Carl Icahn Takes Aim at Apple Once Again

Carl Icahn has been so closely associated with tech giant Apple (NASDAQ: AAPL  ) during the last several months that it seems almost more appropriate to begin calling him Carl iCahn.

Icahn is understandably concerned with the goings-on at Apple, seeing as he currently owns around $2.7 billion worth of Apple stock. As with many of his investments, Icahn's time as an Apple shareholder has seen its fair share of contentiousness, most of which has been centered around Apple's use of its ballooning cash balance. And true to form, Icahn made waves this week for once again attempting to influence Apple's management.

The Apple of his eye
In an interview with Time, Icahn disclosed that he was once again petitioning Apple's board in yet another attempt to turbo-charge Apple's future capital return plans.

On Nov. 26, three days before the closing window for shareholder filings, Icahn filed what's known as a precatory proposal with Apple. And although it sounds serious, this kind of filing really only amounts to more posturing from Icahn. One key aspect of a precatory filing that's especially relevant here is that it's non-binding, meaning Apple's board may be able to legally avoid acting upon the proposal, even if it's supported by a majority of shareholders. In short, Icahn's move lacks teeth.

iWant, but do iGet?
That isn't to say that Icahn is wrong here; in fact, I quite agree with him. And although this most recent move falls short of a proxy fight, a majority vote from shareholders would surely be perhaps the strongest signal to date that Apple's investors are firmly in the J.G. Wentworth camp here: "It's my money and I need it now!" 

Bringing the issue forward to a vote in this specific way is still a shrewd maneuver against Apple by Icahn in that it's a cost-effective way to push his agenda. Corporate raiders like Icahn are masters of the proxy fight, wherein they use their own large stakes in a company to lobby the support of other large shareholders, usually to gain board seats or initiate some kind of management change. And there are two reasons why a proxy fight might be simply out of the question at a company like Apple.

For starters, one of the key elements in waging a successful proxy campaign is acquiring enough shares in the target company to exert significant influence on its board and other shareholders. However, because of Apple's sheer size, that might be easier said than done. With Apple's current market capitalization hovering around $508 billion, Icahn's current stake represents a minute 0.5% of shares outstanding. Icahn could undoubtedly raise more capital to invest in Apple, but an objective like acquiring majority control, or even becoming the largest single shareholder, is probably out of the question.

Secondly, and more broadly, corporate raiders often initiate proxy fights to oust what they believe are ineffective executives. However, Icahn has long been a supporter of Apple CEO Tim Cook, something he reaffirmed yet again in the Time interview. Aside from their differing opinions on Apple's capital return policy, Icahn is a Tim Cook supporter. So, even if he were able to exert enough control, Icahn still wouldn't likely make any management changes. 

Undervalued Apple
Ultimately, Icahn is definitely onto something here -- namely, that Apple, even after its recent run-up, remains patently undervalued. Backing out the roughly $130 billion in net cash and investments that Apple carries on its balance sheet, Apple operating business is valued at around 10 times its last 12 months' profits. For a company with as many potential catalysts at Apple, both in the near term and longer term, this is simply too cheap.

Apple has said it will announce changes, if there are any, to its capital return program no sooner than early next year. It certainly seems plausible that investors should see an increased buyback, dividend hike, or both. If not, expect plenty of noise from the likes of Icahn.

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