Not necessarily. The largest shareholders are institutional investors. Now that Apple's mobile business is hitting the limits of the market along with their competitors, Apple has a fairly well determined value relative to other companies. The bigger investors want growth. Since it's much easier to determine the limits now, they are free to jump off at any point and reap the profits. I very much doubt Icahn's estimates but I think he's trying to persuade the larger shareholders:
"As we proposed at our dinner, if the company decided to borrow the full $150 billion at a 3% interest rate to commence a tender at $525 per share, the result would be an immediate 33% boost to earnings per share, translating into a 33% increase in the value of the shares, which significantly assumes no multiple expansion. Longer term (in three years) if you execute this buyback as proposed, we expect the share price to appreciate to $1,250, assuming the market rewards EBIT growth of 7.5% per year with a more normal market multiple of 11x EBIT."
$1250 in 3 years is a bit of a stretch IMO and I think he's flat out lying to other shareholders to get them to side with him. Apple is buying back shares so some increase would be expected but if they drop the outstanding shares from 900m to 700m with a $100b buyback, that puts the remaining shares at $690, nowhere near his estimates.
Apple has already done a buyback and it hasn't boosted the price all that much. Their cash is accounted for in the company valuation so spending it lowers their assets. Buybacks only work if they buy at a low price and they aren't at a low price, they are valued more highly than every company in the world and their earnings don't exceed every other company.
IMO, Icahn wants to persuade the largest shareholders to vote to increase the value of their holdings in a fast and predetermined way. If the proposal goes ahead, his holdings and the largest shareholders will go up by 1/3 and he will make over $800m in less than 3 years so he can go and loot some other company. You notice how he describes 3 years as 'longer term'. He's not in this for the long term as most people understand it.
Having said that, as long as Apple keeps bringing in the profits, the extra buyback wouldn't do much harm. If they do make another $150b in 3 years, spending the $150b they have now isn't going to make much difference. That is unless they are planning to use it for something big that they can't talk about like a buyout of a major company.
Imagine if they saved up $300b, bought Microsoft and dissolved their operations retaining patents - maybe less if Microsoft drops in value. Where would that leave PC users? Even with no growth, that's a market of 350 million units per year. They're not going to buy Linux systems and even if they did, Apple offers a better eco-system as it's controlled. Investors might initially be worried about blowing $300b but they'd sell hundreds of million of Macs. People need computers and without Microsoft, they'd have to choose from what remains and Apple would be the best option. Even if it's $600 machines Apple sells, it doesn't matter because they'd know they're selling loads of them. That would transform their Mac line into $50+ billion profit per year on top of the $50+ billion from iOS. They make their money back in another 3 years and own the computing world, finally getting rid of the problem of Windows being bundled with every PC. Now sure, there's Android but Android is no match for OS X on the desktop.
Buffett is about to get burned on his IBM acquisition.
Apparently, IBM stock has been falling down to the point where he purchased it. The news of IBM's cozy relationship with the NSA has had a seriously negative impact with regards to their sales growth outside the developed world (Chinese sales have done a complete about-face into the red).
Stock buybacks are pretty dumb unless the company want to go fully private.
In other news, Apple has responded to Icahn’s demands by taking the company private. Reports are coming in that paper representations of each of Icahn’s shares were mailed to his door this morning, each stamped with a hand, its middle finger extended.
Only in your crack fueled dreams!
Much as I dislike Icahn, "taking the company private" isn't really possible for Apple (certainly not without a few hundred billion in outside money to pay off shareholders handsomely.)
this is one of the reasons why american market is the most efficient market in the world. if the management doesn't fix the problem, activist shareholders will force them to...
now you can't be sitting on $150B and do nothing about it while it grows. you can't just watch... what is the opportunity cost of that money? it is a lot... apple and shareholders are losing money!
they should have used it to do value adding acquisitions. for example a twitter acquisition would have brought a very nice diversification to apple's offerings. we would not just talk about iPads and iPhones but we would talk about social media, twitter, online advertising as well!
but since they have no clue about how to use that money, the market will educate them.
so folks, all is healthy! don't worry... this will be good for apple and its shareholders. market is doing its magic. that's all!
if the management doesn't fix the problem, activist shareholders will force them to...
There is no problem in the first place.
Problem solved!
now you can't be sitting on $150B and do nothing about it while it grows.
Why not? That’s what any sane, intelligent person would do.
it is a lot... apple and shareholders are losing money!
Sounds like they’re both gaining money. You know, given that Apple keeps reporting billions in profit and the stock goes up accordingly.
they should have used it to do value adding acquisitions. for example a twitter…
I’m sorry, you said “value-adding”, so I thought you’d at least give an example of something that had actual value. I must have misunderstood. Tell me: why should Apple be forced to buy crap they don’t want?
…diversification…
How diverse can 140 characters be, anyway?
…social media, twitter, online advertising as well!
This is all terrible nonsense that Apple doesn’t want to do. “Social networking” will be dead by 2020.
but since they have no clue about how to use that money, the market will educate them.
Yep. The most successful company in modern history, one grown from bankruptcy to having nigh the highest market cap of all time, HAS NO CLUE HOW TO USE ITS MONEY.
Much as I dislike the guy, if Apple are confident of their future then the shares are clearly significantly undervalued, so from the shareholder perspective buying back shares is the smart thing for Apple to do to increase shareholder value. Even if they have great ideas about what to do with their money pile (they haven't shown any) a buy back is still probably the better idea, they'd be buying dollars with pennies.
Hate it when annoying people are right, I want Cook to tell him to go hang, but the advice is good advice, so I want Cook to rubber stamp it.
I'd prefer not taking on big debt right now. It feels like this is wonderful for Icahn, not really for that many other people, and not for Apple itself. I'd rather we use some of the nestegg to assure worker confidence on the retail side of things (it's a big rich company, let's make sure all workers on all levels have a better than average salary, better than good benefits and are better trained than anyone else), complete modernizing older stores, and pushing more into R&D.
I want my iPhone the size and thickness of a business card and can slide into my wallet please. :-)
Doubtful. Will it exist as it stands now? No, most likely not. Will it continue to evolve and change? Absolutely. "Social Networking" has existed for as long as man has walked the Earth so it's not going to "Be dead" as you put it.
Comments
Let's keep it polite and rational please.... There is no reason for sane investors to pump it up further.
Like anyone needs a reason to post on the internets. Pshaw!
</sarcasm>
Not necessarily. The largest shareholders are institutional investors. Now that Apple's mobile business is hitting the limits of the market along with their competitors, Apple has a fairly well determined value relative to other companies. The bigger investors want growth. Since it's much easier to determine the limits now, they are free to jump off at any point and reap the profits. I very much doubt Icahn's estimates but I think he's trying to persuade the larger shareholders:
"As we proposed at our dinner, if the company decided to borrow the full $150 billion at a 3% interest rate to commence a tender at $525 per share, the result would be an immediate 33% boost to earnings per share, translating into a 33% increase in the value of the shares, which significantly assumes no multiple expansion. Longer term (in three years) if you execute this buyback as proposed, we expect the share price to appreciate to $1,250, assuming the market rewards EBIT growth of 7.5% per year with a more normal market multiple of 11x EBIT."
$1250 in 3 years is a bit of a stretch IMO and I think he's flat out lying to other shareholders to get them to side with him. Apple is buying back shares so some increase would be expected but if they drop the outstanding shares from 900m to 700m with a $100b buyback, that puts the remaining shares at $690, nowhere near his estimates.
Apple has already done a buyback and it hasn't boosted the price all that much. Their cash is accounted for in the company valuation so spending it lowers their assets. Buybacks only work if they buy at a low price and they aren't at a low price, they are valued more highly than every company in the world and their earnings don't exceed every other company.
IMO, Icahn wants to persuade the largest shareholders to vote to increase the value of their holdings in a fast and predetermined way. If the proposal goes ahead, his holdings and the largest shareholders will go up by 1/3 and he will make over $800m in less than 3 years so he can go and loot some other company. You notice how he describes 3 years as 'longer term'. He's not in this for the long term as most people understand it.
Having said that, as long as Apple keeps bringing in the profits, the extra buyback wouldn't do much harm. If they do make another $150b in 3 years, spending the $150b they have now isn't going to make much difference. That is unless they are planning to use it for something big that they can't talk about like a buyout of a major company.
Imagine if they saved up $300b, bought Microsoft and dissolved their operations retaining patents - maybe less if Microsoft drops in value. Where would that leave PC users? Even with no growth, that's a market of 350 million units per year. They're not going to buy Linux systems and even if they did, Apple offers a better eco-system as it's controlled. Investors might initially be worried about blowing $300b but they'd sell hundreds of million of Macs. People need computers and without Microsoft, they'd have to choose from what remains and Apple would be the best option. Even if it's $600 machines Apple sells, it doesn't matter because they'd know they're selling loads of them. That would transform their Mac line into $50+ billion profit per year on top of the $50+ billion from iOS. They make their money back in another 3 years and own the computing world, finally getting rid of the problem of Windows being bundled with every PC. Now sure, there's Android but Android is no match for OS X on the desktop.
Wondering how much AAPL Carl Icahn bought at $699... nah, that couldn't be it.
Buffett is about to get burned on his IBM acquisition.
Apparently, IBM stock has been falling down to the point where he purchased it. The news of IBM's cozy relationship with the NSA has had a seriously negative impact with regards to their sales growth outside the developed world (Chinese sales have done a complete about-face into the red).
Stock buybacks are pretty dumb unless the company want to go fully private.
In other news, Apple has responded to Icahn’s demands by taking the company private. Reports are coming in that paper representations of each of Icahn’s shares were mailed to his door this morning, each stamped with a hand, its middle finger extended.
Only in your crack fueled dreams!
Much as I dislike Icahn, "taking the company private" isn't really possible for Apple (certainly not without a few hundred billion in outside money to pay off shareholders handsomely.)
The buybacks are working. When it was announced the stock was sub $400. Now its over 30% higher.
Really? That's only because of the buyback?
Okay. Sure.
And BTW, buying back stock is in the interest of shareholders as increase the value of all remaining shares.
But it has to be part of an overall company strategy—as I'm sure it has been all along.
Such a buyback effects outstanding employee options, taxes liability, dividends, stock price, liquid funds, etc. etc.
now you can't be sitting on $150B and do nothing about it while it grows. you can't just watch... what is the opportunity cost of that money? it is a lot... apple and shareholders are losing money!
they should have used it to do value adding acquisitions. for example a twitter acquisition would have brought a very nice diversification to apple's offerings. we would not just talk about iPads and iPhones but we would talk about social media, twitter, online advertising as well!
but since they have no clue about how to use that money, the market will educate them.
so folks, all is healthy! don't worry... this will be good for apple and its shareholders. market is doing its magic. that's all!
but since they have no clue about how to use that money, the market will educate them.
So what else did Tim and Peter say when you were talking to them?
There is no problem in the first place.
Problem solved!
Why not? That’s what any sane, intelligent person would do.
Sounds like they’re both gaining money. You know, given that Apple keeps reporting billions in profit and the stock goes up accordingly.
I’m sorry, you said “value-adding”, so I thought you’d at least give an example of something that had actual value. I must have misunderstood. Tell me: why should Apple be forced to buy crap they don’t want?
How diverse can 140 characters be, anyway?
This is all terrible nonsense that Apple doesn’t want to do. “Social networking” will be dead by 2020.
Yep. The most successful company in modern history, one grown from bankruptcy to having nigh the highest market cap of all time, HAS NO CLUE HOW TO USE ITS MONEY.
Shut up and go away.
Jesus, research you idiots.
They would float a bond not get cash from overseas.
So go into debt.
Why should Apple borrow money?
Why should Apple pay out interest to whoever they borrow from?
...commence a tender at $525 per share, the result would be an immediate 33% boost to earnings per share...
AAPL are already over $530
or the following
Millard Drexler
Chairman and CEO
J. Crew
Robert A. Iger
President and CEO
The Walt Disney Company
Andrea Jung
Senior Advisor to the Board of Directors
Avon
Ronald D. Sugar, Ph. D.
Former Chairman and CEO
Northrop Grumman
Hate it when annoying people are right, I want Cook to tell him to go hang, but the advice is good advice, so I want Cook to rubber stamp it.
I'd prefer not taking on big debt right now. It feels like this is wonderful for Icahn, not really for that many other people, and not for Apple itself. I'd rather we use some of the nestegg to assure worker confidence on the retail side of things (it's a big rich company, let's make sure all workers on all levels have a better than average salary, better than good benefits and are better trained than anyone else), complete modernizing older stores, and pushing more into R&D.
I want my iPhone the size and thickness of a business card and can slide into my wallet please. :-)
"the market will educate them."
That illustrious institution that was bailed out by tax-payers only a couple of years ago? Ha.
This guy has no fucking CLUE what Apple and the Apple Brand/Ecosystem means to us. All he cares about is lining his own pocketbook.
“Social networking” will be dead by 2020.
Doubtful. Will it exist as it stands now? No, most likely not. Will it continue to evolve and change? Absolutely. "Social Networking" has existed for as long as man has walked the Earth so it's not going to "Be dead" as you put it.
P.S. Apple never filed for bankruptcy.
So $532 is a very unattractive number for him.