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Setting the benchmark in corporate integrity

Carl Icahn gives Apple a boost

Apple’s market value rose by an estimated $17bn after billionaire investor Carl Icahn tweeted his support for the company. Shares have since hit a seven-month high

Two short and choppy updates from Carl Icahn’s Twitter account revealed that his investment firm currently boasts a “large position” in Apple, and that the billionaire investor was in talks with CEO Tim Cook over the logistics of a larger buyback scheme for investors.

“We currently have a large position in Apple. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come,” Icahn tweeted. He then added, “Had a nice conversation with Tim Cook today. Discussed my opinion that a larger buyback should be done now. We plan to speak again shortly.”

Icahn’s vague statements left investors scrambling. Shares in Apple rose immediately by five percent, hitting a seven-month high of $494.66. Analysts say that correlates to a market value increase of around $17bn. According to Icahn, a larger buyback scheme for investors would allow Apple’s stock to shoot back to $700 per share – which would be within arm’s reach of the company’s all-time high.

The surprising surge is the product of an ever-increasing trend amongst CEOs and investors taking to social media to announce major financial developments at their firms. Yet as these communications strategies begin to reach the mainstream line of corporate thinking, they’ve also come under heavy fire. In December, Netflix CEO Reed Hastings sparked a regulatory row in America after posting on the company’s Facebook page that his streaming service had reached a milestone by exceeding one billion hours of viewed content in just one month. The company’s shares immediately jumped 14 percent. Yet regulators were wary of the fact that Hastings hadn’t reported the information in an official filing.

Consequently, US trade officials launched a full investigation into whether it was appropriate for a firm to use social media as an exclusive means to inform potential shareholders of its financial activities. In the end, the SEC decided it was okay for executives to use social media outlets like Twitter to announce exclusive key information – but only so long as investors were alerted ahead of time as to which social media outlets the information would be found on and when to expect it. Icahn Enterprises complied by releasing a statement making clear that its billionaire CEO “intends to use Twitter from time to time to communicate with the public about our company and other issues” of consequence. The site encouraged all investors and others interested in Icahn’s company to follow him on Twitter immediately. Nearly 50,000 have done so.

Apple, on the other hand, remained fairly mute on the boost it received from Icahn’s tweets. Yet a spokesperson did tell reporters that they “appreciate the interest and investment of all our shareholders”, and that “Tim had a very positive conversation with Mr Icahn today.” Neither party expressed whether Icahn was able to convince Apple to be more generous to its investors.

The meeting itself was the indirect result of a lawsuit that was filed against Apple earlier this year by investor David Einhorn, of Greenlight Capital. Einhorn argued Apple was short-changing its shareholders by sitting on top of $147bn in cash, whilst allegedly giving too little back to investors. CEO Tim Cook argued that the vast majority of the firm’s reserves weren’t actually on US soil, and that any potential repatriation of the cash would be too costly. Yet in April, Cook buckled under the pressure. Apple announced plans to hand over $100bn to investors by 2015, marking what analysts are calling the single largest share repurchase authorisation in history.

According to Icahn, $100bn isn’t enough. He says if Apple was willing to borrow funds at three percent, the firm would have the ability to offer a heftier buyback of up to $150bn. Because it has “huge borrowing power, little relative debt and trades at a low multiple”, Icahn reckons, that will drive up Apple’s shares further still.

“If Apple does this now and earnings increase at only 10 percent, the stock – even keeping the same multiple currently – should trade at $700 a share,” he told Reuters.

Apple still has a long way to go before it’s able to climb out of its current market slump. Since reaching a record high of $702.10 per share in September last year, the tech firm’s value has plummeted 30 percent. As competitors like Samsung continue to overtake Apple in consumer markets across the globe, confidence in Steve Jobs’ iconic tech brand has begun to wane. Carl Icahn, who holds the reputation of being a highly active investor, may be able to turn that around.

Icahn tends to pursue serious change at every firm in which he invests. He’s clashed with the management at Blockbuster and Time Warner, and was personally responsible for the sacking of Yahoo CEO Jerry Yang. Icahn is also currently at odds with PC manufacturers Dell over the company’s desire to re-privatise. He’s set to appear in court Friday in an attempt to block founder and CEO Michael Dell from buying his company back from investors for $24.4bn.

 

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