Apple shares to double? That’s what Gordon Gekko-alike Carl Icahn thinks should happen.
He made the claim in a long open letter to Apple CEO Tim Cook, published last week. OK so it included some staggeringly optimistic assumptions, like more than $30bn a year for a product, Apple TV (set) not yet even launched. The main thrust, however, was that Apple has $136bn of cash and Icahn wants it.
He’s on a bit of a roll. eBay and PayPal announced several weeks ago that they would split into separate entities, an outcome Icahn has lobbied strongly for earlier in the year despite being shouted down by management and the board of directors.
The driving force
There are a range of rationales for shareholders becoming more active with the company management. Sometimes, as in the case with eBay, two assets do not sit well together. For various reasons they receive a discount on their share price, for example because the CEO is not fully focused on either business.
Another motivation, and a big one at the moment in tech, is clearly cash. Holding too much on the balance sheet also produces a discount in the market because investors worry it could be wasted.
Tech companies in the US (always the US, I know, they have great data…) collectively have 10% of their market caps in cash, or fully $380bn.
Such tactics have pitched Icahn into an interesting battle with VC guru Marc Andreessen, cast as a clash of cultures between Silicon Valley and Wall Street. Andreessen, he of the tweetstorm fame, holds Icahn’s tactics in pretty low esteem, describing him as an ‘evil Captain Kirk’.
No doubt imagining himself as a corporate benefactor with a much more constructive approach, Andreessen has nevertheless ‘screwed more people than Casanova’, according to Icahn.
A helping hand
Yet Andreessen has also been tweetstorming about discipline, or lack thereof, in some of today’s startups. It is the Icahns of this world that force discipline at the largest companies, preventing CEOs from spurning the company’s billions on extravagances such as private jets.
Sure, it is (enlightened?) self-interest; they have their own jets to fund. But the irony of it all is that in doing so, Icahn and his peers’ actions could be great for the smaller companies that Andreessen so covets.
Look this week at CSR, the Cambridge-based Bluetooth pioneer, who has received a £1.5bn bid from Qualcomm. Qualcomm itself is sitting on $18bn.
The point is, CEOs would much rather spend the cash building and enhancing the businesses rather than giving it back to shareholders and circumscribing their own universe, least of all in the face of pressure from unsavoury characters behaving like some modern day robber baron.
Indeed Yahoo, another on the activist hit list, has retained half of the cash from its Alibaba IPO windfall for other purposes such as acquisitions. This is a game CEO Mayer is well ahead on, having made no fewer than 44 acquisitions since joining.
So for all the turmoil in technology this year, there is at least one more act in this funding cycle to come, and with over $380 billion potentially in play its importance should not be underestimated.
Apple might not be the only company doubling in value as a result of Icahn’s activity.