Apple to shareholders: Vote Icahn off Buyback Island

Board urges vote against trader's proposal for a 9-month, $50B stock repurchasing plan

Apple urged shareholders to vote against a proposal by investment agitator Carl Icahn, who wants Apple to buy back an additional $50 billion in stock over the next nine months to boost the share price, according to a Friday filing with U.S. regulators.

Icahn, the 77-year-old billionaire notorious for playing the thorn to corporate boards' sides, has been pushing Apple for a big buyback since August, when he revealed that he had a "large position" in the company. Subsequently, he said he had several conversations with Apple CEO Tim Cook, including one over dinner, where he had pressed the chief executive to borrow money to fund a $150 billion buyback brainstorm.

Earlier this month, Icahn scaled back his demands to a $50 billion share repurchase, which he said was justified by Apple's huge cash reserves -- $147 billion as of the end of the third quarter -- and the upside he saw in the stock.

In October, Icahn claimed that a $150 billion buyback would push Apple's share price to $1,250 within three years. The stock closed at $560 Friday, up 5.2% for the year and up 14.4% since Icahn's first Apple-related tweet.

Icahn's non-binding proposal would add $50 billion more to Apple's in-progress buyback program. In the resolution put before shareholders, Icahn asked Apple to spend the $50 billion by Sept. 27, 2014.

Apple's board recommended that shareholders vote down Icahn's idea, according to a preliminary proxy statement made public by the U.S. Securities and Exchange Commission (SEC) Friday. Apple will hold its annual shareholders meeting Feb. 28, 2014, on its Cupertino, Calif. company campus.

"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," the proxy statement read.

In other words, said Apple, we know better than Icahn.

Apple defended its anti-Icahn stance, saying that it competes with large technology firms that have "significant capital" and argued that it needs the cash war chest. "This dynamic competitive landscape and the Company's rapid pace of innovation require unprecedented investment, flexibility and access to resources," Apple said.

The firm is in the middle of a share buyback program. Last year, Apple said it would use $10 billion to retire shares to boost the value of those still remaining. In April, the company increased the buyback pot to $60 billion, which is to be spent through 2015.

The company said it spent $23 billion of the $60 billion in fiscal 2013, which ended Sept. 30.

Icahn's next step is unclear. Two months ago, he said, "We're not in this for the short term, for the quick turn," referring to his Apple holdings, which now number 4.7 million shares or about half of 1% of the company.

His proposal was less confrontational than a proxy fight, but he could up the pressure by promoting a binding vote that, if approved by a majority of shareholders, would force Apple to use its cash or borrow funds to power a massive buyback or increase dividends.

Icahn could also try to finagle one or more seats on Apple's board, a tactic he has used in the past in other board battles for influence and control.

While that may seem a long shot by some, companies have buckled to the same kind of pressure Icahn can apply. In August, for example, Microsoft announced an agreement with ValueAct Capital, an activist shareholder that had pressed for changes in Redmond for much of the year.

Under the terms of the deal, Microsoft gave ValueAct's president the option of joining the company's board in early 2014. As of Sept. 30, ValueAct owned 66.7 million shares of Microsoft, or approximately 0.8% of the total. At Friday's closing price, ValueAct's holdings were worth about $2.5 billion.

By comparison, Icahn's 4.7 million shares represented 0.5% of Apple's outstanding shares, and were worth $2.6 billion at Friday's closing bell.

One analyst has long believed that Icahn would not go quietly into the night. In interviews since August, Patrick Moorhead, principal analyst of Moor Insights & Strategy, has called the Icahn-Apple saga a story "that will keep on giving," and pegged the activist's interest in Apple as "absolute trouble" for the company in the mid- and long-term.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

mhamblen@computerworld.com.

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