Activist investor Carl Icahn has reiterated his recommendation to Apple CEO Tim Cook that Cupertino blow $150bn to buy back company stock, and this time he has shared his reasoning with world+dog.
"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)," Icahn wrote on his newly launched website Shareholders' Square Table in an public missive titled "Our Letter to Tim Cook" (registration required).
The letter references the dinner meeting between Icahn and Cook on September 30, during which the billionaire investor proposed the $150bn buyback and said that he would "continue dialogue in about three weeks."
He's a bit late – it's been three and half weeks – but the message hasn't changed: Apple stock is undervalued and Cook & Co. should snap up a hefty chunk of shares to take advantage of that low valuation. And, of course, make Icahn and other Apple investors a thick slurry of profit.
"As we proposed at our dinner," Icahn wrote, "if the company decided to borrow the full $150 billion at a 3 per cent interest rate to commence a tender at $525 per share, the result would be an immediate 33 per cent boost to earnings per share, translating into a 33 per cent increase in the value of the shares."
That's just the immediate gain. Icahn also expressed the opinion that if the buyback is executed, in three years the share price will grow to $1,250.
He also noted that he's putting some of his money where his mouth is. When he and Cook met on September 30, his Apple holdings totaled 3,448,663 shares and the stock price was $467; Apple stock is now around $530 per share. Since that meeting, Icahn has added 1,282,076 Apple shares to his portfolio, raising the total value of the position to around $2.5bn, "and we currently intend to buy more."
There are plenty more to buy. As of Thursday morning, Apple's market capitalization was $476.9bn.
Icahn also argued that time's a-wastin'. "When we met," he wrote, "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."
Icahn is not what you might call a shrinking violet. Nor is he one to spare others of his opinion on their financial acumen.
"Apple's Board of Directors does not currently include an individual with a track record as an investment professional," he wrote. "In my opinion, any further delay in executing the buyback we hereby propose will reflect this lack of expertise on the board."
Why is he so confident? Simple. "My firm's success and my expertise as an investor would be difficult for anyone to argue," he sniffed.
Just what Tim Cook needs: a toffee-nosed terrier tugging on his trouser leg. ®