Carl Icahn has backed off campaigning Apple to increase its stock buyback — citing the company’s recent repurchases, along with influential proxy adviser ISS’s call against his proposal.
In a letter directed to Apple shareholders, Icahn noted that he was ditching his non-binding proposal to get Apple to add a further $50 billion to its buyback plan — down from the original $150 billion he was initially requesting.
This isn’t necessarily a defeat for Icahn though, but rather an example of Apple and the influential activist investor meeting halfway.
Last week Cult of Mac reported that Apple had bought back $14 billion of its shares over the previous fortnight — putting the company’s total share repurchase target for fiscal 2014 on course for $32 billion. Icahn acknowledged this in his letter, noting that his proposal was seemingly pushing Apple in a direction the company is already headed in.
Following Icahn’s latest announcement, Anne Simpson — senior portfolio manager of investments and director of corporate governance for the California Public Employees’ Retirement System, which owns close to $1.6 billion in Apple shares — noted that, “We welcome Icahn’s move to drop his proposal. Any distribution of cash should be undertaken by a company’s board after thoughtful and strategic planning, and be in the best interest of the company and all shareholders. Apple has indicated that it has a plan and has already begun distributing capital to shareholders. We believe this is a more prudent approach. We need to tend the goose that lays the golden egg.”
Apple shares closed up 1.8% on Monday, at $528.99.
Icahn’s letter is reproduced below:
Dear Fellow Apple Shareholders,
While we are disappointed that last night ISS recommended against our proposal, we do not altogether disagree with their assessment and recommendation in light of recent actions taken by the company to aggressively repurchase shares in the market.
In their recommendation, ISS points out, and we agree, that “on the spectrum of options for allocating capital, the board appears to have been sluggish only in returning excess cash to shareholders,” and even though the company has in place “one of the largest buybacks in history” we agree with ISS that this effort seems “like bailing with a leaky bucket” when “given the scale of the company’s cash reserves.”
That being said, we also agree with ISS’s observation, taking into account that the company recently repurchased in “two weeks alone” $14 billion worth in shares, that “for fiscal 2014, it appears on track to repurchase at least $32 billion in shares.” Our proposal, as ISS points out, “thus effectively only asks the board to spend another $18 billion on repurchases in the current year.”
As Tim Cook describes them, these recent actions taken by the company to repurchase shares have been both “opportunistic” and “aggressive” and we are supportive. In light of these actions, and ISS’s recommendation, we see no reason to persist with our non-binding proposal, especially when the company is already so close to fulfilling our requested repurchase target.
Furthermore, in light of Tim Cook’s confirmed plan to launch new products in new categories this year (in addition to an exciting product roadmap with respect to new products in existing categories), we are extremely excited about Apple’s future. Additionally, we are pleased that Tim and the board have exhibited the “opportunistic” and “aggressive” approach to share repurchases that we hoped to instill with our proposal. It is our expectation that Tim and the board continue to exhibit this behavior as fiduciaries to the shareholders since they clearly seem to agree that our company continues to be extremely undervalued, and we all share a common optimism with respect to the company’s bright long term future.
Carl C. Icahn