Carl Icahn wants more cash from Apple (Nasdaq:AAPL) and we all know Apples has it. Apple just recently started paying a dividend and perhaps is on the path to attracting dividend oriented investors.
What’s the game plan?
Tim Cook privately may agree that they have a lot of cash hanging around. Much of it has not been brought back to the USA because of that stupid tax law. But Apple has brought some back and paying the tax so it looks good in Washington DC. This may have been the deciding factor about why Carl Icahn decided to take a run at Apple. Tim Cooks big problem is that he cannot appear to be bullied by Carl Icahn. Carl Icahn has been less than gentle with some other prey. No one wants to see this at Apple.
Other companies who have attracted Carl Icahn’s have decided to come to terms and get it behind them. How much share repurchase will satisfy Carl Icahn? Will Apple even want to substantively respond to Carl Icahn’s suggestion. Apple shares are low so this is the best time to do a share repurchase. Value is created by buy low sell high.
Here are a few things Apple can do to thwart Carl Icahn and still take care of the shareholder.
- Increase the dividend rate and claim that they are returning capital to investors “Olde School” Carl Icahn has short-term objectives but a higher dividend yield in a rising interest rate environment can be argues as wealth enhancing.
- Introduce new products, get the Apple Hype Machine cranked and watch the stock soar to the heavens.
- Actually increase the share buy back some but not in the range that Carl Icahn wants.
- Let shareholders know what the true tax cost of repatriating funds on shore really is. Will the tax cost become prohibitive and make Carl Icahn look greedy, greedy, greedy.
Here are a few things Carl Icahn and supporters need to thing about.
- If the market crashes this fall should Apple be spending treasure to drive up prices that will not move upwards. Let the stock drop and then rebuy.
- Carl Icahn is 77 years olde (DOB Feb 16, 1936) I know he’s a doctor by training and looks fit but the original factory parts are near the end of their useful life. Death or severely debilitating medical condition is a high probability if you’re a life insurance actuary. This is not insurable.
- What if Apple just says no? What you gonna do? Sell the stock in perhaps one of the greatest entry point opportunities of the stock history. This is Apple. Investor opinion will not conclude management needs a shake up or something else. Carl Icahn simply wants to wet his beak and maybe Apple just doesn’t need to do anything just because its Carl Icahn.
- Strategic counter moves by Apple such as a major acquisition or two which reduces cash and makes his suggestions seem foolish.
Apple has enough cash to buy a huge aircraft carrier. Rename it Carl Icahn and then just sink it. Just for fun. And maybe they should.
Tim Cook needs to stride out of this with reputation more than intact. Enough Wall Street Bankers are more than capable of giving him a tutorial in financial cash management.
George Gutowski writes from a Caveat Emptor Perspective. Follow him on Twitter @financialskepti . He is pretty sure some aircraft carriers are for sale.