Apple: Carl Icahn Is Running Out of Juice

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

According to the latest Fed Beige Book survey, released on Wednesday, most regions grew moderately during October through late November, despite the 16-day government shutdown. However, that did not prevent stocks from recording a fourth consecutive day of losses, as the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) fell 0.1% and 0.2%, respectively.

Legendary activist investor Carl Icahn isn't backing down from his campaign to get Apple (NASDAQ: AAPL  ) to complete a massive share buyback, but it looks like he's scaling back the size of the program he is requesting. Just before midday Eastern time, he tweeted:

Gave $AAPL notice we'll be making a precatory proposal to call for vote to increase buyback program, although not at $150 billion level.

— Carl Icahn (@Carl_C_Icahn) December 4, 2013

(A "precatory proposal" is a recommendation or request made by a shareholder to the board of directors of a company; as such, it is non-binding even if approved by a shareholder vote.)

In fact, Icahn filed the proposal on November 26, three days ahead of the deadline for measures that will be voted on at the next annual shareholder meeting. According to CNBC, the proposal calls for a $50 billion buyback in Apple's current fiscal year, which ends next September. Apple appears to be nonplussed; with Apple spokesman Steve Dowling responding :

Earlier this year we more than doubled our capital return program to $100 billion, including the largest share repurchase authorization in history. As part of our regular review process, we are once again actively seeking our shareholders' input on our program, and as we said in October, the management team and our board are engaged in an ongoing discussion about it which is thoughtful and deliberate. We will announce any changes to our current program in the first part of calendar 2014.

Icahn is a fantastic investor, but, in this situation, it looks like he is overplaying his hand. First, he owns only roughly half a percent of Apple shares, according to Thomson Reuters. Second, Apple already increased its buyback authorization by a factor of five to $60 billion in April, part of a $100 billion capital return program – the largest in U.S. corporate history. The company expects to complete the program by the end of 2015, for an average rate of $30 billion per year.

In that context, it's difficult to imagine that Icahn will find significant support -- either among other shareholders or Apple's board of directors -- for his latest proposal. Not because it doesn't make sense -- there is a lot of merit to a large, opportunistic buyback if you believe, as Icahn does, that Apple shares are highly undervalued – but rather because Apple is already carrying it out, to a significant degree: The company bought back nearly $21 billion worth shares in the two quarters through September. That proves Apple is not afraid to be opportunistic, and in size!

Carl Icahn will very probably earn a tidy return on his Apple position, but that has everything to do with picking a stock that was undervalued. At this stage, his activist tactics vis-a-vis the iPhone maker look more like theater than hard-nosed business dealings, although I suppose even theater has some promotional value, even in the stock market.

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