Apple Explains Why Icahn’s Buyback Proposal Should Be Shot Down

icahn_great_and_powerfulApple’s annual shareholder meeting will be held on Feb. 28, and among 11 proposals to be discussed will be one from Carl Icahn.

Revealed in a proxy statement filed by Apple on Friday afternoon, Icahn’s advisory proposal asks Apple to increase the size of its stock buyback program in 2014 to $50 billion. That’s a move the company’s board of directors recommends that shareholders vote against. Apple already increased the size of its dividend and stock buyback program to $100 billion this year, and it’s not taking kindly to Icahn’s repeated and querulous efforts to force its hand — as cordial as they may or may not be.

“In March 2012, the company announced a quarterly dividend and share repurchase program totaling $45 billion,” Apple explains. “In April 2013, the board authorized a dramatic increase, more than doubling the size of the program to $100 billion, raising the dividend, and increasing the share buyback authorization to $60 billion. As such, the company is one of the largest dividend payers in the world and has the largest share repurchase authorization in history. The company has executed aggressively against the capital return program, spending $23 billion of the $60-billion share repurchase authorization in fiscal 2013 alone.”

The proposal, and Apple’s recommendation against it, below:

Shareholder Proposal of a Non-Binding Advisory Resolution Relating to the Company’s Capital Return Program

The Company has been advised that High River Limited Partnership (“High River”), 767 Fifth Avenue, 46th Floor, New York, New York, 10153, a record holder of 1,000 shares of the Company’s common stock, intends to submit the following proposal at the Annual Meeting on behalf of itself and Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II LP, Icahn Partners Master Fund III LP, and other beneficial owners, including Mr. Carl Icahn:

“RESOLVED, that the shareholders hereby approve, on an advisory basis, High River’s proposal that Apple commit to completing not less than $50 billion of share repurchases during Apple’s fiscal year ending September 27, 2014 (and increase the amount authorized for share repurchases under its Capital Return Program accordingly).”

The Company’s Statement in Opposition to Proposal No. 10

The Board recommends a vote AGAINST Proposal No. 10.

The Board and management team are thoughtfully considering options for returning additional cash to shareholders and are currently seeking input from shareholders as part of the Company’s regular review.

The Company’s success stems from the Company’s unique ability to combine world-class skills in hardware, software and services to deliver innovative products that create new markets and delight hundreds of millions of customers. This success has created tremendous value for the Company’s shareholders.

With breakthrough products and services such as the Mac, iPod, iPhone, iPad and App Store, the Company has created huge market opportunities, and the Board and management team believe the opportunities that lie ahead are just as exciting. Given such large and global markets, the Company competes with large companies around the world, many with their own significant technical capabilities and significant capital. This dynamic competitive landscape and the Company’s rapid pace of innovation require unprecedented investment, flexibility and access to resources.

Successfully innovating and executing against these large opportunities also requires careful stewardship by the Board and management team, and the Company’s evaluation of capital return is conducted in the context of supporting the Company’s continued business success and desire to deliver attractive returns to long-term shareholders.

The Board and management team have demonstrated a strong commitment to returning capital to shareholders over the past two years. In March 2012, the Company announced a quarterly dividend and share repurchase program totaling $45 billion. In April 2013, the Board authorized a dramatic increase, more than doubling the size of the program to $100 billion, raising the dividend, and increasing the share buyback authorization to $60 billion. As such, the Company is one of the largest dividend payers in the world and has the largest share repurchase authorization in history. The Company has executed aggressively against the capital return program, spending $23 billion of the $60 billion share repurchase authorization in fiscal 2013 alone. These share repurchases have been funded in part by a $17 billion debt offering, the largest ever as of the time of issuance.

In the first six quarters of the capital return program, dividend payments and share repurchases totaled over $43 billion. Dividends and share repurchases must be funded by domestic cash, and the Company has returned to shareholders or invested all of the domestic cash generated by its business and raised through the issuance of debt since the beginning of the program.

While the Board and management oppose this shareholder proposal, they are fully committed to returning cash to shareholders. The Board and management team believe that capital should be returned to shareholders on an efficient and sustained basis, and that the evaluation of capital return should be performed regularly and carefully with the best long-term interest of the business and shareholders in mind.

The Company is updating perspectives on its capital return program for 2014 and beyond. The Company is collecting input from a very broad base of shareholders, believing that the input of all shareholders is important and should be considered holistically. The evaluation of the capital return program continues to be thoughtful, deliberate, and consistent with a conservative financial policy that supports risk-taking and innovation. Consistent with its pattern for the last two years, the Company is on track to complete its regular review and thorough analysis and to announce any changes to the current program by March or April of 2014.

The Board believes that the Company’s management team and Board are in the best position to determine what is in the best long-term interest of the Company’s business and recommends a vote AGAINST this proposal.

Vote Required

Approval of Proposal No. 10 requires the affirmative vote of (i) a majority of the shares present or represented by proxy and voting at the Annual Meeting and (ii) a majority of the shares required to constitute the quorum.

Recommendation of the Board

The Board recommends a vote AGAINST Proposal No. 10.

PREVIOUSLY

19 comments
SteffenJobbs
SteffenJobbs

As an Apple shareholder I will vote against Icahns buyback proposal.  Sure, I'd like to see something done with Apple's huge overseas cash hoard but I don't want to see it thrown away on buybacks.  Why can't Apple acquire some decent sized business to get into other markets like Google and Amazon are doing?  Apple could take some of that overseas cash hoard and build a dozen server farms and start a profitable cloud business for European and Asian corporations.  If Apple needs more revenue that should be one way of getting it.


All I feel is that Google's share price should not be worth twice Apple's share price at least based on company fundamentals.  Apple is one of the most profitable tech companies around and yet the share price has been a disaster for all of 2013 for those who purchased Apple last year at close to $700.  Money has been flowing into all sorts of profitless stocks as investors are just throwing money around like confetti and yet Apple is struggling to even get to $600 a share while many of the tech companies have made 20%+ gains in 2013.  I don't know exactly who is to blame for Apple's poor share price performance but something needs to be done to correct it.  However, I don't feel buybacks are the way to go.


I'm happy with receiving Apple dividends but that's because I don't see any other way of getting back shareholder value of the share price won't rise.  I purchased the majority of my Apple stock at well under $100 a share, so I haven't lost any money.  I just think Apple should be at least enjoying the same gains along with most of the stock market if that isn't asking too much.

carladam997
carladam997

Apple needs a real leader and real man as the Ceo.

DorkusMaximus
DorkusMaximus

As a stockholder who enjoys the tax deferred wealth building of good stock ownership, I would much rather Apple build capital for me than return capital to me. I bought a tiny (very tiny!) slice of the company. I want Apple to go and make that company more valuable, not give me my money back. If Apple can both increase its share price and return my initial investment to me, that's great. Then I'm playing with the house's money. But short of any guarantees, I want Apple to take my money and do something more interesting, less taxing, and more profitable  than return it to me.

JoeKrolik
JoeKrolik

Well, what an interesting exchange we have here......

I personally tweeted Carl that this business of the buyback is a distraction, a sideshow if you will which takes attention away from more pressing pursuits of the company.

While I absolutely agree with Randy Wilhelm's analysis of the price disparity in the stock, I am adamantly against imprudent uses of the cash cushion. One of those imprudent uses is haphazard, poorly analyzed dispensations such as Carl advocates, because this is a very short-lived manipulation which is also short sighted.

Apple is in a unique position in having available enough funds to do things which no other company could do should the proper opportunities arise. I firmly believe that such opportunities will arise and sooner rather than later.

The unnecessary dispensation of random amounts of money will not influence the stock price that much and I find that the short term shareholder gain will be counterproductive to maintaining a stronger financial position and the inherent stock price appreciation for the long term.

While it's extremely likely that the stock price will rise substantially into and subsequently to the next earnings report, the wise investor will note that this movement in price will be independent of any buyback program, but will instead be based on company performance. This performance will be outstanding for the current quarter and even more so into CQ 1 of 2014. (For example, it should be interesting to see how many pre-orders China Mobile booked between Dec. 25 and Dec. 31.) Subsequent to CQ 1, new products and several new surprises which will be debuted will fuel the stock to even greater  heights. These are the basis for the stock's performance that investors should focus on.

Having sufficient cash to take advantage of opportunities which these developments will subsequently cause to present themselves is vital for the company's continued leadership and dominance.


RandyWilhelm
RandyWilhelm

I will vote for Carl Icahn's proposal because AAPL is totally way , way undervalued and Tim Cook needs to step up the buying on AAPL stock..AAPL deserves to trade at a premium to almost every tech stock out there. Just the thought of AAPL plunging down to $385.00 makes me sick to my stomach. Why does Amazon trade at a  3000 P.E.....and  Google trades at a  30 P.E,  yet Apple trades at a 14 PE? 

C'mon Tim Cook, START BUYING AAPL STOCK LIKE MAD. AAPL should be trading at a minimum of $1400.00 a share right now. AAPL makes more money than the next 10 largest tech stocks combined , yet trades at a huge discount TO MUCH CRAPPIER COMPANIES. AAPL will sell 15-18 BILLION IN PRODUCT EVERY MONTH THIS QUARTER ALONE.No other company in the world compares to this, and they do it by selling top-notch quality products. The reason Apple has dropped the past three days is because end-of-the-year tax selling and people want to lock in profits but with the new contract with China Mobile Apple should be soaring.AAPL WILL SEE HUGE BUYING PRESSURE STARTING JAN 1,2014 AND AFTER THEY REPORT BLOWOUT QUARTER , AAPL WILL HIT NEW HIGHS. $755.00 BY JAN 20,2014 AND $850.00 BY JAN 29TH AFTER CHUNA MOBILE ANNOUNCES HUGE SALES OF AAPL IPHONE'S AND IPADS. BUY THIS STOCK PEOPLE... AAPL WILL  BE A HUGE WINNER THIS YEAR COMING UP

RadarTheKat
RadarTheKat

I'll be voting my 850 shares against Icahn's proposal. 

Although I believe Apple has ample resources to repurchase shares, I believe that any announcement of a very short-term repurchase plan, such as that proposed by Icahn, will only serve to immediately spike the share price.  This would be in Icahn's interest, as he would likely liquidate his position.  but it would not be in the interest of long-term shareholders, as it would immediately make shares more expensive to repurchase concurrent with management's commitment to repurchase shares.  This is exactly the opposite situation of what a long-term shareholder would prefer.  Long-term shareholders would prefer the company have the flexibility to repurchase shares only at times when the share price represents a significant value. This gives the company a margin of safety on its investment in its own shares.  Apple's share buyback program and other cash management initiatives should not be designed to serve the interests of short-term shareholders, but rather the interests of long-term shareholders and long-term business goals.

bill.smells
bill.smells

@RandyWilhelm Icahn is a pump and dump shareholder.  His advice is terrible.


The strategic value of cash runs contrary to academic leverage-valuation and most short-term investors cannot fathom the idea.  Most modern equity holders are more interested in flipping margins than the long-term prospects of the company.  Icahn is one of those people.


PE ratios are so 1990s and a microcosm ratio.  Shows your lack of depth doing valuations.


Apple is a low-debt, high-cash company that leverages that cash to create innovative paradigms in products and manufacturing.  You and Icahn don't understand that, and quite frankly, aren't interested in the long-term health of the company--you're just interested in the price of the stock at the expense of the company.


I sincerely hope you liquidate your AAPL holdings.  You and Icahn are no good for the long-term health of AAPL.

RandyWilhelm
RandyWilhelm

@RadarTheKat VOTING FOR ICAHN'S PROPOSAL FORCES MORE INVESTORS INTO AAPL STOCK, BUT WHAT IT ALSO DOES IS...FORCES 30-40 MILLION SHARES THAT ARE BETTING AGAINST AAPL TO "COVER THEIR SHORT POSITIONS, THEREFORE CREATING A MUCH MORE EXPLOSIVE RALLY IN AAPL. I DESERVE TO MAKE MONEY IN STOCKS, AND THIS YEAR AAPL HAS BEEN A COMPLETE BUST WHILE OTHER WORSE TECH COMPANIES HAVE SEEN THEIR SHARES HIT ALL-TIME HIGH'S. 

RandyWilhelm
RandyWilhelm

@RadarTheKat AND YOU DONT THINK AAPL IS A SIGNIFICANT VALUE RIGHT NOW, MEATHEAD? SHAREHOLDERS HAVE BEEN PUNISHED THIS YEAR WHILE ALL OTHER CRAPPIER STOCKS HAVE SOARED TO NEW HIGHS AND EVERYONE'S MAKING MONEY IF THEY'RE OUT OF APPLE AND IN SOMETHING ELSE. APPLE NEEDS TO BE A LEADER ,NOT A FOLLOWER ! YOU ARE WRONG IN YOUR THINKING . APPLE SHOULD LEAD THE WAY ,NOT FALL WAY BEHIND OTHER TECH STOCKS!

UCL
UCL

@RandyWilhelm @RadarTheKat You deserve NOTHING, but this is still a free country so you can voice your opinion.  Personally,  my lousy 458 shares are voting against you and Icahn.  

BillyJack
BillyJack

@RandyWilhelm  I agree with the other commenter.  You need to sell your 5 shares because your interests and Apple's interest don't converge.  Your a short-term holder with no real interest in Apple's long term viability.  Please stop using all caps, it makes you look like an idiot.

RadarTheKat
RadarTheKat

Manipulating its share price in a short-term manner by committing to a huge buy back with a near-term expiration date is not my idea of being a leader. Instead, it's an example of Apple following the whims of a short-term corporate raider. I think where you and I have a disconnect is in the time frame and the announcement recommended by Icahn. I agree that Apple has a surplus of cash/cash equivalents sufficient to allocate $50 billion to an immediate buy back of shares. However, wouldn't you prefer that Apple quietly buy back that amount while the share price represents a huge bargain? This versus making a big announcement that would commit the company to buying back $50 billion worth of shares that, due to that very announcement, would immediately become more expensive. Doing this quietly will get Apple more shares for its $50 billion than if they make a big announcement that commits thrm to spending that $50 billion in a relatively short time frame.

Another point is that Icahn originally demanded that Apple announce a $150 billion buy back. Even he saw the folly of this, again, because it would have immediately spiked the share price, making every share much more expensive to buy back. And so he backed off and is now demanding a $50 billion buy back. So who's correct and who's incorrect? Three months ago Icahn of today Icahn? Clearly one of these guys (the same guy separated by three months of his own thinking) is incorrect. What will Icahn recommend three months from now that will prove today's Icahn to be incorrect in his thinking?

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