Apple's Surplus Bag of Cash: What to Do With It?

NEW YORK (TheStreet) -- In a recent 13F filing, hedge fund manager Carl Icahn revealed that he had a 3.875 million share position in Apple (AAPL), amounting to $1.85 billion. 

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."

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