Carl Icahn makes #activism look easy at Apple

August 14, 2013

By Robert Cyran 

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

Apple may be Carl Icahn’s easiest activist campaign ever. The 77-year-old billionaire disclosed a big position in the iPad maker on Twitter in what may be one of the most valuable tweets to date, at $142 million a character based on the roughly $20 billion it added to the company’s market value on Tuesday. His message was as simple as the medium – Apple should buy back more stock and fast. It would be a smart, relatively effortless move.

Icahn won’t have much leverage against the tech behemoth. His reported $1.5 billion stake may be sizeable in the context of his own estimated $18 billion fortune, but is relatively insignificant for $445 billion Apple. Chief Executive Tim Cook already stared down another uppity investor, David Einhorn, when he demanded the issuance of newfangled preference shares earlier this year.

All shareholders did benefit from Apple’s olive branch, though. It agreed to borrow to increase a stock repurchase program by $50 billion, taking the total amount it plans to hand back to investors to $100 billion by the end of 2015. A similar sort of accord with Icahn would make sense.

Though Apple is aggressively returning capital to shareholders – it bought back $18 billion of stock in the most recent quarter – it could still do more. The company receives little credit from investors for the roughly $130 billion of net cash on its books. It trades at roughly eight times earnings when cash is stripped out.

Because of its prodigious cashflow, however, Apple’s planned buybacks are unlikely to make any significant dent in the balance sheet. The cash pile might even grow. But there are limitations to how much even Apple can borrow, despite Icahn’s suggestion of an almost immediate $150 billion buyback funded with debt at a 3 percent interest rate. Something on a smaller scale would be manageable.

Cook hasn’t provided any obvious reasons to think he has better, alternative ways to deploy so much cash. And unlike Einhorn’s convoluted plan, Icahn’s message isn’t too complex and was delivered concisely. If any company should be able to appreciate the value of such simplicity, it’s Apple.


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