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Carl Icahn invests another $500M in Apple, promotes increased buyback in letter to shareholders

post #1 of 100
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Activist investor Carl Icahn revealed on Thursday that he just invested another $500 million in Apple, bringing his stake in the company to $3.6 billion. Coinciding with the announcement, he issued a new 7-page letter to investors encouraging them to vote in favor of his share buyback proposal.

Icahn


As he did on Wednesday to announce his large position in Apple, Icahn took to Twitter again on Thursday where he once again said he views the company as a "no brainer" investment. Icahn suggested that Apple's own board of directors may not see the company as such a strong investment, since they have not opted to spend more of their $150 billion in cash on a larger share buyback program.

Icahn also issued an open letter to AAPL shareholders that was published by the U.S. Securities and Exchange Commission on Thursday. The letter encourages investors to vote "for" his proposal No. 10 ahead of the upcoming annual shareholders' meeting.

"The S&P 500's price to earnings multiple is 71% higher than Apple's, and if Apple were simply valued at the same multiple, its share price would be $840, which is 52% higher than its current price," Icahn wrote. "This is a dramatic valuation disconnect that simply makes no sense to us, and it seems that the company agrees with us on this point."

Icahn


The activist investor, who has a reputation for using his considerable sway with publicly traded companies, revealed his position in AAPL was over $3 billion on Wednesday. He also teased the upcoming release of the letter to shareholders, and has repeatedly said he believes Apple's board is doing a "disservice" to them by not investing more.

During fiscal 2013, Apple spent $23 billion of an expanded $60-billion share repurchase authorization, which contributed to combined dividend payments and repurchases totaling over $43 billion since the program was initiated some six quarters ago.

Icahn believes Apple should spend the entirety of the $150 billion it has on its own shares, but made a more moderate proposal to shareholders, asking that Apple invest $50 billion immediately. Apple has advised that shareholders vote against the proposal, saying that its board is already "thoughtfully considering options for returning additional cash to shareholders."

Icahn's full 7-page letter is included below:

CARL C. ICAHN
767 Fifth Avenue, 47th Floor
New York, New York 10153


January 23, 2014


Dear Fellow Apple Shareholders,

Over the course of my long career as an investor and as Chairman of Icahn Enterprises, our best performing investments result from opportunities that we like to call "no brainers." Recent examples of such "no brainers" have been our investments in Netflix, Hain Celestial, Chesapeake, Forest Labs and Herbalife, just to name a few. In our opinion, a great example of a "no brainer" in today's market is Apple. The S&P 500's price to earnings multiple is 71% higher than Apple's, and if Apple were simply valued at the same multiple, its share price would be $840, which is 52% higher than its current price.1 This is a dramatic valuation disconnect that simply makes no sense to us, and it seems that the company agrees with us on this point. Tim Cook himself has expressed on more than one occasion that Apple is undervalued, and as the company states, it already has in place "the largest share repurchase authorization in history." We believe, however, that this share repurchase authorization can and should be even larger, and effectuating that for the benefit of all of the company's shareholders is the sole intention of our proposal. The company has recommended voting against our proposal for various reasons. It seems to us that the basis of its argument against our proposal is that the company believes, because of the "dynamic competitive landscape" and because its "rapid pace of innovation require

unprecedented investment, flexibility and access to resources", it does not currently have enough excess liquidity to increase the size of its repurchase program. Assuming this indeed is the basis for the company's argument, we find its position overly conservative (almost to the point of being irrational), when we consider that the company had $130 billion of net cash as of September 28, 2013 and that consensus earnings are expected to be almost $40 billion next year. Given this massive net cash position and robust earnings generation, Apple is perhaps the most overcapitalized company in corporate history, from our perspective. Regardless of what liquidity it may require with respect to "unprecedented investment, flexibility and access to resources" for innovation moving forward, we believe the unprecedented degree to which the company is currently overcapitalized would overcompensate for any such investments (including possible investments in strategic M&A, to which the company does not refer). Said another way, we believe that the combination of the company's unprecedentedly enormous net cash balance, robust annual earnings, and tremendous borrowing capacity provide more than enough excess liquidity to afford both the use of cash for any necessary ongoing business-related investments in addition to the cash used for the increased share repurchases proposed.

It is our belief that it is the responsibility of the Board, on behalf of the company's shareholders, to take advantage of such a large and unmistakable opportunity. Indeed, we believe that by choosing not to increase the size of the repurchase program, the directors are actually performing a great disservice to the owners, especially smaller shareholders who may not be in a position to buy more stock themselves. Meanwhile, we are in a position to continue buying shares in the market at today's price, so perhaps we should thank the Board for not being more aggressive, and thus allowing us to accumulate an even larger investment position at a price that reflects the aforementioned valuation disconnect. In fact, over the past two weeks we purchased $1 billion more in Apple shares, $500 million of which we purchased today, bringing our total ownership position in Apple to a current value of approximately $3.6 billion.

Given the degree to which Apple appears undervalued to us, we almost feel that it's a waste of time to debate the point. As we believe it to be the preeminent and most innovative consumer products company in the world, with the greatest brand, hardware, software, and services in the world, Apple has had tremendous growth to date, and we fail to see why this growth would not continue moving forward. The industry (smartphones and tablets) is expected to grow volume at a 15% compounded annual growth rate from 2013 through 2017 according to IDC. We believe Apple should continue to benefit from this secular growth, as last year, 85% of Apple's revenues came from smartphones, tablets, and related software, services, and accessories. The naysayers question whether Apple will be able to participate in this growth without sacrificing pricing and gross margins, especially with competition from Google, Samsung, Microsoft, Amazon and Chinese manufacturers. Our response to them is that the answer is already evident to us from the continuing loyalty of Apple's growing customer base. The highly successful evolutionary (not revolutionary) introductions of the iPhone 5s and 5c and Ipad Air and Mini, prove to us that Apple could, for the most part, maintain pricing and gross margin as we believe consumers are willing to pay a reasonable premium for the world's best smartphones and tablets. The rumored future introduction of product line extensions with larger screens for both the iPhone and iPad would further support this view.2 In fact, a recent study from NDC shows that the iPhone accounted for 42% of smartphone users in the United States at the end of 2013, up a staggering 20% from the prior year. Despite its great scale and narrow focus, Apple has an operating margin of just 28.5%. We believe its customers' willingness to pay a premium price for the world's greatest products should enable Apple to participate in the expected volume growth of these categories while at the same time largely maintaining its average selling prices and gross margins. And, as software and services improve and become even more important to consumers in the future, we expect customer loyalty to strengthen further.

Even if the story ended with Apple's existing product and software lines, we would still choose to make Apple our largest investment. But there is more to the story! Tim Cook keeps saying that he expects to introduce "new products in new categories" and yet very few people seem to be listening. We're not aware of a single Wall Street analyst who includes "new products in new categories" or new services in any of their financial projections, even though Apple clearly has an impressive track record of such new category product introductions, even if it does so rarely. Apple released the iPhone in 2007 and the iPad five years later in 2012, both so extraordinarily successful that today they represent the majority of the company's revenue. Tim Cook's comments, along with advancements in enabling technologies, lead us to believe that we may see in the not too distant future what new groundbreaking products they've been working on developing in Cupertino these last several years.3

To get a sense of the scale of the opportunity that stems from new products in new categories, let's take a moment to consider the possibility of an Apple television. The major electronics companies are now focused on ultra high definition TVs as their next big opportunity. Ultra high definition is expected to offer a level of image clarity that is superior to today's high definition televisions for screen sizes 55 inches and above. To date, the barrier to mass market adoption of ultra high definition has been the price gap between it and regular high definition, but that price gap is closing and will soon be de minimis. The closing of this price gap is supported by statements made by the Co-CEO of Samsung Electronics, who expects the price gap to fall to 10% by the end of this year. While cable companies will likely be slow to upgrade their linear TV infrastructure due to cost, video content is expected to be accessible through the internet via services like Netflix and others. We believe ultra high definition represents a major catalyst for the next TV replacement cycle and a promising moment for Apple to introduce its first new product in this category. Reed Hastings, CEO of Netflix, has referenced ultra high definition as a major catalyst for Netflix going forward. While this is true for Netflix, we believe it is also true for Apple, not just for its hardware but also for selling ultra high definition movies and shows on iTunes through the internet. With 238 million TVs sold globally in 2012, it would not surprise us if Apple could sell 25 million new Apple ultra high definition televisions at $1,600 per unit, especially when considering both its track record of introducing best in class products and its market share in smartphones and tablets.4 At a gross margin of 37.7%, which would be consistent with that of the overall company, such a debut would add $40 billion of revenues and $15 billion to operating income annually.5

The possibility of a television represents only one opportunity for the company that stems from new products in new categories. While we won't go through all of them here, we see several major opportunities in hardware alone. With advancements in miniaturization and continued improvements in Siri, it seems obvious to us that Apple has a compelling opportunity in the exciting area of wearable devices, supported by rumors that Apple is developing a smartwatch (as Tim Cook himself said the wrist is "an area of great interest for Apple"). While many consider Apple a hardware company, to pigeonhole it as such is no longer appropriate in our opinion. Apple has built an ecosystem of hardware, software, and services that we believe collectively represents the most successful consumer product platform in the entire history of consumer-facing technologies. And as Apple's customer base continues to enjoy the use of this ecosystem, storing media in the cloud and moving it from one Apple device to another as doing so becomes increasingly convenient with innovations such as Airplay (as just one simple example of this ecosystem's current functionality), we believe that customer base grows increasingly loyal and excited for the next Apple product release, making it an asset in and of itself that grows and becomes increasingly valuable. Indeed, we believe any new software service that offers new functionality to this customer base becomes a large opportunity for Apple to introduce as a revolutionary and disruptive bolt-on to the ecosystem. As just one of many possible examples of this phenomenon, Apple could introduce a next generation payments solution. In terms of whether the marketplace is well addressed by mobile payments solutions, Tim Cook has said "I think it is in its infancy... I think it is just getting started and just of out of the starting block." With the fingerprint sensor, iBeacon, 575+ million credit card numbers stored in iTunes, and Apple's homogeneous iOS installed base with 79% of devices using iOS 7, we believe a revolutionary payments solution is now a very real opportunity that the company could choose to pursue. With respect to all of Apple's new and existing opportunities for growth, they will only prove to be successful with strong execution from the company's management, in whom we hold great confidence. Naysayers say Tim Cook is not Steve Jobs, and they're absolutely right. He is Tim Cook and we believe he is doing an excellent job, and Jonathan Ive, Senior VP of Design, is Jonathan Ive and we believe he's doing an excellent job, etcetera.

In this letter, we have above summarized why we believe Apple is undervalued in order to express how ridiculous it seems to us for Apple to horde so much cash rather than repurchase stock (and thereby use that cash to make a larger investment in itself for the benefit of all of the company's shareholders). In its statement in opposition to our proposal, the company claims that "the Board and management team have demonstrated a strong commitment to returning capital to shareholders" and we believe that is true, but we also believe that commitment is not strong enough given the unique degree to which the company is both undervalued and overcapitalized. Furthermore, it is important to note that a share repurchase is not simply an act of "returning capital to shareholders" since it is also the company effectively making an investment in itself. To us, as long term investors, this is an important difference: a dividend is a pure return of capital while a share repurchase is the company making an investment in itself by buying shares in the market at the current price, which we believe to be undervalued, from shareholders willing to sell at that price for the benefit of shareholders who choose to remain investors for the longer term. And we are long term investors. It should be noted that no one on the Board seems to be an expert in the world of investment management. However, based on our record, we believe few will argue that we are experts in this area, and we have no doubts that the Board is doing a great disservice to its shareholders by not immediately increasing the size of the share repurchase program in order to more effectively take advantage of what we believe to be the company's low market valuation.

We have expressed above what we believe to be the company's primary reason for not supporting our proposal. Conversely, it is our belief that Apple's current excess liquidity is without historical precedent and beyond reasonable comparison to its peers or otherwise, and such dramatic overcapitalization affords the company enough excess liquidity to repurchase the amount of shares we proposed. Apple's existing capital return program has just $37 billion remaining, and the company has until the end of 2015 to complete it. Without any changes to the program, the largest pile of corporate cash in the world is likely to grow even larger, and if the share price rises, this Board will have missed a great opportunity to use more of that hoarded cash to repurchase shares at an attractive value. While it is important for the Board to focus on the return of capital on a sustained basis, it is also important for the Board to evaluate whether or not its share price is undervalued and to take advantage of it with share repurchases, especially when the balance sheet exhibits dramatic excess liquidity, as we believe Apple's does today.

The Board may argue that with so much opportunity, it would be prudent to maintain its excess liquidity to increase R&D or make acquisitions, especially when considering the financial strength of its competitors. We completely agree that the company must innovate and should be flexible to make prudent strategic acquisitions, yet even after taking such factors into account, we believe that tremendous excess liquidity remains. With respect to possible M&A (to which the company does not refer in its statement), for the opportunities highlighted above (a TV, a watch, a payment service), we find it extremely difficult to identify any possible strategic acquisitions of scale that make sense. Furthermore, such action would seem to conflict with Apple's culture historically. A remarkable fact is that since the Board reacquired Steve Jobs through the NeXT acquisition for $427 million in 1997, the next largest acquisition Apple made was $2.6 billion for Nortel's patent portfolio. Amazingly, over these 17 years, Apple made just $7.8 billion worth of acquisitions in total during this timeframe. Apple clearly has a long history and culture of developing its innovation internally, which leads us to believe that the company will not seek out large acquisitions to pursue any of the opportunities about which we have speculated. In terms of paying for the necessary innovation internally, Apple is expected to generate $40 billion of earnings next year, which already takes into account an increasing R&D expense. In order to address the argument that Apple should reserve excess liquidity to more effectively compete with some of its deep-pocketed competitors, there is no doubt that some of them also have significant earnings and net cash on their balance sheets (whether or not that is appropriate). But Apple has much more. When compared to its next largest competitor, Microsoft, for example, Apple has $68 billion more net cash and is expected to generate $18 billion more in earnings during 2014.

The Board may argue that much of its cash and earnings are international and therefore subject to a repatriation tax if returned to the United States to repurchase shares. While this is true, we question why the company would not simply borrow the money in the Unites States to the extent it deems its domestic cash of $36 billion and domestic earnings are insufficient. Given that the company has $130 billion of net cash and $40 billion of expected annual earnings, and the fact that it is hard to find a better time in history to borrow money, a $50 billion share repurchase over the course of fiscal year 2014 seems more than reasonable to us. Today, Apple's outstanding ten year bonds yield 3.63%, and its five year bonds yield 2%. Apple could either continue to carry this debt, repay it from its domestic earnings over time, or repatriate cash from abroad upon the passage of corporate tax reform.

The company has stated that it is "updating perspectives on its capital return program for 2014 and beyond" and "collecting input from a very broad base of shareholders." We believe, if our proposal receives majority shareholder support, that the Board should respect it and increase the repurchase program as requested. We believe this action will greatly enhance value for all long term shareholders who believe, as we do, in the great potential of this company. If the Board takes this action, we will applaud them for taking advantage of one of the greatest examples of a "no brainer" we have seen in five decades of successful investing.

Sincerely yours,


Carl C. Icahn



For more information on this and other topics, follow me on Twitter at: @Carl_C_Icahn
https://twitter.com/Carl_C_Icahn
post #2 of 100

Sell off, Icahndy corn. Go invest in a brokerage firm or something.

post #3 of 100

I am just going to keep saying this, if he does not believe in what apple is doing go put your money elsewhere. I do not understand why someone would put their money into an investment which they obvious thinks is not doing the right things, he asking to loose his money. 

 

However, he started to put money in when it was in the low $400's so he is already made a couple of $100M on apple alone in the past year. and now of his whining has helped it increase, but he probably believes otherwise.

post #4 of 100
what's the matter carl, 3.5 billion not enough to start your own competitor company and run it the way *you* want to run it?
post #5 of 100
Quote:
Originally Posted by Maestro64 View Post

I am just going to keep saying this, if he does not believe in what apple is doing go put your money elsewhere. I do not understand why someone would put their money into an investment which they obvious thinks is not doing the right things, he asking to loose his money. 

However, he started to put money in when it was in the low $400's so he is already made a couple of $100M on apple alone in the past year. and now of his whining has helped it increase, but he probably believes otherwise.

his goal is to make money, regardless of whether a better company comes out of it or not.

he is investing huge sums so as to influence the stock price in his favor so that he can achieve his goal.
post #6 of 100

I agree with everything Carl said. Everything.

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post #7 of 100
Quote:
Originally Posted by Pooch View Post

what's the matter carl, 3.5 billion not enough to start your own competitor company and run it the way *you* want to run it?

he is not smart enough to come up with an original idea, he rather financial engineer a company to look good so he can make a profits and when he pulls his money out everyone else is left hold the shell.

post #8 of 100

The issue I have with him now, he has his hands into so many of the company i have invested in over the last few years and they are been screwed since he go involve, I have been trying to find things which he is not trying to manipulate. I tend to be long on stock and when you have this guy being short term it kills long term investments.

post #9 of 100
Idiot! Apple's board has been managing Apple for years and doing a pretty good job, they've become the largest company in the world with the most money under their watch, now he wants to come in and tell them what to do just to make a quick buck. Once the stock price hits $800+ per share he will sell everything and what will that do to Apple's share price?
post #10 of 100
I doubt Icahn cares anything about Apple as a company. He see's them as a sure bet, which is pretty much the way I see them. The difference is that I believe in Apple longterm! Icahn views them as a way to make a quick billion or so if he gets his way. Which he won't.
post #11 of 100
Quote:
Originally Posted by Pooch View Post


his goal is to make money, regardless of whether a better company comes out of it or not.

he is investing huge sums so as to influence the stock price in his favor so that he can achieve his goal.

trust me i know what he is doing, as i said above, he kills any long term view of company so unless you willing to jump in and out as he does the average investor will get screwed.

post #12 of 100
Quote:
Originally Posted by sog35 View Post

I agree with everything Carl said. Everything.

I don't. The case for a $150B share repurchase -- given the $100+B in leverage it will entail and/or the need to bring its cash back from abroad in a tax-disadvantaged way and/or the fact that the repurchase will have to be done at a $550+ share price -- is sketchy, at best.

Feel free to share your analysis if you disagree.
post #13 of 100
Did anyone else notice Carl got the release date of the iPad wrong? He wrote 2012 when it was released in 2010! Just goes to show where his motivations lie - doesn't even know Apple's product history.
post #14 of 100
Quote:
Originally Posted by sog35 View Post

I agree with everything Carl said. Everything.
Why? I'm sure there are better ways Apple could spend money.
post #15 of 100
Originally Posted by JohnThomas View Post
Did anyone else notice Carl got the release date of the iPad wrong? He wrote 2012 when it was released in 2010! Just goes to show where his motivations lie - doesn't even know Apple's product history.

 

Quoted for visibility.

post #16 of 100
Quote:
Originally Posted by anantksundaram View Post


I don't. The case for a $150B share repurchase -- given the $100+B in leverage it will entail and/or the need to bring its cash back from abroad in a tax-disadvantaged way and/or the fact that the repurchase will have to be done at a $550+ share price -- is sketchy, at best.

Feel free to share your analysis if you disagree.

 

He wants to repurchase $50B (did you read the letter) in 2014.

Thats it.

 

Apple has already pledged $60B.

They have about $34B left to spend.

Carl just wants an additional $16B

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post #17 of 100
Quote:
Originally Posted by Rogifan View Post


Why? I'm sure there are better ways Apple could spend money.

 

Like what?

 

Acquire companies?  Look at the disaster Motorolla is with Google (loosing $1 billion a year). Like Carl said Apple does not have a history of large acquisitions.

 

Apple generates $50B a year in free cash flow.  That's all Carl wants to buy back.  The total of one year of cash flow.  Apple will still have $150B at the end of the year following Carls plan.

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post #18 of 100
Quote:
Originally Posted by anantksundaram View Post


I don't. The case for a $150B share repurchase -- given the $100+B in leverage it will entail and/or the need to bring its cash back from abroad in a tax-disadvantaged way and/or the fact that the repurchase will have to be done at a $550+ share price -- is sketchy, at best.

Feel free to share your analysis if you disagree.

 

He wants $50B in 2014. Not $150B.  Apple is already committed to buy $36B.  He just wants $14B more.

 

They will not pull US cash. 

They will not pay any more tax than other wise (actually less since they can deduct the interest expense)

They will fund by using US cash ($20B) and Bonds ($30B)

The cost of Bonds will be almost ZERO because they won't have to pay the dividend on the purchased shares (2.3% div) and they get a tax deduction on interest.

Bonds are at 2% for 5 years. (again did you read the letter?)

Basically Apple is borrowing money for free and will pay back with the cash flow from US operations in future years. ( I think US operations generates about $20B in cash a year so they can payoff the bond in 5 years easily)

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post #19 of 100

I don't understand why the bulk of Carl's letter is in strikeout-type.

 

I don't understand why anyone would spend $500M to buy something that he's going to urge be promptly bought back by the seller.  Other than to manipulate stock prices. Okay, maybe I do understand.

 

Suppose I go to my local grocer and buy up all the tomatoes, then urge my neighbors to pressure the grocer to buy back the tomatoes at a higher price.  Yea, that'll really add value to the system.

post #20 of 100
His memo today seems compelling, and well conceived. Having Carl as an investor, is a positive. It seems that there is a disconnect between Apple and Wall Street. It would seem that Apple management may be responsible. Hopefully other funds will support his theory of excess cash, and unused credit capacity.
The ball is in Apple's court, and they will have the microphone to explain of their future plans for the situation.
post #21 of 100
Well said, Carl. I am with you.
post #22 of 100
Is it the message or the messenger that bothers some people?
Does anybody think that Apple has done a great job communicating with Wall Street?
post #23 of 100
Originally Posted by Flabingo View Post
Does anybody think that Apple has done a great job communicating with Wall Street?

 

I think that Wall Street hasn’t done a great idea of comprehending that having (and making) money is good and having debt (and purchasing unnecessary companies) is bad.

post #24 of 100
Quote:
Originally Posted by sog35 View Post
 

He wants to repurchase $50B (did you read the letter) in 2014.

Thats it.

 

Apple has already pledged $60B.

They have about $34B left to spend.

Carl just wants an additional $16B

And then what? It all happens leverage-free?!

 

As I said, show me your analysis for the $150B. Otherwise, it's just your opinion.

post #25 of 100

Summary:

 

Apple has pledged to buyback $36B in shares.

Carl wants Apple to buyback $50B ( $16B more than Apples pledge)

 

Carl wants to use the cash generated from US operations (about $20B)

Apple would already have to pay tax on this, REGARDLESS.

 

Carl wants to issue a Bond for the remaining $30B to avoid repatriation taxes (Apple has already used this strategy in 2013)

Carl wants to do the buyback as soon as possible since the shares are at historically low prices ( PE ratio )

Carl wants to do the buyback as soon as possible since interest rates are historically low

 

Bottom line:

 

Apple will be paying LESS USA taxes because they can deduct interest expense of the bonds

 

Apple will be borrowing for FREE since:

 

They won't need to pay the dividends on the repurchases shares ( 2.3% dividend)

Current bond rates is only about 2% for a five year bond

 

Apples cash balance at 12.31.14 will be about the SAME than right now since Apple generates $50B of free cash flow a year.

Apple will still have close to $150B in cash in AFTER the proposed buyback

 

Really all Carl wants is:

 

To increase the buyback by 27%  ( $76B vs $60B)

Wants to accelerate the buyback to 2014 instead of 2015

 

I like the plan.  I hold 150 shares

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post #26 of 100
Quote:
Originally Posted by Flabingo View Post

Is it the message or the messenger that bothers some people?
Does anybody think that Apple has done a great job communicating with Wall Street?

You can't communicate with gamblers.
post #27 of 100
Quote:
Originally Posted by Flabingo View Post

Is it the message or the messenger that bothers some people?
Does anybody think that Apple has done a great job communicating with Wall Street?

Both.

 

No, Apple has not.

post #28 of 100
O
Quote:
Originally Posted by sog35 View Post

I agree with everything Carl said. Everything.
Of course you do. You made that plain yesterday. Those who actually care about the company and value it as more than an personal ATM machine would do well to ignore the advice of both yourself and Icahn.
post #29 of 100
Quote:
Originally Posted by anantksundaram View Post
 

And then what? It all happens leverage-free?!

 

As I said, show me your analysis for the $150B. Otherwise, it's just your opinion.

 

Not sure i understand the question.

 

current balance: $150B

estimated generated cash flow for 2014: $50B

amount of buyback 2014 : $50B

end balance at 12.31.14 :  $150B

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post #30 of 100
Quote:
Originally Posted by Lord Amhran View Post

O
Of course you do. You made that plain yesterday. Those who actually care about the company and value it as more than an personal ATM machine would do well to ignore the advice of both yourself and Icahn.

 

So why is Apple doing a buyback if a buyback is SHORT TERM?

 

They already pledged $60B buyback.

 

Explain to me why $60B is good but $76B is bad? MY LORD

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post #31 of 100
Quote:
Originally Posted by sog35 View Post

Like what?

Acquire companies?  Look at the disaster Motorolla is with Google (loosing $1 billion a year). Like Carl said Apple does not have a history of large acquisitions.

Apple generates $50B a year in free cash flow.  That's all Carl wants to buy back.  The total of one year of cash flow.  Apple will still have $150B at the end of the year following Carls plan.

Let's burn the money because you have no imagination. Sounds like a good idea.
post #32 of 100
Quote:
Originally Posted by knowitall View Post


Let's burn the money because you have no imagination. Sounds like a good idea.

 

its not burning money.

 

Jesus, you guys need to read a book on finance before you make yourself look stupid.

Do a search on the benefits of a buyback.

 

If it was burning money why did the Apple board APPROVE BURNING $60,000,000,000 in Buybacks last year!!!!!! 

Apple Purchases last 12 months - iPhone 5S (two), iPhone 6, iPhone 6+ (two), iPadAir, iPadAir2, iPadMini2, AppleTV (two), MacMini, Airport Extreme, iPod Classic.
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Apple Purchases last 12 months - iPhone 5S (two), iPhone 6, iPhone 6+ (two), iPadAir, iPadAir2, iPadMini2, AppleTV (two), MacMini, Airport Extreme, iPod Classic.
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post #33 of 100
Quote:
Originally Posted by sog35 View Post
 

Summary:

 

Apple has pledged to buyback $36B in shares.

Carl wants Apple to buyback $50B ( $16B more than Apples pledge)

 

Carl wants to use the cash generated from US operations (about $20B)

Apple would already have to pay tax on this, REGARDLESS.

 

Carl wants to issue a Bond for the remaining $30B to avoid repatriation taxes (Apple has already used this strategy in 2013)

Carl wants to do the buyback as soon as possible since the shares are at historically low prices ( PE ratio )

Carl wants to do the buyback as soon as possible since interest rates are historically low

 

Bottom line:

 

Apple will be paying LESS USA taxes because they can deduct interest expense of the bonds

 

Apple will be borrowing for FREE since:

 

They won't need to pay the dividends on the repurchases shares ( 2.3% dividend)

Current bond rates is only about 2% for a five year bond

 

Apples cash balance at 12.31.14 will be about the SAME than right now since Apple generates $50B of free cash flow a year.

Apple will still have close to $150B in cash in AFTER the proposed buyback

 

Really all Carl wants is:

 

To increase the buyback by 28%  ( $66B vs $50B)

Wants to accelerate the buyback to 2014 instead of 2015

 

I like the plan.  I hold 150 shares

I don’t like the plan. I hold more than 150 shares.

 

The trouble with your analysis – and assumptions – is that it thinks the world ends in 2014. Icahn still has not indicated what he really wants for the long haul. He may have backed down a bit from the $150B, but I am still not convinced. The “$16B more” for this year is just the start (if it were just that – and for all we know, Apple may well do something like that – I would be OK with that).

 

These guys want more. And then some more. They’re just relentless. (What do you think the number he has in mind is, over the next few years?).

 

An extra $30B in leverage over the next year – let alone what would be required if Icahn’s true numbers were known – may not be good for Apple. If your argument is so simple and obvious, why doesn’t Apple take on $200B in debt and buy back more? $400B and even more? What is the right level?

 

It’s also simplistic to think that the interest rate will just be 2%. If/when Apple announces a massive new debt issue, the YTM could well be substantially higher. It is equally silly to think that a company with Apple’s time horizon would bother with debt of five-year maturity. Only in the world of Icahn (and his acolytes) would they leave out the fact that, five years later, Apple will have to come up with the cash to cough up $30B. (Unless, of course, it’s convertible debt, but upon conversion, that would do the opposite of a repurchase you want.)

 

Moreover, this would have made far more sense when the stock was trading in the $450 range. In the $550 (and trending upwards) range, it is all much less attractive.

 

All that said, there’s one point on which I agree: Apple’s Board is due for a serious overhaul. Many of them long in the tooth at this point, and have outlived their usefulness.

post #34 of 100
Quote:
Originally Posted by sog35 View Post
 
Quote:
Originally Posted by anantksundaram View Post
 

And then what? It all happens leverage-free?!

 

As I said, show me your analysis for the $150B. Otherwise, it's just your opinion.

 

Not sure i understand the question.

 

current balance: $150B

estimated generated cash flow for 2014: $50B

amount of buyback 2014 : $50B

end balance at 12.31.14 :  $150B

See above.

post #35 of 100
Quote:
Originally Posted by sog35 View Post
 
Quote:
Originally Posted by Lord Amhran View Post

O
Of course you do. You made that plain yesterday. Those who actually care about the company and value it as more than an personal ATM machine would do well to ignore the advice of both yourself and Icahn.

 

So why is Apple doing a buyback if a buyback is SHORT TERM?

 

They already pledged $60B buyback.

 

Explain to me why $60B is good but $76B is bad? MY LORD

Why don’t you tell us why, $76B would be good, but, say, $276B would be bad? Assuming you can look past 2014?

 

MY LORD.

post #36 of 100
How many Crazy Carl articles do we need? It'll be dominated by Carl...err...sog35!
post #37 of 100

The whole letter is worth reading. One takeaway:

 

"Apple is perhaps the most overcapitalized company in corporate history..."

 

That's tough to argue with.

 

And one point: whatever you think about a buy-back, it is not a short-term return to shareholders. As the shares are bought back and retired, the number of outstanding shares is reduced, making each one of the remaining shares worth proportionally more, which is permanent.

 

Compared to dividends, buy-backs have the additional advantage, as Icahn explained, that if the shares are under-valued then you are returning more than one dollar of extra value to remaining shareholders for every dollar spent.

post #38 of 100
Quote:
Originally Posted by sog35 View Post
 

I agree with everything Carl said. Everything.

 

You agree that the iPad was released in 2012.

 

OK...

post #39 of 100
Quote:
Originally Posted by GlennC777 View Post

 

Compared to dividends, buy-backs have the additional advantage, as Icahn explained, that if the shares are under-valued then you are returning more than one dollar of extra value to remaining shareholders for every dollar spent.

Then every company should buy back all but one share, no?

post #40 of 100
Quote:
Originally Posted by Pooch View Post

what's the matter carl, 3.5 billion not enough to start your own competitor company and run it the way *you* want to run it?

When you have more money than you could ever functionally spend, it's less about the money and more about power games, ego.

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
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"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
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