Icahn turns up heat on Apple, hints at proxy fight over $150B buyback

Says CEO Tim Cook 'doing a fine job,' but blasts the company's board for not taking on debt to buy back shares

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"While the board's actions to date ($60 billion share repurchase over three years) may seem like a large buyback, it is simply not large enough given that Apple currently holds $147 billion of cash on its balance sheet, and that it will generate $51 billion of EBIT next year," Icahn wrote Cook.

EBIT represents "earnings before interest and taxes."

As Icahn noted, Apple is in the middle of an aggressive share buyback program. Last year, Apple said it would use $10 billion to fund buybacks that would retire shares and thus increase the value of those still remaining. In April, the Cupertino, Calif., company increased the buyback program to $60 billion, which is to be spent through 2015.

Apple borrowed some of the money it will use on its current buyback arrangement.

Icahn claimed that a $150 billion buyback would push Apple's share price to $1,250 within three years. The stock opened at $531 Friday morning.

The activist also took aim at critics, saying that their reasoning was "patently absurd" and "idiotic," and showed "they don't know how to read a balance sheet." Many of those who oppose Icahn's buyback have argued that Apple should not touch its huge cash pile because if its business turns south, it may need the money.

"That's like saying Bill Gates shouldn't fix his house because he might need the money for charity," Icahn countered.

Both average Americans as well as some financial managers were puzzled, at best, by Icahn's involvement in Apple.

"Icahn should leave #Apple alone & spend more time like Bill Gates. If #Icahn's so smart, use it to help people not yourself," tweeted Bill Gross, another billionaire and the co-founder and director of PIMCO (Pacific Investment Management Company), a bond management firm that handles nearly $2 trillion in assets.

Comments left on most news stories about Icahn's repeated demands trended toward the negative. "Really, he should go help Amazon and just leave Apple alone. As an Apple shareholder, I don't want his help," wrote Terry Grosenhelder in a comment appended to a New York Times story.

Some industry analysts have seconded that motion. "This is a clear indication that Icahn is increasing his aggressiveness on his attack on Apple," said Patrick Moorhead, principal analyst at Moor Insights & Strategy, and a past critic of Icahn's attempt to block Michael Dell's move to take his company private this year. "He also tied two metrics together, a $1,250 share price and a $150 billion share buyback, so we now know Icahn's expectations."

Apple will host its third-quarter earnings call Monday, Oct. 28, and will likely face questions then from Wall Street analysts about the buyback.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Copyright © 2013 IDG Communications, Inc.

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