Dec 28 2013, 12:16pm CST | by Forbes
As we know Carl Icahn has been urging Apple’s management and Tim Cook to increase the share buyback and dividend distributions that the company makes. There’s a certain amount of sense to the proposal as the company does have some $140 billion or so in cash and near cash on its balance sheet. It’s also something being resisted by the management for what also seem like good reasons.
Apple has just filed with the SEC to show that Icahn’s proposal will be one for shareholders to vote upon at the annual general meeting next month:
A shareholder proposal by Carl Icahn of a non-binding advisory resolution that the Company commit to completing not less than $50 billion of share repurchases during its 2014 fiscal year (and increase the authorization under its capital return program accordingly) (Proposal No. 10)
Apple have also pointed out how they advise shareholders to vote on this matter:
“AGAINST” the shareholder proposal by Carl Icahn of a non-binding advisory resolution that the Company commit to completing not less than $50 billion of share repurchases during its 2014 fiscal year (and increase the authorization under its capital return program accordingly) (Proposal No. 10)
Just to avoid confusion: Icahn’s proposal is usually referred to as a “$150 billion” one, but the vote will be on only $50 billion. This is because Icahn’s proposal is in addition to Apple’s already signed off on $100 billion distribution via dividends and buybacks over the next couple of years. So we’re referring to Icahn’s idea as the total amount, not the additional amount of it.
And the specific language to be voted on is:
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 basic reason to be in favour of this is that Apple does indeed have mountains of cash at its disposal and the shareholders would probably like to get their hands on some of it. It does, after all, belong to them. And it’s most certainly true that there are managements out there that you would prefer did not have mountains of cash at their disposal because the worry is that they’ll only go and waste it. This is what led to Vodafone returning much of the Verizon money to shareholders directly, it’s also something that has been vaguely worried about over at Yahoo. It’s all too easy to squander such cash piles with a value destroying takeover just to give one example.
On the other hand there are also argument against a larger payback to shareholders. One is that while Apple does have that pile it’s not all available to be returned to shareholders. A lot of it is actually offshore and cannot be used in a buyback or dividend distribution without paying US corporate income tax on it. Indeed, Apple is already borrowing to pay the current distribution. Spending down a cash pile is one thing, gearing up to finance one something of a different question.
It’s also true that we don’t see any evidence of the Apple management thinking about launching one of those value destroying takeovers. So it’s not as if having that cash available is actually harmful. Indeed, what we actually see them doing with the awesome financial firepower at their disposal seems to be in line with the long term development of the business. For example, they obviously wanted to use more sapphire in the iPhone (and possibly iPad) but they didn’t go off and try to buy the technology. Nor did they try to develop it from scratch. Rather, they financed, through pre-purchase of the production, a new factory with the next generation of production technology. This is a field I know reasonably well (I work with a sapphire producer on an entirely different product) and that does indeed look like an eminently sensible use of the resources they have. They’ll end up with better and cheaper sapphire as a result, their loss will be pretty much only the interest they’ll lose on the cash. A small interest loss and no equity risk: sounds good to me. I can see them doing this in other fields: not vertical integration so much as financing the development of the components needed to make iKit even better. I doubt they’ll finance a new fab for the processing chips but there’s no doubt that they could.
Obviously, the vote is for Apple shareholders to decide upon and I’m not one of those. Nor am I trying to give advice one way or the other. I am only laying out the issues as I see them.
Source: Forbes Apple
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