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.
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.
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.
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?
"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.
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?
I am torn. On the one hand, many of the things he says in his letter are true. I also agree that Apple should be buying back its shares. That being true, I'm so opposed to short term investors (of which he is one, despite his characterization otherwise, because no investment company is really a long term investor) trying to manage from the shareholder perspective that I will not support his proposal. The only people who have demonstrated a true commitment to Apple's culture, product approach, and management style are the current management and the Board. So I will continue to let them manage this portion of the company too.
I don't really understand the hostility on this site towards Icahn. The difference between what he wants and what the board has already agreed to is just a matter of scale. All he's doing is making the case that AAPL is a screaming buy, and he's also putting his money where his mouth is. He may be going a bit too far but maybe not. He sounds persuasive to me when he says the board is being overly cautious.
I haven't decided if I'm voting yes or no, but regardless, I see Icahn as definitely on Apple's side. He's an intelligent (if opinionated) billionaire who greatly respects Apple's products and is also very bullish about their future. I'm very glad he's getting his voice out there.
Why would you make such a terrible investment? From your perspective, Apple is a financially mismanaged company yet you invested your own money in them. That makes no sense, so it must mean that it would make no sense to follow your other financial advice.
Why would you make such a terrible investment? From your perspective, Apple is a financially mismanaged company yet you invested your own money in them. That makes no sense, so it must mean that it would make no sense to follow your other financial advice.
I think the company might be overly cautious and therefore over-capitalized, but I don't think it's even close to being a mismanaged company. I think of them as being close to perfect, but it's still possible here and there for some fine-tuning.
Apple initiated the largest buyback in corporate history.
Apple has been accelerating that buyback (does no one pay attention to earnings reports?).
Carl Icahn comes along and accuses Apple of not appreciating the value of their company despite the largest buyback in corporate history which they have been accelerating.
If Apple had committed to 50b in 2014 Icahn would be asking for 60b.
This has nothing to do with Apple and more an exercise of whether Icahn can bend the will of the most successful company on earth to his schedule.
Icahn is not as prescient as he claims, he would be vastly wealthier if he had invested 2, 4, 6, 8, 10, 12, 14 or any number of years ago other than the brief peak in 2012.
I invested when I first heard the iPhone was coming out in 2007 at $80, Icahn needs to realize he is years late to a party that he thinks started when he arrived.
And finally, if anyone thinks Icahn is right and doesn't currently own shares of Apple, you are calling yourself an idiot for not investing today.
Recently there is a great deal of conversation comparing Apple Amazon , and Google 1. Amazon is lead by an entrepreneur who spent eight years on Wall Street and wrote his business plan driving to Seattle. His financial background is very strong 2. Google is lead by the founders, who created a special class of stock with great voting power as opposed to the traded stock. A VC has been on there board from the beginning 3. Apple is lead by a professional manager with no entrepreneurial background, and strong financial background.. There senior management and Board of Directors have no entrepreneurs. Solution is to put Elon musk on the board! or better yet buy Tesla and make him Chairman of the board. Then the stock will hit Carl Icahn's numbers But in the meantime thank you Carl for your help!
I am a tax law attorney (NYU LL.M Taxation). Also an avid Apple user since the FIRST days of Steve Jobs - never stopped buying and using.
I also have over $1M of Apple stock, and a lot of options (50 ).
I believe Mr. Cook, Ives et al are doing an OUTSTANDING JOB.
However, we need to reward the employees - and obtain best new engineers - and that is by supporting the stock price.
Mr. Icahn is right-on. Loan/funds are cheap interest wise, repatriation at good rates likely in the future - buy back is urged and warranted - preferably with stock split to encourage small investor to participate
This generates wealth the the engineers that Apple wants to get/keep.
Also - Apple has PLENTY of money to do everything in the world we shareholders want.
Urge all shareholders to vote for proxy - I am at Schwab - called today
Comments
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.
Let's burn the money because you have no imagination. Sounds like a good idea.
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.
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.
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.
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.
I agree with everything Carl said. Everything.
You agree that the iPad was released in 2012.
OK...
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?
When you have more money than you could ever functionally spend, it's less about the money and more about power games, ego.
Originally Posted by sog35
...
I like the plan. I hold 150 shares
I like the plan too and I also hold shares.
I like the plan. I hold 150 shares
Why would you make such a terrible investment? From your perspective, Apple is a financially mismanaged company yet you invested your own money in them. That makes no sense, so it must mean that it would make no sense to follow your other financial advice.
Then every company should buy back all but one share, no?
No. If the shares are highly valued, it makes more sense to use them as currency, issuing new ones can add value.
It's a matter of maximizing value to existing shareholders.
Nothing is simple. Many variables here, obviously. I don't think I like Icahn very much, but he makes some good points.
Why would you make such a terrible investment? From your perspective, Apple is a financially mismanaged company yet you invested your own money in them. That makes no sense, so it must mean that it would make no sense to follow your other financial advice.
I think the company might be overly cautious and therefore over-capitalized, but I don't think it's even close to being a mismanaged company. I think of them as being close to perfect, but it's still possible here and there for some fine-tuning.
Apple initiated the largest buyback in corporate history.
Apple has been accelerating that buyback (does no one pay attention to earnings reports?).
Carl Icahn comes along and accuses Apple of not appreciating the value of their company despite the largest buyback in corporate history which they have been accelerating.
If Apple had committed to 50b in 2014 Icahn would be asking for 60b.
This has nothing to do with Apple and more an exercise of whether Icahn can bend the will of the most successful company on earth to his schedule.
Icahn is not as prescient as he claims, he would be vastly wealthier if he had invested 2, 4, 6, 8, 10, 12, 14 or any number of years ago other than the brief peak in 2012.
I invested when I first heard the iPhone was coming out in 2007 at $80, Icahn needs to realize he is years late to a party that he thinks started when he arrived.
And finally, if anyone thinks Icahn is right and doesn't currently own shares of Apple, you are calling yourself an idiot for not investing today.
1. Amazon is lead by an entrepreneur who spent eight years on Wall Street and wrote his business plan driving to Seattle. His financial background is very strong
2. Google is lead by the founders, who created a special class of stock with great voting power as opposed to the traded stock. A VC has been on there board from the beginning
3. Apple is lead by a professional manager with no entrepreneurial background, and strong financial background.. There senior management and Board of Directors have no entrepreneurs. Solution is to put Elon musk on the board! or better yet buy Tesla and make him Chairman of the board. Then the stock will hit Carl Icahn's numbers
But in the meantime thank you Carl for your help!
Your response does not make any sense at all (to me).
I also have over $1M of Apple stock, and a lot of options (50 ).
I believe Mr. Cook, Ives et al are doing an OUTSTANDING JOB.
However, we need to reward the employees - and obtain best new engineers - and that is by supporting the stock price.
Mr. Icahn is right-on. Loan/funds are cheap interest wise, repatriation at good rates likely in the future - buy back is urged and warranted - preferably with stock split to encourage small investor to participate
This generates wealth the the engineers that Apple wants to get/keep.
Also - Apple has PLENTY of money to do everything in the world we shareholders want.
Urge all shareholders to vote for proxy - I am at Schwab - called today