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Why Did Carl Icahn Buy Apple?

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August 16, 2013 – Comments (2) | RELATED TICKERS: AAPL

Board: Apple

Author: TMFinept

It's still not clear to me what makes everyone here think that this is Carl Icahn manipulating a stock for short term gains rather than Carl Icahn making a purchase that he deems likely to provide a good intermediate-term returns. Whatever sort of investor he is, I think it's likely the case that he would prefer to see durable 50% gains in Apple over the course of two years vs. 5% gains over the course of two months. It's not easy to find secure places to stash billions of dollars in this market with the expectation for outsized returns of the sort I think Apple might deliver. Why poison his own well for a few percent in the short term?

He may be a lot of unsavory things, but stupid and short sighted ain't one.

Furthermore, I remain of the opinion that Carl Icahn is simply too small to nudge Apple in any appreciable way and that earnings and value remain the key drivers here. As opposed to some sort of manipulation, why can't his purchase just a slap in the face to a market that very often fails to see values in the most obvious of places?

He famously made a fantastic investment in Netflix very near a bottom causing a huge pop in share price and Netflix is still around. That purchase was a vastly larger percentage of the entire company than this one and doesn't Icahn still own the entire position? Rather than acting like a bandit and collecting short term gains at the expense of fools, he made out like a real bandit by picking a great company, loading up and sitting on it. Unsurprisingly, the company's growth and stellar results have powered the stock forward, not Carl Icahn. The same will certainly be the case for Apple, where I expect results to dictate movement in the price.

If things get ugly and people start clamoring for the exits, I think it'd be a lot more likely that this is precipitated by calamitous business outcomes than by Carl Icahn's comparatively irrelevant movements.

Is it the fanfare that has people so sour? He has to file a 13F so it's not like it would have stayed a secret long, plus Twitter was approved by the SEC for legal disclosures so what's the big deal?

I don't think Icahn is here to pillage, I don't think he could if he wanted to and I don't think he can have any lasting effect on the price that won't be overwhelmed by the company's performance. I also don't think that this is an opportune exit.

The market may like/dislike Apple's announcement on the 10th and if the stock rises/falls as a result it will be none of Carl Icahn's doing. I'm more interested in September 10th, 2015 than September 10th 2013. I think that this is an outstanding position for the next couple years and if I'm right, both Carl Icahn and I will be laughing all the way to the bank.

Dan

Disclosure: I own Apple. Duh. 

2 Comments – Post Your Own

#1) On August 16, 2013 at 11:45 AM, Mega (99.95) wrote:

"Twitter was approved by the SEC for legal disclosures so what's the big deal"

I think that was a bad decision and increases the probability that people will try to manipulate stocks using social media.

Icahn is a serial truth stretcher (some might call him a schmuck and a liar). So when he describes a discussion with Tim Cook, my instinct is that he is probably not accurately describing it.

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#2) On August 17, 2013 at 12:10 PM, FastMike (< 20) wrote:

Dear Dan:

Carl Icahn bribes shareholders with their own money. And he's good at it too! That's essentially what 'activist investors' do, though.

Mr. Icahn is applying an 'old school' principle: the value of "a share" of a company is directly proportional to its potential to pay (or increase) a dividend.

One has to admit that many companies these days are refusing to part with their cash. Case in Point: Apple. Didn't they float debt to buy-back shares? (It was the rational thing to do, rates being what they were).

Mr.Icahn adds a twist to that principle. He targets cash rich high profile companies.

But I think that if this is the case, he's making a mistake. For example: why didn't he go after Microsoft?

Microsoft is in turmoil. It's most recent products have been disasters. It's become way too big. It has been rumored many times that Microsoft would spin-off its Office Suit. It pays a paltry dividend and last, but Icahnically, not least, it is sitting on a mountain of cash.

Not to mention that Microsoft has that cash on top of $250 billion of bought-back shares, which really hasn't reflected all that much in its share price in recent years. The potential for share and dividend appreciation is certainly there.

Mr. Icahn would have had much better success if he sat himself on the Microsoft board and, to top it all, he would have given Microsoft something it desperately needs: Business discipline and direction. 

I'd bet that the majority of Microsoft shareholders would have cheered Mr. Icahn on the board! Whereas with Apple, he's earned the ire of the long faithful "Appleistas"

IMHO, it seems that Mr. Icahn has the right idea, but he picks the wrong companies.

FM

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