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Icahn reveals large stake in Apple

The activist investor presses the tech giant to boost its stock buyback program.

August 14, 2013|By Chris O'Brien and Walter Hamilton
  • Carl Icahn has a reported $1 billion in Apple stock.
Carl Icahn has a reported $1 billion in Apple stock. (Mark Lennihan / Associated…)

SAN FRANCISCO — Activist investor Carl Icahn said he has amassed a sizable stake in Apple Inc. and prodded the tech giant to increase its stock buyback program, cheering investors but creating a headache for one of the industry's most admired companies.

Icahn disclosed his Apple stock holdings, reported to be valued at about $1 billion, in a pair of Twitter posts Tuesday. He said that the company's stock is "undervalued" and that a larger buyback would help drive the share price higher.

The news sent the company's stock soaring $22.21, or 4.75%, to $489.57.

But for Apple, which has watched its growth slow in recent months, Icahn's increased interest in the company raised the specter of a potential showdown with a bare-knuckled investor who doesn't hesitate to turn confrontational to get his way.

"Very rarely is Icahn's first request his final request," said Patrick Moorhead, an analyst at Moor Insights and Strategy. "I expect Apple to balk initially and then Icahn to go into action until he gets what he thinks he deserves. This will get uglier before it gets resolved."

Icahn is currently locking horns with Michael Dell over the founder's proposed buyout of the computer maker that bears his name. Icahn says Dell is robbing shareholders by offering too little to take the company private. And in Silicon Valley, Icahn pounded on Yahoo's door a few years ago until the company granted him a seat on the board.

For the moment, Icahn may have less leverage with Apple. Although Icahn's holdings are large in dollar value, they still represent only a sliver of Apple's $445 billion in market value.

That was apparently enough to get him a meeting with Apple Chief Executive Tim Cook. But analysts said it's unlikely Icahn will be able to use that to press the kind of demands he's made in the past, such as a board seat or a change in management.

"I don't see him getting a seat on the board," said Colin Gillis, an analyst at BGC Partners. "This is a $400-billion company."

Icahn's demand that Apple increase its stock buyback marks the second time this year the company has faced pressure from a big shareholder to boost its stock price, which tumbled from its peak of $702.10 last September to as low as $393.78 in June.

In February, David Einhorn of Greenlight Capital demanded that the company find a way to return more of its growing hoard of cash to investors.

Apple eventually announced in April that it had decided to increase its dividend and stock buyback program to $100 billion, including $60 billion to repurchase its shares through 2015. That would make it the largest stock buyback in history.

Even though the stock recovered some ground over the summer, the company has faced persistent questions about its leadership and pace of innovation.

In the most recent quarter, the company revealed that sales of iPads and Macs had fallen. And Apple continues to struggle in overseas markets, where it has lost ground to rivals such as Samsung.

The company is expected to announce a new iPhone on Sept. 10, and possibly a cheaper iPhone targeted at new users and emerging markets. New iPads are expected in October, creating optimism among analysts that Apple's profits will start increasing again.

But Icahn argues that more can be done now to benefit shareholders. The company's cash pile continues to grow. And Apple can borrow money at low rates to buy stock, Icahn said in an interview with Bloomberg.

William D. Cohan, a former investment banker who has written several books about Wall Street, said Icahn picked a perfect time to target Apple.

"Carl Icahn is a master of when to pounce and how to make money," Cohan said. He and other analysts said Icahn's gambit may enrich investors by pushing up the share price, but the ultimate goal of activist investors is to make money for themselves.

"These guys only do things where they think they can make money," Cohan said. "That's all they care about. There'll be gone as soon as they make their money, but they won't be gone until they make their money. That's Tim Cook's challenge."

Cook must tread carefully with Icahn if he wants to avoid another bruising, public fight that becomes a big distraction. Earlier this year, Cook called Einhorn's lawsuit against Apple "a silly sideshow."

Such provocations might not sit well with Icahn, who seems drawn to a good scrape.

Despite the friendly tone of Icahn's tweets, this is likely to be the first salvo in what could become a protracted battle.

"I don't think this is a one-time hello," said Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

Mark Stevens, author of "King Icahn: The Biography of a Renegade Capitalist," said Icahn relishes high-stakes battles in which he can vanquish highflying CEOs.

"He likes tormenting people like Cook," Stevens said. "This is fun for him."

Twitter: @obrien

O'Brien reported from San Francisco and Hamilton from Los Angeles.

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