Carl Icahn and Apple: Frustration, Action, Acceptance, Optimism

Updated from 10:04 a.m. ET to include statement from CalPERS

NEW YORK (TheStreet) - Carl Icahn believes Apple (AAPL) CEO Tim Cook will increase the company's share repurchase activity and sees no reason to continue to press a shareholder proposal to increase its annual share repurchase authorization to $50 billion.

In a letter to Apple shareholders, Icahn said he was disappointed Institutional Shareholder Services recommended against his increased buyback proposal, especially since Apple CEO Tim Cook recently projected a share repurchase program almost in line with his $50 billion-a-year proposal.

What Icahn had been calling for was an additional $18 billion-a-year to Apple's rate of annual share repurchases. A February disclosure by Tim Cook that Apple had bought $14 billion worth of stock in the wake of the company's first quarter earnings, however, indicated that both Icahn and Cook were basically on the same page about share repurchases.

"As Tim Cook describes them, these recent actions taken by the company to repurchase shares have been both "opportunistic" and "aggressive" and we are supportive. In light of these actions, and ISS's recommendation, we see no reason to persist with our non-binding proposal, especially when the company is already so close to fulfilling our requested repurchase target," Icahn said.

The activist also hinted that he is now more interested as an investor in the products that Apple will unveil in 2014, which could range from wearable devices to innovations surrounding mobile payments and even an expanded Apple TV product.

The California Public Employees' Retirement System (CalPERS), a vocal institutional Apple shareholder, said on Twitter it "applauded" Icahn's decision to drop his proposal on Monday. Previously, the retirement fund had criticized Icahn's proposal.

Reading Carl Icahn's flurry of recent tweets made it relatively obvious he had moved in agreement with CEO Tim Cook on Apple's capital planning. For all parties, it may be a positive development and may allow investor discussion to move past discussion about the iPhone an iPad maker's capital structure.

Here's a reverse chronology of Icahn's discussion about Apple over recent weeks. My reading of the tweets is as follows: Frustration, action, acceptance, optimism.

As the Tweets show, Icahn and Apple may have been so much in agreement on share repurchases, they were competing against each other to buy the company's stock.

After expressing frustration with Apple's buyback, Icahn spent recent weeks loading up on the company's shares. Now, Icahn appears more interested in the fruits of Apple's share repurchase and gains the company might make as it rolls out a new set of products in coming quarters.

JPMorgan analyst Mark Moskowitz recently said that while capital-focused investors will "cheer the news of of Apple's buyback bonanza," there are more important issues at hand. The iPhone business is slowing down, with "[t]he last two iPhone launches have not resulted in multi-quarter sales growth spurts as previously seen." It's clear that Apple needs to do something to drive innovation and launch another product or three (whether that's the watch, a television or something that hasn't been speculated on) to drive sales growth.

Aside from an iWatch, television set, or mobile payments, Apple does have one thing going for it now, according to Moskowtiz-- its recent deal with China Mobile CHL and what it means for the future. "The China Mobile launch stands to set the stage for a larger-sized iPhone rollout later this year, which could boost unit sales," Moskowitz wrote in the note. "Another silver lining is that we think Apple's crossover to 64-bit processors, ahead of the competition, could usher in new features, potentially jumpstarting growth in the next 12-18 months."

Basic math now also indicates that Apple may increase its share buyback authorization for a third consecutive year. Apple currently has an authorization to return $100 billion in capital through the end of 2015 by way of about $40 billion in dividends and a further $60 billion in share repurchases.

As of Apple's most recent quarter, the company said it has returned $43 billion as part of the authorization. Furthermore, Tim Cook recently told the Wall Street Journal that the company had repurchased an additional $14 billion in shares in recent weeks, mostly from discretionary repurchases.

Apple's capital returns now stands at nearly $60 billion with about $40 billion coming in stock buybacks in the past 12-months. Cook's disclosure to the Journal indicates that Apple's annual share repurchase activity is nearly in line with Icahn's proposals. That, however, is not yet confirmed by the company.

Proxy advisor ISS on Sunday recommended Apple shareholders vote against Icahn's accelerated buyback proposal. That now appears to be beside the point. What a relief!

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