Activist investor Carl Icahn has thrown his weight behind dissatisfied Apple Inc. investors, taking up a large stake in the world's most valuable company.
Mr. Icahn's involvement in Apple, which he disclosed via Twitter, lifted the company's stock and almost instantly created more than $12-billion (U.S.) in shareholder value. A person familiar with his stake put his investment at more than $1-billion, according to The Wall Street Journal.
"The market pays attention when he takes positions," says Jeff Fidacaro, senior technology analyst at Monness Crespi Hardt in New York. "When he identifies value, he becomes very aggressive trying to realize that value."
The surprise announcement underscored an eventful start to the week for smartphone manufacturers. BlackBerry Ltd.'s stock rose 2 per cent Tuesday, after adding 10.5 per cent on Monday when it announced it was conducting a strategic review that could lead to a sale. Meanwhile, Apple's stock increased by almost 5 per cent Tuesday to close at $489.
From a peak last September when Apple stock broke the $700-a-share mark, the company lost nearly half its value through April over concerns it was losing market share to Android devices and suffering from a declining pace of innovation. Apple placated investors with a promise to return much of its huge cash surplus to shareholders – $100-billion over three years. Not nearly enough, Mr. Icahn said.
"We currently have a large position in Apple. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come," Mr. Icahn wrote on Twitter Tuesday afternoon.A few minutes later: "Had a nice conversation with Tim Cook today. Discussed my opinion that a larger buyback should be done now. We plan to speak again shortly."
An Apple spokesman confirmed the meeting, saying CEO Tim Cook welcomes Mr. Icahn's interest in the company.
Mr. Icahn's intervention in Apple is a little odd in both timing and execution. "Most institutional money managers don't usually resort to Twitter to express their opinions," says Gus Papageorgiou, an analyst at Scotia Capital. "It's a bit unorthodox."
But the outspoken investor has never been limited by convention. He has recently engaged in public squabbles with fellow activist investor Bill Ackman over nutritional supplement seller Herbalife, and has challenged computer entrepreneur Michael Dell over his plan to Dell Inc. private.
With regards to timing, Mr. Icahn's move might have made more sense earlier this year,before Apple announced its share buyback plan, when the stock was at its lowest level since 2011, Mr. Fidacaro said. Since then, expectations have risen for new Apple products due this fall, while the company has deployed its cash stockpile even quicker than expected, buying back $16-billion of its own stock last quarter alone.
That move, however, supports the argument that the company is grossly undervalued, Mr. Fidacaro said. "They're saying to shareholders that the best acquisition out there is actually to buy our own company," he said. "It looks like they agree with shareholders that their stock looks cheap."
Even after yesterday's spike, Apple is still trading at a relatively low multiple of 12 times earnings.
Mr. Icahn said he believes the company has "huge borrowing power, little relative debt and trades at a low multiple."
He is pushing for an immediate share buyback in the range of $525 a share, totalling a whopping $150-million."If Apple does this now and earnings increase at only 10 per cent, the stock – even keeping the same multiple currently – should trade at $700 a share."
Still, Apple can hardly be considered a company in distress, unlike BlackBerry, which has seen its most recent line of smartphones fail to excite buyers. The best its investors may hope for is a modest premium over its current share price, which sits 95 per cent lower than a peak hit six years ago.