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Surrender on Apple Stock Buyback a Rare Loss for Carl Icahn

This doesn't happen very often.

Carl Icahn has been foiled in one of his activist investing ploys, and by none other than Apple Inc. (Nasdaq: AAPL).

Icahn's bid for an Apple stock buyback worth $50 billion ran aground today (Monday) when an influential proxy voting service, Institutional Shareholder Services Inc. (ISS), sided with Apple.

Icahn's nonbinding advisory resolution for the huge Apple stock buyback was one of 11 proposals to be voted on at the Feb. 28 annual shareholders meeting.

Apple had already recommended that shareholders vote against it, but the ISS report was a big hint that Icahn wasn't going to get a lot of support elsewhere, either.

"While the board has failed to articulate a strategy for addressing its long-term capital needs, it has returned the bulk of its U.S.-generated cash to shareholders," ISS, a subsidiary of MSCI Inc. (NYSE: MSCI), said in its report. "The board's latitude should not be constricted by a shareholder resolution that would micromanage the company's capital allocation."

ISS added that it would prefer to see Apple focus more on products than what it should or should not do with its cash reserves, which remain bloated at about $145 billion.

That, along with ongoing resistance from some other major Apple shareholders like Egan-Jones, another proxy advisory firm, was enough to get the usually stubborn Icahn to cry uncle.

On Monday the activist investor tried to put the best spin on his retreat, noting in a letter to Apple shareholders that the company already had repurchased $40 billion of its own stock in the past year, and $14 billion worth just since Apple reported earnings on Jan. 28.

"We see no reason to persist with our nonbinding proposal, especially when the company is already so close to fulfilling our requested repurchase target," Icahn wrote.

Wall Street was apparently relieved that the months-long battle was over, sending the Apple stock price up 1.79% to $528.99.

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Icahn began his quest to ramp up the Apple share buybacks last summer. In addition to sending out numerous tweets as he accumulated Apple shares, Icahn met with Apple Chief Executive Officer Tim Cook and in October published a letter to Cook describing the details of his plan.

Cook, for his part, maintained a polite but firm resistance. That and the unusually large amount of Apple stock buybacks that Icahn was demanding put off potential allies.

Icahn had kept up the pressure, and his own buying, through the New Year. Just a few weeks ago, he tweeted that he had purchased another $500,000 worth of AAPL, raising his stake in the company to $4 billion.

While having Icahn off its back is good for Apple, the company will still face shareholder restlessness if it fails to introduce at least one completely new major product this year.

In the long run, it will be new products aimed at new markets that will generate the profits needed to push Apple stock higher.

"Listen, I'd rather have the company come out with something new, something exciting," said Breakout's Jeff Macke. "If that happens, Icahn wins, I win, you win, everyone wins."

Do you agree with @Carl_C_Icahn that #Apple needs to buy back more shares, or do you think he was just creating needless headaches for the company? Tell us on Twitter @moneymorning or Facebook.

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  1. H. Craig Bradley | February 11, 2014


    I can not believe you quoted that knucklehead, Jeff Macke (a.k.a. "dumb money"). Apple's CEO Tim Cook has been saying for at least two years that Apple has " amazing things" in store. Well, that may have included new versions of the I-Phone last year, but nothing truly innovative. This year looks just like last year, except this time CEO Tim Cook says Apple is going to have " new categories" in 2014. When pressed by the media if this means a brand new product such as Apple T.V., he begged the question and repeated the New Categories statement.

    Clearly, a bit more corporate communication is needed if Tim Cook really "believes in Apple" like he said he does. He needs to offer a teaser for the public to ponder, another words, a bit of excitement. This is what investors in Apple expect. Can Tim Cook deliver what they want or not? That is the real question here. Each additional year without something new risks a long decline in the stock like Microsoft and so many former tech stars have already experienced.

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