TMO's Artist's Representation of Carl Icahn's Characterization of Apple's Management
Mr. Icahn was already a major Apple shareholder before Thursday's investment announcement, and he has been pushing the company to get more aggressive in buying back its own stock. For Apple's upcoming annual shareholder meeting, Mr. Icahn submitted a shareholder proposal that would require Apple to do just that, if adopted.
The Letter
Thursday's letter that was filed with the SEC is his argument to shareholders on why they should vote for his proposal when Apple's management has urged them not to do so.
The letter is all over the place, but aside from the two messages above, Mr. Icahn makes the case for why Apple is such a great company and why it is undervalued. He then goes on to argue that this is why Apple should buy back more stock, and that the company should do so on his time table, rather than management's conservative approach.
In the letter, he wrote, ” It seems to us that the basis of [Apple management's] argument against our proposal is that the company believes, because of the 'dynamic competitive landscape' and because its 'rapid pace of innovation require[s] unprecedented investment, flexibility and access to resources,' it does not currently have enough excess liquidity to increase the size of its repurchase program.”
“Assuming this indeed is the basis for the company’s argument,” he said, “we find its position overly conservative (almost to the point of being irrational), when we consider that the company had $130 billion of net cash as of September 28, 2013 and that consensus earnings are expected to be almost $40 billion next year.” [Emphasis added.]
He argued that “Apple is perhaps the most overcapitalized company in corporate history,” and that there's no evidence back up the company's claim that it needs to have a bunch of money lying around.
“Said another way, we believe that the combination of the company’s unprecedentedly enormous net cash balance, robust annual earnings, and tremendous borrowing capacity provide more than enough excess liquidity to afford both the use of cash for any necessary ongoing business-related investments in addition to the cash used for the increased share repurchases proposed.”
Father Knows Best
In other words, Carl Icahn knows best, and to be fair, Mr. Icahn has proved in the past that sometimes he does know best. His successes on Wall Street are legendary, and that includes many instances of shareholder activism where he argued against the wisdom of a corporation's management.
Of course, Apple isn't like any other company on the planet, and it has an excellent record of its own, a record that Mr. Icahn himself touts as one of the reasons he believes the company is undervalued. He praises Tim Cook's leadership as CEO, and said that Wall Street has bizarrely ignored Apple's own hints that new stuff is coming.
“Tim Cook keeps saying that he expects to introduce 'new products in new categories' and yet very few people seem to be listening,” he wrote. “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.”
Despite all that praise, however, he makes it abundantly clear that management is missing the boat on the stock buyback issue.
He also spends hundreds of words offering his take on Apple's rumors. Unfortunately for his goal of persuading Apple shareholders to vote with him, those words underscore that Mr. Icahn's success is in investing, not being a tech pundit.
Apple's annual shareholder meeting takes place on February 28th, 2014. TMO will be on hand to cover the event.
Shares of $AAPL closed higher at $556.18, a gain of $4.67 (+0.85 percent), on strong volume of 14.4 million shares trading hands.
Image courtesy of Shutterstock.
*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.