Apple Investors, Look at What Carl Ichan Did to Transocean and Chesapeake Energy

Carl Ichan has made some waves recently with his request that Apple (NASDAQ: AAPL  ) buy back $150 billion in shares, and his recent investment decisions are indicating that he's willing put lots of money behind the idea. This week, he announced that he was taking a position in Apple that could be worth more than $2 billion. For some Apple investors, the thought of the company making such a massive purchase of shares may seem absurd. If there's one thing that gives this idea credence, though, it's that Carl Ichan is behind it. Let's look at two examples of companies that Carl Ichan has essentially bent to his will during the past year: Transocean (NYSE: RIG  ) and Chesapeake Energy (NYSE: CHK  )

Taking Transocean's management to town
Transocean is the company that invented the offshore rig space. Back in 1954, it built the world's first jackup rig, and it has been a name synonymous with offshore drilling ever since. But the Deepwater Horizon explosion back in 2010 has had the company on its heels for the past three years, and it has been losing ground in the ultra-deepwater market -- the most financially lucrative market in the rig industry -- to up-and-comers Seadrill and Ensco, because the two companies have newer rigs that require less maintenance and command higher dayrates.  

Enter Carl Ichan. Between January and now, he has increased his holdings in Transocean by five times, and now is the company's third-largest shareholder. Throughout that time, Mr. Ichan has made some rather lofty demands, including the nomination of three board members of his choosing, and almost doubling the company's dividend to $4 per share. Those didn't make the grade when shareholders voted back in May, but the recent deal the company has struck with Carl Ichan may be even more drastic. 

At the behest of Mr. Ichan, Transocean has agreed to reduce the size of the board of directors from 14, to 11, and one of those seats will be held by an Ichan nominee. The company will also undertake some major strategic changes. It has committed to increase operational margins by $800 million a year, and put that money toward a 34% increase of its dividend. Management has also agreed it will spin off some of its legacy fleet that are under long-term contracts into a Master Limited Partnership to raise capital and get some of its legacy fleet off the books. All in all, these moves should provide a nice boost for Transocean's shareholders over the next couple of years, which is exactly what Carl Ichan is looking for. Over the long term, though, its hard to say if these moves can be sustainable for years to come. 

Saying "adieu" to Chesapeake's Aubrey McClendon
The departure of Aubrey McClendon was probably one of the highest-profile moves in the energy industry this year, and much of that move has to do with Carl Ichan. After taking up the third largest position in the company, both he and other activist investors were able to get the company to sell off large acreage holdings to pay down its sizable debt load. Also, this group of activist investors had four of its former board members removed from their seats and replaced with their people. Coincidentally, Mr. Ichan's choice, Vincent Intrieri, is also the man nominated to the board of Transocean.

After that, the rest is history. Aubrey McClendon stepped down citing "philosophical differences with the board," and the company brought in new CEO Robert Lawler. Since then, there has been a major shift in the way the company does business. The most eye-popping metric that shows the impact Ichan has had on the company is in its capital allocation over the past couple of years.

Source: Chesapeake Investor Presentation

Not only has the company's capital expenditures dropped by almost half this year, but the way Chesapeake is spending those dollars is just as important. Instead of paying out over 50% of its expenditures to lease land it had not yet drilled like it was doing back in 2011, it's putting more than 80% of its capital toward actually growing production. This sort of change in capital spending has Ichan and other activist investors' fingerprints all over it, and it was probably exactly what Chesapeake Energy needed.

What a Fool Believes
Both Chesapeake and Transocean are less than $20 billion companies, so it was much easier for Carl Ichan to take a significant position in these companies. Apple, on the other hand, is worth almost $475 billion, so his leverage with the company will be significantly less. Still, if he can enact such major changes at these two companies, he may be able to shake things up at Apple, as well.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 16, 2013, at 5:59 PM, henrystar wrote:

    AAPL is pretty big. Still, I think Icahn, I think Icahn...

  • Report this Comment On November 16, 2013, at 7:46 PM, jabstrat wrote:

    Icahn's position in Apple stock will have absolutely no effect. His measly $2 billion "investment" pales in comparison to both Chesapeake and Transocean. Apple's market cap is larger by orders of magnitude than both of these co's together, much less separately. How much Apple stock would Icahn have to own to have the slightest influence on the co.? Do the math ..... it's absurd. He's trying to massage some board members behind the scenes with his position, to see how much animosity he can stir up against Cook. Contrary to the "talking head" community (including YOU Motley's), the BOD is solidly behind Cook and his team. They're doing a good job of running things. Icahn will be the same yesterday, today & tomorrow ..... he's a sleazy behind the scenes manipulator, but this time, he's biting off more then he can chew. Actually, if he just sits on his current holdings, he'll earn a nice qtrly div, plus the inevitable cap gains as the stock continues to move up.

  • Report this Comment On November 17, 2013, at 12:13 AM, petergreyhill wrote:

    love the little iHobbits defending grampa cook and his obvious weak and ineffective management thus far. for a supply chain "genius" he sure seems to be causing apple headaches.

    fortunately apple has a massive cash/sales pad, and should survive cook's inept fiddling, and losing years of hard won market share.

    Icahn is an old alligator and old pro - that giant cash hoard is precisely why he is working on apple, cook and the board. he knows exactly what he is doing and now I am sure cook knows he does not have very long to get his shyyt together, or update his resume. icahn will turn up the burner every month or quarter until he owns a big enough piece of apple to get the leverage he needs. the board should take heed.

    Icahn will bring apple back to its roots and jobs' culture. watch and learn. age and treachery always wins.

  • Report this Comment On November 18, 2013, at 12:58 PM, oscar813 wrote:

    The next time you do an article on Carl you may want to spell his last name correctly.

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