Icahn lambasts Apple for hoarding 'cash rather than repurchase stock'

Icahn lambasts Apple for hoarding 'cash rather than repurchase stock'

Summary: Apple. eBay. It's been a busy week for Carl Icahn, to say the least.

SHARE:
42
apple-down

Last year, the target was Dell. Just a few weeks into 2014, it is clear that Apple (not to mention eBay) will be on the receiving end of Carl Icahn's wrath (and Twitter rants) this year.

It's been just one day since the American financier took to his Twitter account to blast the iPhone maker for "great disservice to shareholders."

Icahn has since penned an open letter to Apple shareholders directly.

Filed with the U.S. Securities and Exchange Commission on Thursday, the business magnate reiterated the points behind his buyback plan, once again describing it as a "no brainer."

(To get an idea of what Icahn means by "no brainer," he listed some of his other investments also touted to be "no brainers," which include "Netflix, Hain Celestial, Chesapeake, Forest Labs and Herbalife, just to name a few." However, he also said the same thing about spinning off PayPal amid eBay's earnings report on Wednesday.)

Icahn also repeated his belief that Apple stock is "undervalued," turning things up a notch by lambasting how "ridiculous it seems to us for Apple to horde [sic] so much cash rather than repurchase stock."

Here is Icahn's rationale for the buyback plan, in a nutshell:

The S&P 500’s price to earnings multiple is 71% higher than Apple’s, and if Apple were simply valued at the same multiple, its share price would be $840, which is 52% higher than its current price. This is a dramatic valuation disconnect that simply makes no sense to us, and it seems that the company agrees with us on this point. Tim Cook himself has expressed on more than one occasion that Apple is undervalued, and as the company states, it already has in place “the largest share repurchase authorization in history.” We believe, however, that this share repurchase authorization can and should be even larger, and effectuating that for the benefit of all of the company’s shareholders is the sole intention of our proposal.

Lamenting that Apple's board has gone against his advice, Icahn pointed toward Apple's product portfolio and its long-standing reputation for further evidence:

Even if the story ended with Apple’s existing product and software lines, we would still choose to make Apple our largest investment. But there is more to the story! Tim Cook keeps saying that he expects to introduce “new products in new categories” and yet very few people seem to be listening. We’re not aware of a single Wall Street analyst who includes “new products in new categories” or new services in any of their financial projections, even though Apple clearly has an impressive track record of such new category product introductions, even if it does so rarely. Apple released the iPhone in 2007 and the iPad five years later in 2012, both so extraordinarily successful that today they represent the majority of the company’s revenue. Tim Cook’s comments, along with advancements in enabling technologies, lead us to believe that we may see in the not too distant future what new groundbreaking products they’ve been working on developing in Cupertino these last several years.

Icahn made a splash last year when he announced his firm's "substantial" investment in Apple. That figure became all the more substantial this week as Icahn said he bought $500 million more in Apple shares, bringing his total investment to approximately $3.6 billion.

Shortly after the initial investment, Icahn tweeted about some of the business-related topics discussed during a dinner with Apple CEO Tim Cook -- notably the $150 billion share buyback plan.

He followed up in a candid interview with Bloomberg TV in October, arguing that anyone who was not onboard with his buyback proposal must "have not bothered to read the balance sheet or maybe does not know how to read a balance sheet."

Apple has not commented publicly on the matter. The Cupertino, Calif.-based company is scheduled to publish its fiscal first quarter earnings report after the bell on Monday, January 27.

Apple shares were also up slightly in after hours trading.

Topics: Apple, CXO, iOS, iPhone, Tech Industry

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

42 comments
Log in or register to join the discussion
  • Please ignore him

    It's all about him, it's not about the shareholder, and certainly not about managing a business for the long run. It's all about Carl. Deprive him of attention and maybe he'll go away.
    Luke Skywalker
    • He's hard to ignore...

      ...if he holds a large amount of a company's stock.
      John L. Ries
      • 3.6 billion of Apple stock means he owns .87% or

        Yeah he's still pretty easy to ignore especially when he demand is tied to making sure his purchase of Apple stock look like a genius business move.

        If Apple took his advice, naturally he'd make a lot of money selling his stock back to Apple.

        That's is only motivation.
        JonathanSeer
        • Exactly right. Icahn is "pisst" that Apple hasn't done a stock repurchase,

          whereby he'd be able to sell his Apple stock at a higher price than he bought it. That's the only reason he bought Apple stock to begin with, where after he made the purchase, he was talking up the stock for the mere purpose of getting it to rise, so that his stock purchases would grow in value immediately.

          Reality is that, Apple stock is way overpriced, and Icahn is worried that if Apple stock drops down to where it belongs, he'd take a huge hit. So, he needs to encourage Cook and Apple management to do the stock repurchase before it drops in value.
          adornoe
          • Ichan going on and on about new Apple products.

            He makes it sound so sure that something new is in the offing from Apple, and it sounds like he is speaking in terms of very "new category" products that open new markets. And that's odd.

            Ichan is a business man and hes talking like an armature, and he must know better so that raises a red flag. He would understand market dynamics, product development and form factor leveraging. Anyone with 3 billion in a company like Apple would have the resources to educate themselves about all the aforementioned issues relating to the iPhone and iPad and he could only form the conclusion that these products were direct derivations from the original concept design of the iPod touch.

            While leveraging form factor sensibly and profitably, Apple has made billions to be sure, but all massive investors also know that product form factor leveraging is an expected action at a company that performs at a high level, its not true innovation, its not new category invention. There is NO question that the iPod touch, iPhone and iPad are all of the same core form factor. This isn't something debatable; while the products have their differences they all rest on the very same core design concept with numerous similar and overlapping purposes.

            While business people are buying up lots of Apple stock, they are doing so on the notion that Apple will continue to sell lots of product in the foreseeable future and continue to be run competently in a likewise fashion. Its ridiculous for Ichan to make it sound like the big players are scooping up stock based on the notion that Apple is suddenly going to pop up with some "new category" product that will be a huge hit like the iPod touch form factor was. While its not impossible that Apple might pull off such an incredible feat, its no where near some kind of strong likelihood. If one looks at the iPod touch form factors evolution the only real innovation was the touch screen solution that allowed this kind of form factor to take wings. Such a great innovative "new category" product is only at best a possibility that puts a little bit of icing on the very nice cake that Apple stock is.

            So ya, it seems very very likely that Ichans hyping of Apples potential to come out with another huge new category product are a little disingenuous and are likely due to a desire to accomplish the sell back of stock at higher prices may here have spoke about.

            These huge investors, unlike our armchair pundits here, just cant allow pipe dreams to get in the way of sensibly investing 3 billion dollars. Nobody invests that kind of money into a company largely on the hope they will soon release a massive new ground braking new category product unless they have some inside information. It dosnt matter how big or successful the company is. Products of that kind are few and far between. Most new category products have a slower evolutionary curve that require specific technological hurdles to be overcome and, for example the iPod touch needed the touch screen invention, such new ground braking products in the "device" category often rely on some new and affordable tech to be invented to put to work in a device that the public will find useful, usually solving what was some problematic obstacle that was in similar products of the past.

            For example, when FORD began to produce cars, they were a great company to invest in because there was every reason to believe they would continue to sell product and be a well run company in the future. NOT because smart investors though it would only be so long before Henry Ford came out with another great invention everyone would want to buy. While always a possibility, again the possibility would just be a little icing on the cake. Smart investors in the market don't typically play the market like a poker hand where you bet a load of money with the thought your going to lose your money if the big card dosnt come up. Its more like your betting your money on something where your sure you wont lose anything if the big card dosnt come up, will likely still make good money even if the big card dosnt come up and only lastly if the big card ever does come up its a big win.

            Somebody whos in a card game, making it sound like they are simply waiting for the inevitably big card to show sounds a lot like someone whos looking to sell someone their hand.
            Cayble
          • iPhone is not based on iPod touch

            The iPod touch is based on the iPhone. Regardless, I'm pretty sure Jobs announced the 2 products at the same event.
            DaveJMo
    • He's indicative of the whole problem with Wall Street

      There is a serious disconnect between the raiders and gamblers in Wall Street and what is best for these companies long term. I personally would love to see more moves like Dell and take many of these companies private again so they are not beholden to the dictates of corporate raiders such as this. Would make our companies and our country much stronger in the long run to not give so much control to these unethical criminals currently running our financial system.
      pauljones99
      • Greedy old corporate raider...

        Pauljones99, you called it spot on. There's not much I can add except he's the worst of his type. He's pushing all the buttons...and should be ignored. Duplicitous gasbag.
        ssivonda
      • Problem is that, without Wall Street and the investment class, who take the

        risks on companies, the whole economy would be at a fraction of what it is now.

        Investments are what give companies the cash to grow, and without the growth, most major corporations would not exist, and many millions of jobs would never have been created.

        Privately owned companies don't necessarily have the many sources of investors and the cash they bring with them, and thus, those companies will be more limited in what they can do. Fpr example, Facebook would not have had the funding to acquire Instagram, or any of the other acquisitions it's made. Same goes with Google, and without the Wall Street investors, Google would still be a struggling search engine with no earnings worth a damn to report.
        adornoe
        • Ya, but lots of these companies are of little risk.

          In theory that's the big draw of having Wall Street investment, but the fact also is that you do not get frequent large funding for underdeveloped companies where an investor says to himself this company could tank, but it looks like an interesting product so Im putting my money into that!

          Sure, it can and sometimes does happen, but in the total dollars and cents% column on Wall Street not a whole pile of the zillions of dollars bouncing around reside in those interesting but shaky investments.
          Cayble
        • Sure, investors are needed

          Whether a company is public or private, investors are needed. But playing in the markets has become disconnected from investing in a company. If you have enough clout, you can buy a bunch of something, announce it to the world, watch them follow you and drive up the value of your investment, and then dump your investment for a big profit.

          In this case, you basically just got rich off of your fame, not based on your support of a good company.

          Then again, it is presumptuous to assume that Icahn isn't sticking with Apple long term.
          DaveJMo
    • $$$$

      He really doesn't care about the company or the shareholders. All he is interested in is making money. As if he doesn't have enough already.
      boomchuck1
  • Icahn is poison

    Ichan only knows how to buy and dismantle companies. He destroys everything he touches and makes millions from it.
    new gawker
    • Agree -- parasite

      I worked for one of the company's he bought and dismantled. Can anybody just shut this guy up???
      Mileeski
  • Icahn

    Has that dirtbag ever run a company that did anything useful? Or has he always been a parasite?
    MC_z
  • Oh yes, a long series of successes for Carl...

    Blockbuster being one of the recent ones. Back in the late 70's and early 80's he tried taking on US Steel, trying to get them to sell their oil company. He's an example of the worst kind of person. In my opinion. He's made NOTHING and destroyed plenty.
    Bill F.
  • Find a corporation with serious cash, buy 3% stock

    propose your guys for election, and rant about stock repurchase.
    Get your guys elected, they stock repurchase, you sell stock for big profit.
    Ka-ching.
    Rinse and repeat.

    Is this ethical?
    stevey_d
    • I don't think so...

      ...but it is a legal practice; apparently with plenty of defenders.
      John L. Ries
      • Sadly there's no laws

        There's no laws against it . and I would guess that Bain Capitals business plan was pretty much the same. Underpay, sell off assets and dump workers. Restart with a shadow of original company and sell it off.
        ssivonda
        • Except that, Bain Capital, and other such companies, have been instrumental

          in rescuing and bringing companies back from the brink of death, such as Staples, which would not be around were it not for Bain.

          Bain is invested in many companies, such as: AMC Theatres, Aspen Education Group, Brookstone, Burger King, Burlington Coat Factory, Canada Goose, Clear Channel Communications, Domino's Pizza, DoubleClick, Dunkin' Donuts, D&M Holdings, Guitar Center, Hospital Corporation of America (HCA), Sealy, Sports Authority, Staples, Toys "R" Us, Warner Music Group and The Weather Channel.

          Take Bain out of the equation, and chances are that some, or many, of those corporations would not be around today. Icahn might be a bit slicker and sleazy, but he too is in the business of investing and making companies grow.

          Be careful what you wish for.
          adornoe