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Carl Icahn Writes Open Letter To Apple Board Of Directors And Shareholders

2nd Annual "David Moore's Funny Business Show"
Carl Icahn stoked the fire again yesterday, releasing his latest open letter concerning Apple and its’ sitting on massive hoards of corporate cash.

The ostensible purpose of his letter is to hope to persuade, and then prevail, with a proxy resolution he has already  put forward formally for consideration at next month’s Apple Annual General Meeting asking for greater stock buy-backs.

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However it is likely his more realistic goal, fall-back, goal is rather more mundane and much more likely to be successful. Namely, he is simply seeking to continue to garner as much free publicity as he can for his view, one ironically shared by the Apple Board too of course, and indeed by many other people, that Apple’s shares are cheap and that he has bought over US$3 billion of them because of it.

Nothing wrong with that of course, though unlike his Tweets the other day, which were a triumph of compression,  his letter is quite long, over 3, 000 words, somewhat rambling and could have had more precision if a linguist had perhaps looked at it.

Here are just a few highlights of the letter, which nevertheless contan the gist of what he says,

Dear Fellow Apple Shareholders,

“Over the course of my long career as an investor and as Chairman of Icahn Enterprises, our best performing investments result from opportunities that we like to call “no brainers.”

“In our opinion, a great example of a “no brainer” in today’s market is Apple. The S&P 500′s price to earnings multiple is 71% higher than Apple’s, and if Apple were simply valued at the same multiple, its share price would be US$840, which is 52% higher than its current price.”

Nothing wrong with that; his maths is impeccable so far, too.

“This is a dramatic valuation disconnect that simply makes no sense to us, and it seems that the company agrees with us on this point. Tim Cook himself has expressed on more than one occasion that Apple is undervalued, and as the company states,  it already has in place “the largest share repurchase authorization in history.”

Again so far so good,  but this is then where Icahn goes off at his favourite tangent according to this writer at least, and other analysts too apparently judging from some of the news reports have have surfaced in its wake:

“We believe,  however, that this share repurchase authorization can and should be even larger, and effectuating that for the benefit of all of the company’s shareholders is the sole intention of our proposal.”

The rest of the letter then does rather ramble but contains one important point which is certainly worth highlighting,

“Apple could introduce a next generation payments solution. In terms of whether the marketplace is well addressed by mobile payments solutions, Tim Cook has said “I think it is in its infancy… I think it is just getting started and just of out of the starting block.” With the fingerprint sensor, iBeacon, 575+ million credit card numbers stored in iTunes, and Apple’s homogeneous iOS installed base with 79% of devices using iOS 7, we believe a revolutionary payments solution is now a very real opportunity that the company could choose to pursue.”

There Icahn is instinctually right on the button with respect to this possible emerging trend, and this partly also explains his fascination with PayPal too right now. As the commodity frenzy of gambling in Bitcoin tokens has already demonstrated, as well, there is a strong incentive for somebody,  somewhere, to use the internet to disrupt the costs of international financial payment systems. While the existing infrastructures are complicated and expensive, the rewards for doing so eventually by entities that have earned connsumer trust, could be great.

The reason this might conceivably come from silicon valley rather than from the banking system itself is the usual one: existing banking groups all have a strong interest in the status quo. No international bank transfer of money has ever arrived early, before its due date, in the history of the world. Almost always they are late, and of course the banks earn huge amounts of money gaining interest on the float – which every day totals trillions of dollars.

Whether it is Apple, or PayPal or someone else the sector is tempting enough for people to dream of what could be done, including it seems Carl Icahn.

The rest of the letter continues to ramble, including expressing support for existing Apple management, and making an oblique case for putting somebody on the board with experience in financial investing – does he mean himself perhaps? If he does he is smart enough not to spell it out.

Carl Icahn’s arguments are less important than his timing perhaps, as Apple’s jus completed December holiday quarter’s results, for their second fiscal quarter, come out on Monday. If, as some believe they may be, they are exceptionally good then the stock could well begin to move up again. The negative sentiment about the company of six months ago has now dissipated; the “Apple is doomed” crowd is muted so there is room for a stock-booster such as Icahn to make his case. By using his own money, or his funds’ money, and then taking to the bully pulpit this way, why not? And if attention is his goal he is certainly getting it.




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