Does Apple Need to Spend 150 Billion?
Does Apple Need to Spend 150 Billion?Apple had an impressive $147 billion in cash at the end of last quarter. Carl Icahn owns a nearly $2 billion stake in Apple
that he wants the company to issue a $150 billion buyback of its stock, believe the company to be extremely undervalued, Icahn, who considers Cook a good CEO, projects Apple’s stock can rise to more than $625 if it buys back shares. The catalyst would be a significant reduction in the share count, boosting EPS. Assuming moderate earnings growth, Icahn thinks the stock could return to its all-time high near $700.
Icahn also wants Apple to borrow $150 billion at a 3 percent interest rate to fund the purchases and avoid paying more taxes, the person added.
As Apple’s stock has slumped more than 20 percent in the past year on investor concerns about a dearth of new hit products, the iPad maker has become more vulnerable to calls for change from activists such as Icahn and hedge-fund manager David Einhorn.
Apple is already implementing a substantial capital return program -- which includes approximately $60 billion in share repurchases between 2013 and 2015 -- but Icahn wants an even bigger and faster buyback.
Their main argument is that if Apple significantly increases its stock buyback that will crowd out investment in research and development and other initiatives to boost innovation. This would in turn cause Apple to fall behind competitors, leading to a collapse in profitability.
Does corporate raider Carl Icahns ideas pose a threat to Apple or does Apple has plenty of cash to pay a dividend, fund a massive buyback, and invest in R&D to drive further innovation if they simply change the way they are doing business?