Icahn's Apple Buybacks Now? Less Profit Later

Jacob Harper |

apple stock, carl icahn, share buybackCarl Icahn made the rounds on October 6 doing what Carl Icahn does best: asking a company to do something they don’t want to do.

In the most recent case, it’s Icahn asking Apple (AAPL) to put even more cash into the pocket of investors. Sound familiar? Icahn did the same thing last year. And lo and behold, Apple responded by initiating a historic 7-1 stock split to spur growth – not to mention a healthy buyback program that has already seen a $74.30 return through Q3 2014.

In 2014 Apple has initiated the largest shareholder return program in history while at the same time presiding over a nearly 50 percent gain in their stock price. That represents a massive $300 billion increase in market value in just one year, of which $36 billion has been given back to shareholders already. And still, Icahn wants more.

To be sure, Apple has cash to spare. Loads and loads of cash. $164 billion, to be exact. Seems like they should be able to spare some.

But that’s not just money under the mattress. A lot of it is tied up overseas in a variety of government and corporate securities, among others.

They could still spend some returning value to shareholders, to be sure. But if Apple were to spend even more on dividends or buybacks to reward stockholders more than they already have, they would be admitting that they have nothing to provide their investors in the future.

They would be rewarding investors like Icahn now. Make no mistake: Icahn is happy with his 50 percent stock return and dividends. But the more money Apple spends on buybacks, the less they have to invest in research and development. And perhaps more importantly, the less they have to make a major acquisition down the road.

Apple has stayed pretty quiet on the acquisition front, limiting themselves to purchases like Beat by Dre (which they got for a relatively measly $3 billion.) But with the kind of cash and convertible securities Apple has at their disposal, they could do something much more, something that really could justify the Apple Icahn wants to see – not just in one more year, but five, 10, 20 years down the road. Probably not the rumored Tesla (TSLA) acquisition that tech fanboys salivated over last year, but a major blockbuster like that is not out of the question. That is, unless Apple spends too much of their money.

Apple can keep hoarding cash, and keep doling it out to stockholders. But a share buyback increase over what is already a massive return program could limit their ability to make a home run acquisition. But it requires investors like Icahn (who want a dollar now instead of two next year) to wait by the wayside and let a phenomenally successful company continue to do what they do best: make money. 

 

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Companies

Symbol Name Price Change % Volume
TSLA Tesla Motors Inc. 181.47 -0.41 -0.23 4,042,324
AAPL Apple Inc. 109.90 0.41 0.37 26,527,997

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