3 Reasons Apple Inc. Overcame Carl Icahn’s Buyback Crusade

Why Apple triumphed against its most recent activist investor antagonist.

Feb 16, 2014 at 12:30PM

After months of headlines and hyperbole, tech giant Apple (NASDAQ:AAPL) has finally overcome perhaps its most well-known corporate antagonist to date – activist investors and multi-billionaire Carl Icahn.

Mr. Icahn's crusade against Apple initially surfaced last August when he informed the world via Twitter that he had amassed a large position in Apple.

Carl Icahn Apple Stake Tweet
Source: Twitter 

And this week, Mr. Icahn threw in the towel, saying his dogged pursuit against Apple had ended. So as this business-theater comes to an end, let's examine three reasons that Carl Icahn failed in his Apple arm-twisting effort.

1) Lack of support
With an estimated net worth in excess of $20 billion, Mr. Icahn's success as a financier is hard to dispute.

However, his particular brand of investing centers on bringing change to fruition sooner rather than later. At times, this can serve investors well. However, cajoling for short-term change also runs the risk of making short-term or ephemeral differences in a company's stock price at the expense of distracting from managing from the long-term.

Given Apple's shareholder base is comprised mostly of large, institutional firms  that will have to hold Apple's stock for better or worse, it should come as no surprise that Mr. Icahn's campaign for more immediate financial gratification fell on mostly deaf ears. And recently when two highly respected institutional investor advisors (Institutional Shareholder Services and Egan-Jones) formally recommended investors vote against Mr. Icahn's buyback proposal, it essentially signaled the end of his campaign.

2) Apple's sheer Size
Mr. Icahn's Apple escapades also illuminate another, less-discussed reason for his failure: Apple's sheer size.

The key ingredient to waging any successful activist campaign is gaining control over enough shares in order to exert your agenda. However, with a current market capitalization  the size of Belgium's economy, getting control over enough Apple stock to affect some kind of change is no small task.

Large, institutional money managers tend to avoid activist campaigns, leaving the bulk of activist investing to more maverick investors like Mr. Icahn. The problem is that such investors lack the kind of financial firepower needed to take on the Apples of the world. For example, if Mr. Icahn were to allocate every cent of his estimated net worth toward scooping up Apple shares, he'd only be able to control about 5% of Apple's stock.

Apple is simply too big a fish for the activist investing set, especially lacking the support of larger shareholders as we saw above.

3) $14 billion over two weeks quelled concerns
As most hopefully know by now, Apple has been especially active on the buyback front of late. In the two weeks alone following its disappointing earnings report, Apple scooped up some $14 billion of its own stock by accelerating its buyback program for the second time  in the last 12 months.

Although this falls well short of the total figure Mr. Icahn had been arguing Apple should allocate annually to buybacks, it certainly brings the Mac maker much closer to this figure. And more importantly, Apple demonstrating its willingness to put its money where its mouth is when its stock falls to absurdly low levels also serves as a key signal that Apple is committed to returning its massive cash hoard to investors as opportunistically as possible.

Where Apple goes from here
So as Apple heads into a product cycle in 2014 that should include at least one new product line, it's more of less back to business as usual with Icahn fading in the rear view mirror.

Apple's shareholder meeting convenes on February 28, so be on the lookout for more possible management commentary about how it plans to employ its massive cash hoard.

And as we head into Apple's next key event, we mark the close of what's been a very entertaining but ultimately fruitless pursuit from one of investing's most quote worthy characters.

A better way to invest in the smartphone revolution that Apple
Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Andrew Tonner owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information