Apple may be Carl Icahn’s easiest activist campaign ever.
Mr. Icahn, the 77-year-old billionaire, disclosed on Tuesday through Twitter that he had taken a big position in the firm. It may be one of the most valuable tweets to date: worth $142 million a character, based on the roughly $20 billion it added to the company’s market value on Tuesday. His message was as simple as the medium - Apple should buy back more stock and fast. It would be a smart, relatively effortless move.
Mr. Icahn won’t have much leverage against the tech behemoth. His reported $1.5 billion stake may be sizable in the context of his own estimated $18 billion fortune, but it is relatively insignificant for Apple, which is worth $445 billion. The company’s chief executive, Timothy D. Cook, already stared down another uppity investor, David Einhorn, when he demanded the issuance of newfangled preference shares this year.
All shareholders did benefit from Apple’s olive branch to Mr. Einhorn, though. It agreed to borrow to increase a stock repurchase program by $50 billion, taking the total amount it plans to hand back to investors to $100 billion by the end of 2015. A similar sort of accord with Mr. Icahn would make sense.
Though Apple is aggressively returning capital to shareholders - it bought back $18 billion of stock in the most recent quarter - it could still do more. The company receives little credit from investors for the roughly $130 billion of net cash on its books. It trades at roughly eight times earnings when cash is stripped out.
Because of its prodigious cash flow, Apple’s planned buybacks are unlikely to make any significant dent in the balance sheet. The cash pile might even grow. But there are limitations to how much even Apple can borrow, despite Mr. Icahn’s suggestion of an almost immediate $150 billion buyback financed with debt at a 3 percent interest rate. Something on a smaller scale would be manageable.
Mr. Cook hasn’t provided any obvious reasons to think he has better, alternative ways to deploy so much cash. And unlike Mr. Einhorn’s convoluted plan, Mr. Icahn’s message wasn’t too complex and was delivered concisely. If any company should be able to appreciate the value of such simplicity, it’s Apple.
Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
