Icahn wants Apple to buy back $150 billion in stock

Activist investor Carl Icahn wants Apple Inc. to spend $150 billion on its own stock, returning some of its cash to holders. In a letter on his website to CEO Timothy Cook, Icahn even set the price he wants to see.

Here’s the story from the New York Times:

When Carl C. Icahn starts making noises about a company, executives usually listen. But his campaign for Apple to return more money to shareholders might be falling on deaf ears.

The investor sought to increase the pressure on Apple on Thursday, posting a letter he had sent to Timothy D. Cook, its chief executive, on his own Web site. The letter, which Mr. Cook received on Wednesday, urged Apple to immediately begin an offer to buy back $150 billion of its shares at $525 a share.

The company has not yet responded to Mr. Icahn’s public calls, which began in August when Mr. Icahn first disclosed he had a stake in the company. He has taken to Twitter and CNBC to agitate for Apple to do something with its large cash reserves.

With a net cash position of $130 billion, analysts say Apple could afford to return more money to shareholders. But the company has already undertaken a $100 billion share buyback and dividend program and may not feel it needs to do anything more for now.

Forbes reported that Icahn said the move would boost Apple’s earnings per share immediately:

According to Icahn, the move would immediately increase earnings per share by 33% (by reducing the share count) and send the stock price to $1,250 within three years. He also said he would pledge n0t to tender any of his shares in the buyback.

The billionaire also took a shot at the board’s lack of investment chops.

“In my opinion, any further delay in executing the buyback we hereby propose will reflect this lack of expertise on the board,” he writes. “My firm’s success and my expertise as an investor would be difficult for anyone to argue.”

Even with his increased stake, Icahn controls just half of one percent of Apple’s outstanding shares. But thanks to the septuagenarian’s current winning streak — including cashing in a bit more than half his Netflix stake for a 457% return this month — his voice carries considerable weight.

The Wall Street Journal pointed out that Icahn increased his stake in the company by 22% before beginning his campaign, which isn’t making everyone happy:

Bill Gross, the founder and managing director of Pacific Investment Management Co. LLC, or Pimco, tweeted that Mr. Icahn should “leave Apple alone & spend more time like Bill Gates. If Icahn’s so smart, use it to help people not yourself.”

When Mr. Icahn first began discussing the buyback, shares of Apple were below $500 a share.

Mr. Icahn said in an interview Thursday that his math still worked even if Apple was forced to buy back shares at above $525, though the recent share gains show why Apple should move quickly.

“A lot of critics just keep saying why doesn’t Icahn just leave our companies alone,” he said. “To me that is like saying: Why didn’t Teddy Roosevelt leave the monopolies alone when they were strangling our economy.”

In an interview with CNBC Thursday, Mr. Icahn said his average cost of the Apple investment was about $440 a share—which would put him in line for over $400 million in paper profits at this point.

Mr. Icahn also said that if Apple didn’t follow his plan he would at least “test the waters” on a potential proxy fight to unseat some board members. He said he himself wouldn’t join the board.

CNBC ran the text of the letter praising Apple’s management team:

In the letter, Icahn praises Cook’s leadership, but says the discussed share buyback needs to be substantial.

“We want to be very clear that we could not be more supportive of you, the existing management team, the culture at Apple and the innovative spirit it engenders. The criticism we have as shareholders has nothing to do with your management leadership or operational strategy,” the letter says. “Our criticism relates to one thing only: the size and timeframe of Apple’s buyback program. It is obvious to us that it should be much bigger and immediate.”

Others are willing to follow Icahn’s lead. The stock price closed at $531.91 Thursday, above the $525 price Icahn is seeking. One interesting point to think about is what a distraction for management this campaign will be. Instead of running the company and building new products, Apple executives will have to weigh the proposal, take time to respond and get ready for a potential proxy fight. That ultimately hurts all stockholders.