Originally Posted by Sevenfeet
The problem here is that Apple is already stepping out of its proverbial comfort zone by having any debt on the books. The idea is that Apple's cash generation machine would retire that debt quickly before it started becoming a problem for them fiscally. But Icahn is only looking out for his position as a shareholder...he's not running a company. I doubt Apple wants any more debt on its books than it already considered. The tech world is a dangerous place and fortunes can easily turn on you...just ask Blackberry.
I expect that the board will consider the proposal, then politely turn him down. Fortunately, Icahn's $1 billion of Apple shares isn't that big in the grand scheme of things for him make Cook and the board's life miserable, like what happened at Dell.
last point… yep.
First point. I question 'comfort zone.' Cook and Oppenheimer have worked in Debt financed businesses in the past. I do think that from when they joined the company (98 and 96), and Steve's subsequent return, cash was a serious concern, primarily if you are changing the computing world… you need several months, if not years of operating cash to suffer through new product development and adoption curves if you 'miss' slightly (think of NeXT… if they had more cash, a longer runway, etc, etc, and the fact that those first couple years (97-99), when they were 'weeks' from bankruptcy with no real products. Cash was a necessary operational runway extender when you were taking on 4 bet the business changes (PowerPC->Intel, OSX, iPod, iOS) and 3 other major commitments (moving to an Allin1 computer [iMac, MacbookPro/Air], ITunes, AppleTV[hobby… or long term investment], Component Design [ASeries, LiquidMetal, Authentec]). These require cash to keep going along a vision that is not necessarily aligned with quarterly returns.
After the iPad releases, I do think they realize that they are cash rich, and need to remove this from the balance sheets to refocus on nimbleness. $100B cash on hand is pretty good (20% of equity value, and covers a couple years of operations at no profit). The cash is primarily a problem of US tax law, and it will drive external expansion…. so you use foreign assets as collateral for US lenders to pay US dividends and US stock buy backs, at basically 0% interest. And the interest is a business expense, instead of a tax burden.
I'm thinking they are sitting on the rest of the cash to wait for either US corp tax law to 'internationalize' a bit, or they find a tax haven that allows them to build a data centers/operations to support their non-US revenue streams.
In the end, in 5-10 years, the US will be NOT generate the lions share of their profits, and these offshore profits can be exploited to build a world wide infrastructure at a much lower cost for money (the IBMs, the Amazon's, the Googles, the Rackspaces all need to spend interest to build offshore… Apple will be building 'for free' so to speak.
And I still think Apple will become an online 'bank' in many regions of the world, providing 'full faith and credit' for ITMS purchases without local banks involved, and/or being a card processor in these regions in such a way that they are able to make more money on each transaction by reducing the cost of the 'money supply chain….' which is Cook's Forte'