ACTIVIST INVESTOR Carl Icahn has published the letter that he sent to Apple CEO Tim Cook yesterday, revealing that he told Cook that he likes the firm, but thinks it could be doing more to give him more money.
Icahn, who we are given to understand has some money at his disposal, has posted the letter to his new website, which is called Shareholderssquaretable. In it he tells the firm that now is the time to spend $150bn on a share buyback.
You have to sign up to the website in order to read the letter, which we have done. The letter starts off with Apple fan Icahn telling Cook that he owns a large chunk of the firm that employs him as CEO.
"When we met [in September], my affiliates and I owned 3,875,063 shares of Apple," he said. "As of this morning, we owned 4,730,739 shares of Apple, an increase of 22 [percent] in position size, reflecting our belief the market continues to dramatically undervalue the company."
Apple is doing well, said Icahn, which will be news to no one, and is his best investment. It could be so much better though if Apple would do the large share buyback that Icahn wants.
It is all very cosy stuff. Icahn told Cook that he and his peers are "supportive" of Apple, but remain critical of the firm's actions.
"We want to be very clear that we could not be more supportive of you, the existing management team, the culture at Apple and the innovative spirit it engenders. The criticism we have as shareholders has nothing to do with your management leadership or operational strategy," he added.
"Our criticism relates to one thing only: the size and timeframe of Apple's buyback program. It is obvious to us that it should be much bigger and immediate. When we met, you agreed with us that the shares are undervalued. In our view, irrational undervaluation as dramatic as this is often a short term anomaly. The timing for a larger buyback is still ripe, but the opportunity will not last forever."
The letter made a suggestion to Apple, and that suggestion was that it borrow $150bn towards a share buyback. Doing this, said Icahn, will yield an immediate return.
"While the board's actions to date ($60 billion share repurchase over three years) may seem like a large buyback, it is simply not large enough," he said.
"We find it difficult to imagine why the board would not move more aggressively to buy back stock by immediately announcing a $150 Billion tender offer (financed with debt or a mix of debt and cash on the balance sheet)... As we proposed at our dinner, if the company decided to borrow the full $150 billion at a [three] percent interest rate to commence a tender at $525 per share, the result would be an immediate 33 percent boost to earnings per share, translating into a 33 percent increase in the value of the shares."
Apple has not responded to our request for comment yet, so we do not know how the missive was received in Cupertino. Some elements of the firm might be unimpressed though, as Icahn has expressed a concern over its ability to make informed decisions.
"Apple's Board of Directors does not currently include an individual with a track record as an investment professional. In my opinion, any further delay in executing the buyback we hereby propose will reflect this lack of expertise on the board," he added.
"My firm's success and my expertise as an investor would be difficult for anyone to argue. There is nothing short term about my intentions here." µ
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