Icahn Is Wrong on Apple and Right on eBay

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.

Weekly jobless claims rose to 326,000 last week, in line with economists' estimate in a Reuters poll. Stocks opened lower this morning, with the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) down % and down %, respectively, at a.m. EST.

Legendary investor Carl Icahn has been busy lately, adding to his position of Apple (NASDAQ: AAPL  ) , while lambasting management. Yesterday, he tweeted:

Followed, a minute later, by:

Later in the day, he went on CNBC and said:

What bothers me a hell of a lot..., is cash of a $150 billion just sitting there doing nothing. And not to use it to do a huge buyback, is sort of disgraceful. ... As far as I'm concerned, I'm actually better off with them doing nothing. I intend to buy (more) stock.

While Icahn has dropped his initial proposal for a $150 billion share buyback, he continues to push for Apple to execute an immediate $50 billion buyback. However, the idea is impracticable and the company is already engaged in a (multiyear) $100 billion capital return operation through buybacks and dividends -- the largest such operation in corporate history.

It's little wonder that Icahn's proposal has found little support among Apple's large institutional shareholders. When he was asked to comment on the original buyback proposal on CNBC last October, another legendary investor, Berkshire Hathaway CEO Warren Buffett, sided with Apple:"The Apple management and directors have done a pretty darned good job of running the company, and so my vote would be with them. ... I do not think that companies should be run primarily to please Wall Street, and largely shareholders who are going to sell."

I'm not sure whether this is simply a case of Icahn venting or whether it's a part of his tactical arsenal. The wily investor is surely cognizant of the limits of his influence in this situation (he controls less than 1% of Apple stock), but theater is part of his modus operandi. Either way, his buyback proposal appears to be dead in the water.

Icahn is, however, on surer footing in calling for eBay (NASDAQ: EBAY  ) to spin off its PayPal payments business, which he also did yesterday. The company responded with a statement that indicated it is not on board with the idea on the basis that "payment is part of commerce, and as part of eBay, PayPal drives commerce innovation in payments at global scale, creating value for consumers, merchants and shareholders."

This has the ring of empty corporate-speak to me, with an intent to obfuscate. Are we to believe that PayPal would suddenly lose to ability to "drive commerce innovation in payments at a global scale" if it were separate from eBay? I'd posit there are good reasons to think it could pursue that goal more effectively as an independent entity. PayPal has outgrown eBay and its horizons are much wider -- it's time to consider setting it free.

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