Carl Icahn Pushes for Bigger Investor Payout From Apple

Aug. 14 (Bloomberg) -- Bloomberg "Street Smart" anchor Trish Regan recaps her interview with billionaire activist investor Carl Icahn about his stake in Apple and calling for the company to use $150 billion for share buybacks. She speaks on Bloomberg Television's "In The Loop."

Apple Inc. (AAPL) Chief Executive Officer Tim Cook unveiled one of the biggest dividend and buyback programs in corporate history earlier this year. It still wasn’t enough for some investors.

Carl Icahn, the billionaire activist investor who has made a career of pushing companies to make changes to boost shares, yesterday said in a Twitter Inc. posting that he’s an Apple shareholder. Icahn bought $1 billion worth of stock and wants Apple to allocate $150 billion for a repurchase, said a person with knowledge of his plans who asked not to be named because the investment was made privately.

Icahn’s disclosure shows shareholders returning to Cook for a heftier payout just four months after the CEO announced a plan for a total of $100 billion in dividends and buybacks. As Apple’s stock has slumped more than 20 percent in the past year on investor concerns about a dearth of new hit products, the iPad maker has become more vulnerable to calls for change from activists such as Icahn and hedge-fund manager David Einhorn.

“Welcome to the undervalued Apple party, Mr. Icahn,” said David Rolfe, chief investment officer of Wedgewood Partners Inc., which has $5 billion under management, including Apple. “When Icahn says they can go further, they certainly can. Even in a slow-growth environment, Apple is still a prodigious cash-flow generator.”

Photographer: Noah Berger/Bloomberg

Tim Cook, chief executive officer of Apple Inc., speaks during an event in San Jose, California, U.S., on Tuesday, Oct. 23, 2012. Close

Tim Cook, chief executive officer of Apple Inc., speaks during an event in San Jose,... Read More

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Photographer: Noah Berger/Bloomberg

Tim Cook, chief executive officer of Apple Inc., speaks during an event in San Jose, California, U.S., on Tuesday, Oct. 23, 2012.

The shares rose 2.5 percent to $501.69 at 12:21 p.m. in New York, reaching the highest intraday price since January.

Having Conversations

“We currently have a large position in Apple. We believe the company to be extremely undervalued,” Icahn wrote in his Twitter post. He added that he spoke to Cook yesterday and discussed his view that a larger stock buyback should be done now. “We plan to speak again shortly,” he said.

While Apple co-founder Steve Jobs resisted calls to return cash to shareholders, Cook has shown a willingness to meet investor demands. In February, Einhorn raised a ruckus by demanding Apple give more cash back and later sued to get the company to increase shareholder returns. Apple in April increased its payout and boosted its stock repurchase plan.

Last month, the Cupertino, California-based company said it bought back $16 billion of stock last quarter. Apple, which plans to return $100 billion to investors by 2015, had $146.6 billion in cash and investments at the end of June.

“We appreciate the interest and investment of all our shareholders,” said Steve Dowling, a spokesman for Apple, in an e-mailed statement yesterday. “Tim had a very positive conversation with Mr. Icahn.”

Photographer: Scott Eells/Bloomberg

Carl Icahn, billionaire investor and chairman of Icahn Enterprises Holdings LP, center. “We currently have a large position in Apple. We believe the company to be extremely undervalued,” Icahn wrote in his Twitter post. Close

Carl Icahn, billionaire investor and chairman of Icahn Enterprises Holdings LP, center.... Read More

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Photographer: Scott Eells/Bloomberg

Carl Icahn, billionaire investor and chairman of Icahn Enterprises Holdings LP, center. “We currently have a large position in Apple. We believe the company to be extremely undervalued,” Icahn wrote in his Twitter post.

Icahn’s Thesis

The investor’s stake in Apple, less than a quarter of a percentage point of the company’s $444.8 billion market capitalization, was accumulated over the past month, said the person with knowledge of the purchase. Icahn, who considers Cook a good CEO, projects Apple’s stock can rise to more than $625 if it buys back shares, said the person. Icahn also wants Apple to borrow $150 billion at a 3 percent interest rate to fund the purchases and avoid paying more taxes, the person added.

“Even if the earnings and multiple stay the same, the stock value is greatly enhanced by the buyback,” Icahn said in an interview.

Apple investors cheered Icahn’s move. With updates to the iPhone and iPad coming this year and other new products expected in 2014, Apple is poised to return to growth, said Michael Obuchowski, an investor with North Shore Asset Management LLC.

New Products

“We are coming in to the usual Apple product-refresh cycle and there will be rising excitement,” said Obuchowski. “He’s getting in close to the low in Apple’s stock price.”

Apple is trading at a lower price-to-earnings ratio than 86 percent of Standard & Poor’s 500 Index companies, with a ratio of 12, according to data compiled by Bloomberg. Google Inc., by contrast, trades at about 26 times earnings and Facebook Inc. (FB) is at 161.

Photographer: Qilai Shen/Bloomberg

People walk outside the Apple Inc. store in Shanghai. Last month, the company said it bought back $16 billion of stock last quarter. Apple, which plans to return $100 billion to investors by 2015, had $146.6 billion in cash and investments at the end of June. Close

People walk outside the Apple Inc. store in Shanghai. Last month, the company said it... Read More

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Photographer: Qilai Shen/Bloomberg

People walk outside the Apple Inc. store in Shanghai. Last month, the company said it bought back $16 billion of stock last quarter. Apple, which plans to return $100 billion to investors by 2015, had $146.6 billion in cash and investments at the end of June.

Apple is set to debut a new iPhone on Sept. 10, followed by another unveiling this year of an updated lineup of iPads, according to people with knowledge of the plans. The touch-screen devices accounted for almost 70 percent of Apple’s revenue last quarter.

Technology Forays

The Apple stake is part of Icahn’s push into technology companies. Icahn has also invested in Dell Inc. (DELL), and is opposing founder Michael Dell and Silver Lake Management LLC’s plan to take the computer maker private.

He also has stakes in Netflix Inc. (NFLX), Nuance Communications Inc. (NUAN) and WebMD Health Corp. (WBMD), and has previously taken positions and pushed for changes at mobile-phone maker Motorola Inc. and at Web portal Yahoo! Inc. (YHOO)

Some of these investments have reaped rewards for Icahn. Netflix stock, which has gained 180 percent so far this year, has given him a profit of more than a $1 billion, he told the Wall Street Journal in May.

In 2011, after Icahn urged Motorola to explore alternatives for its patent portfolio, the company’s phone business agreed to be acquired by Google Inc. (GOOG) for $12.5 billion, or a 63 percent premium to what the stock was trading at before a deal was announced.

Icahn’s Apple investment shows the increased use of Twitter in the financial world. The billionaire investor said in a recent regulatory filing that he will occasionally use the service to share thoughts. He has previously used Twitter to write about his battle with Dell.

“Icahn’s embracing of new technology will likely lead to greater use of Twitter for these kinds of disclosures,” said Bill Kreher, an analyst at Edward Jones & Co.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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