a two week period buying back stock and looks to be on track to repurchase upwards of $32 billion in fiscal 2014. He added, "Our proposal, as ISS points out, 'thus effectively only asks the board to spend another $18 billion on repurchases in the current year.'"

An agressive stock buyback program has real benefits for Mr. Icahn since he's already invested well over $3 billion in the company's stock. As Apple buys back its own stock, the value of what's left on the market goes up.

Mr. Icahn had been planning on using Apple's annual shareholder meeting at the end of February to push for a more agressive buyback program, but it seems now he doesn't see a need for that.

"We see no reason to persist with our non-binding proposal," he said, "especially when the company is already so close to fulfilling our requested repurchase target."

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7 Comments Leave Your Own

Bosco (Brad Hutchings)

It’s really unclear if he’s backing down from his general battle with Apple management or just picking a different route. See if he acquires any more big blocks of stock. If he does, be very, very scared. There is a metric f-tonne of idle capital tied up in AAPL that could be better used elsewhere. That’s what he has been thinking all along. Whether through buyback or higher dividends, he wants that capital released to shareholders.

Lee Dronick

The big wad of cash is just fine where it is, don’t eat your seed corn.

geoduck

You only need to look as far back as the story last week where Apple is effectively tying up a major part of the worlds sapphire production by buying nearly a thousand furnaces for their new plant. That’s the kind of thing you can do when you have the reserves Apple has. It was only a few years ago when Apple was able to make very good long term deals on flash memory and other components, far better than their competitors could. This was because they could walk in with cash to make the deal.
Sure there’s only $18BN separating how much Apple has bought and Icahn’s last demand but that really wasn’t the point. Apple is buying back stock when the price is low, when it’s smart to do so. Icahn’s proposal would have forced Apple to buy back more stock even if the price was high. It was a not subtle at all plan to drive Icahn’s stock up to the detriment of the company. Icahn does not care about Apple or any other company he owns, he just wants more money in his pocket, and to hell with who he harms to get it.

mrmwebmax

+

You only need to look as far back as the story last week where Apple is effectively tying up a major part of the worlds sapphire production by buying nearly a thousand furnaces for their new plant. That’s the kind of thing you can do when you have the reserves Apple has.

Couldn’t agree more. Growing any synthetic crystal is both art and science, and for Apple to have that much capacity being run by an experienced sapphire grower, I don’t see how any other company could touch that capacity for years to come. That takes as you said the kinds of cash reserves that few companies on the planet have at their disposal.

vpndev

There are actually two piles of capital: a U.S. pile and an international pile. Distributing the international pile would be expensive and/or problematic, although Apple could do another bond issue.

The capital isn’t exactly “idle”. It’s invested somewhere although perhaps not as effectively as it could be. This was one of the complaints from analysts a year ago when the stock dropped a lot—too much cash-on-hand.

I would not be at all surprised for Apple to announce an increase in buyback and also in dividend. Apple needs reserves and already has a big pile so one can well ask if it needs to be bigger. Apple might decide to keep it more-or-less constant from now on rather than having it continue to increase.

Lee Dronick

  Distributing the international pile would be expensive and/or problematic, although Apple could do another bond issue.

I would support a tax holiday, or whatever it is called, to bring that cash back here. Of course with Apple being an international company there may be business benefits to them in staying with the Bank of Grand Fenwick.

Bosco (Brad Hutchings)

My point was that Icahn has a history of doing more than asking boards to buy back more stock. He’s not your typical value investor, and he seems quite interested in owning bigger and bigger small chunks of AAPL.

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