Would Carl Icahn's $150 Buyback Be a Win for Apple Investors?

Apple  (NASDAQ: AAPL  ) already deserves a place in the stock buyback hall of fame (if something so nerdy actually existed). The iEverything maker is already responsible for the single largest buyback in corporate history. In the wake of mounting investor and media pressure, the tech giant massively strengthened its buyback program last April by upping the amount of capital authorized for share repurchases from the $10 billion it had announced a year before to a jaw-dropping $60 billion. 

Apparently some investors just can't be pleased.

As has been widely noted (and tweeted), famed activist investor and billionaire Carl Icahn has been angling for Apple to massively bolster its already gigantic share repurchase plan. Icahn would have Apple continue to borrow in order to fund a truly monumental share buyback plan worth $150 billion.

In this video, Fool contributor Andrew Tonner looks at some of the basic math behind Icahn's suggested buyback to see what kind of returns investors could potentially see if the legendary investor were to get his way.

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  • Report this Comment On October 03, 2013, at 10:17 PM, MightyMinnow wrote:

    Icahn is a fast buck artist (nice work if) and can be gone tomorrow. We could buy AOL for $2 billion. Who knows what kind of deals might pop up.

    We just got done buying back. It was a lipstick experience. A few billion more would be OK but I'd rather build my income with a steady dividend hike.

  • Report this Comment On October 04, 2013, at 12:32 AM, TechnoHistorian wrote:

    Andrew, thanks for tackling this subject.

    As an Apple shareholder, here is my question and concern. Yes, it sounds great for those earnings to increase from $40 to $50 per share with a big buy back -- but I don't understand how that would necessarily be a "benefit to shareholders." Problem is that we can earn money from the stock through dividends and/or share-price increase. Dividends are a SURE THING in terms of putting money in my pocket. The buy back is not a sure thing at all: it assumes that Mr. Market will reward Apple by bidding up the price of the shares in response to the P/E ratio change. But will it? The market is already valuing Apple a lot less on its P/E ratio than Google, Adobe, and even Dell -- to say nothing of Facebook or Amazon. What's to keep Apple from pouring $150 billion into a buyback and then seeing Mr. Market reduce that P/E ratio to, say, 9 or 10, resulting in 0 percent gain in the stock price -- and all those billions down the drain?!

    Once more, in contrast, those billions going to us shareholders in dividends is a sure thing for putting money in our pockets. Sure-thing versus mercurial-(even irrational)-market. Want proof that the market can trivialize Apple value? Just look at what the market has done to Apple during the past year!

    This really puzzles me, and I'd value your input on why dividends would not be a lot better for investors than more buy back.

  • Report this Comment On October 04, 2013, at 1:46 AM, Ostrowsr wrote:

    I would think Apple would keep a war chest for future development. Great products and "new" products = profit growth. Gimmicks are short lived. Steady company growth can last a long time.

  • Report this Comment On October 04, 2013, at 8:47 AM, jdmeck wrote:

    I would rather have a dividend increase.

  • Report this Comment On October 04, 2013, at 8:47 PM, lojikfool wrote:

    Dividend tax anyone?

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