Icahn Pushes Apple CEO for $150 Billion Share Buyback

Stock Chart for Apple Inc (AAPL)

Carl Icahn, who disclosed a $1 billion stake in Apple Inc. (AAPL) in August, said he had dinner with Chief Executive Officer Tim Cook and “pushed hard” for a $150 billion share buyback.

Talks will continue in about three weeks, said Icahn, the billionaire activist investor who has made a career of urging companies to adopt changes to boost the value of shareholdings.

While Cook announced a plan this year for a total of $100 billion in dividends and share repurchases, Icahn wants Apple to allocate $150 billion more for buybacks. The iPhone maker, which had $146.6 billion in cash and investments at the end of June, should also focus on boosting profitability to satisfy investors, according to Alex Gauna, an analyst at JMP Securities LLC in San Francisco.

“To justify the valuation on the stock, it’s got to get back to earnings growth,” said Gauna, who has a market-perform rating on Apple’s stock. “They have to be always innovating and putting in place the mechanisms for growth, or it doesn’t matter how much cash they return to shareholders.”

The shares of Cupertino, California-based Apple rose 2.4 percent to $487.96 at the close in New York. The stock has declined 8.3 percent this year, compared with a 19 percent gain in the Standard & Poor’s 500 Index.

Apple said in July that it bought back $16 billion of stock in the latest quarter. Steve Dowling, a spokesman for Apple, declined to comment.

Cash Flows

“We argued very hard for it, we think it’s a no brainer,” Icahn said of his buyback plan in an interview. The dinner with Cook took place yesterday at Icahn’s apartment in New York, the investor said. While they had spoken via telephone before, it was their first meeting in person.

While Apple co-founder Steve Jobs resisted calls to return cash to shareholders, Cook has shown a willingness to meet investor demands. In February, hedge-fund manager David Einhorn called for Apple to 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.

“They’ve certainly taken steps to be a little more shareholder-friendly, to return cash,” said Chris Caso, an analyst at Susquehanna International Group LLP in New York.

Microsoft Corp. (MSFT) unveiled a new $40 billion stock buyback plan last month and increased its dividend 22 percent, seeking to reward shareholders as the company undergoes a change in strategy and leadership.

Cordial Dinner

Icahn, who has said that he considers Cook a good CEO, projects Apple’s stock can rise to more than $625 if it buys back shares, a person with knowledge of his thinking said in August. Icahn also wants Apple to borrow $150 billion at a 3 percent interest rate to fund the purchases and avoid paying more taxes, said the person, who asked not to be identified because the plans are private.

“Had a cordial dinner with Tim last night,” Icahn said in a Twitter posting. “We pushed hard for a $150 billion buyback. We decided to continue dialogue in about three weeks.”

Apple sold a record 9 million iPhones in the weekend debut of two new iPhone models last month, almost double the previous record even amid supply constraints for the iPhone 5s, the higher-end version of the two new smartphones. The results also led Apple to say that quarterly revenue and gross margin will be at the top end of a prior forecast.

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net; Beth Jinks in New York at bjinks1@bloomberg.net

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

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Apple CEO Tim Cook

David Paul Morris/Bloomberg

While Apple Inc. co-founder Steve Jobs resisted calls to return cash to shareholders, Chief Executive Officer Tim Cook has shown a willingness to meet investor demands.

While Apple Inc. co-founder Steve Jobs resisted calls to return cash to shareholders, Chief Executive Officer Tim Cook has shown a willingness to meet investor demands. Photographer: David Paul Morris/Bloomberg

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Aug. 14 (Bloomberg) -- Gene Munster, an analyst at Piper Jaffray Cos., talks about billionaire investor Carl Icahn's investment in Apple Inc. and the outlook for the company. He speaks with Erik Schatzker, Trish Regan and Sara Eisen on Bloomberg Television's "Market Makers." (Source: Bloomberg)