However, that was as of Sept. 30th, (the most recent data for 13F filings). In a more recent letter (more on that below), Icahn admitted to having 4.73 million shares, an increase of 22% to $2.5 billion. He also said he "intends to buy more."
Icahn regularly tweets how his lunch dates go with Apple CEO Tim Cook, which for now, is supposedly going well.
I can't speak for Icahn, but I can only image there will come a time when these tweets aren't quite as friendly, as Icahn tries to force Cook's hand in his request of a larger buyback program.Or perhaps he won't, as it will directly hinder the performance of his own position.
But in the end, that's all he's chasing the stock for, financial engineering. In short, Icahn believes that Apple's share price would increase -- to the tune of 240% -- if the company would implement a $150 billion share buyback program. He had this to say in a letter to Cook:
"Apple generates more than enough cash flow to service this amount of debt and has $147 billion of cash in the bank. As we proposed at our dinner, if the company decided to borrow the full $150 billion at a 3% interest rate to commence a tender at $525 per share, the result would be an immediate 33% boost to earnings per share, translating into a 33% increase in the value of the shares, which significantly assumes no multiple expansion. Longer term (in three years) if you execute this buyback as proposed, we expect the share price to appreciate to $1,250, assuming the market rewards EBIT growth of 7.5% per year with a more normal market multiple of 11x EBIT."This essentially sums up the letter, but can be read in its entirety here. The argument for the tender offer essentially falls into two categories:
- Apple is a technology company and should not be putting all or most of its cash to work by buying back stock. It also shouldn't be bullied by large investors who are only looking to increase their returns.
- Cook should listen to Icahn's proposal because the amount of cash Apple does have, and will make in the near-term, is so tremendous that it should be used to unlock value for shareholders. By doing so, it will leave more than enough cash for R&D and most M&A candidates, especially the ones Apple typically targets.
At the same time, management shouldn't dismiss any idea from them due to arrogance, since a good idea shouldn't be tarnished simply because it was not their own. So Cook is caught in a catch-22. Surely, he doesn't want to tell off Icahn and reject the buyback offer, but at the same time, Cook can't look weak and cave in to his demands. I'm telling you, Tim: It might be best for all parties to meet somewhere in the middle. At the time of publication, the author was long AAPL. -- Written by Bret Kenwell in Petoskey, Mich. Follow @BretKenwell
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