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

Billionaire trading activist and agitator Carl Icahn yesterday turned the heat up on Apple, saying he would "test the waters" with a proxy fight if the company's board doesn't yield to his demand for an historic $150 billion stock buyback.

Icahn went on a media blitz Thursday, making the proxy fight comment on CNBC, which was preceded by an interview on Bloomberg TV and after he launched a new website, Shareholders' Square Table on which he posted a letter he'd sent to Apple CEO Tim Cook.

In those interviews and his letter, Icahn repeated his demand that Apple boost its share price by buying $150 billion worth of stock, a move he called a "no-brainer."

"We're not in this for the short term, for the quick turn," Icahn said on Bloomberg TV, of his Apple investment, which now amounts to 4.7 million shares or about half of 1% of the company. Icahn's holdings were worth approximately $2.5 billion as of the 10 a.m. ET share price. "But Apple's not a bank. Shareholders didn't buy share for Apple to be a bank."

That remark was a reference to Apple's huge horde: As of June 30, Apple held $147 billion in cash, securities and other investments.

Icahn repeatedly said he had no problem with Cook and the Apple management team. "I respect Tim Cook, I think he's doing a fine job. We have no complaints about the management there, as far as what they're doing in technology," said Icahn, who sometimes agitates for management changes at the companies he targets.

But the 77-year-old billionaire -- his current worth of $20 billion put him as the 26th-richest person on the planet, just five spots behind Google co-founders Sergey Brin and Larry Page, according to Forbes -- had nothing nice to say about Apple's board of directors.

"We're not criticizing Tim Cook, we're criticizing a board that won't do [the buyback]," Icahn said on Bloomberg TV.

In his letter to Cook, Icahn elaborated.

"It is our belief that a company's board has a responsibility to recognize opportunities to increase shareholder value, which includes allocating capital to execute large and well-timed buybacks," Icahn wrote. "Apple's Board of Directors does not currently include an individual with a track record as an investment professional. In my opinion, any further delay in executing the buyback we hereby propose will reflect this lack of expertise on the board."

Icahn has been banging the buyback drum since August, when he revealed on Twitter that he had a "large position" in the company. Since then, he has tweeted about scheduling a dinner with Cook, then after the meal that he had again pressed the chief executive on his $150 billion brainstorm.

Icahn, who typically buys a stake in a company to demand changes and advocate the use of cash reserves to boost the share price, again argued that Apple should borrow billions to fund the buyback. While Apple has a massive cash reserve, much of it stemmed from foreign sales and is banked outside the U.S. The company has resisted calls to repatriate it to the U.S. because it would have to pay taxes on those monies.

Icahn's new website, Shareholders' Square Table, portrays his investment activism as storming the corporate castle controlled by greedy boards and CEOs. (Image: Shareholders' Square Table.)

"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.

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Copyright © 2013 IDG Communications, Inc.

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