Tags: Yglesias | Apple | Icahn | buyback

Slate's Yglesias: Apple Should Ignore Carl Icahn

By Michael Kling   |   Friday, 13 Dec 2013 07:35 AM

Billionaire investor Carl Icahn is on a campaign to press Apple to repurchase an enormous amount of its shares.

Slate business and economics correspondent Matthew Yglesias says Apple should ignore him.

"The only problem is the idea stinks," Yglesias writes.

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A huge share buyback would make Icahn even richer. It would also be bad for Apple's small shareholders, its customers, and even the entire world at large, he argues.

"Icahn's call for buybacks reflects a malignant streak running through American corporate culture, one that emphasizes financial engineering and trading over tangible investments."

Apple certainly has the money to do it — $147 billion in cash and short-term investments. Only 31 companies in the world even have a total value of over $147 billion.

Icahn, who bought 4.7 million of Apple shares, wants the company to buy back a ton of its shares to raise its stock price. That would let him sell his shares for huge gain and move on to his next game.

The plan won't help Apple or small shareholders who hold onto their shares.

Apple won't be any better off. It would just have less money.

Calling the idea financial engineering, Yglesias compares Icahn and hedge fund manager David Einhorn to Willie Sutton who said he robbed banks because that's where the money is. "Their ideas, while perfectly legal, really are the corporate equivalent of bank robbery."

Instead of repurchasing stock, the company should expand its lucrative retail stores, invest in original programming, and develop more affordable products to increase market share, he argues. Apple CEO Tim Cook announced a share buyback and a dividend increase, but that just prompts the big investors to want more.

This spring, the company increased its quarterly dividend 15 percent to $3.06 per share and said it would repurchase $60 billion in shares, a big jump from its previous $10 billion buyback plan. It would be the largest buyback ever.

"We continue to generate cash in excess of our needs to operate the business, invest in our future, and maintain flexibility to take advantage of strategic opportunities," said Peter Oppenheimer, Apple's chief financial officer.

Cook argues that the company has enough cash to fund research and development, open new retail stores and finance other business investments, Cook said when announcing the initial buyback in March 2012, according to CBS' MoneyWatch. "You'll see more of all of these in the future."

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