Why Apple Stock is Cheap, Buyback a No Brainer

By: Bloomberg

Billionaire investor, Carl Icahn speaks to Bloomberg Television's Trish Regan this afternoon on "Street Smart" and said on Apple:

• Apple buyback would be 'no-brainer'
• "We are not leaving Apple, we are there to stay"
• "Apple needs a board that goes in and does a huge buyback. We are saying that. I respect Tim Cook and I expect to talk to him again very shortly and I think he is doing a very fine job."
• Apple should buy back $150 Billion in Stock
• To critics of the Apple buyback: "[they] have not bothered to read the balance sheet or maybe does not know how to read a balance sheet."
• Tim Cook believes the stock is very Cheap
• Not looking for a quick turn in Apple

Icahn also said on JC Penney: "we have stayed away from years. And we continue" and on Netflix: I can only say that my son and Dave, his partner, have certainly earned a say in what they believe we should hold or not, and I do not think they are wrong with what they said in that press release. Basically, Netflix is a great company, but, you know, as I said, I have been a veteran, and a battle hardened veteran of seven bear markets, and, therefore, there comes a time when you are making 500% on your money that you take your chips of the table.... I think Netflix has a great model. But I did take some chips off the table."

Icahn on recent criticism of the potential apple buyback program:

"I think that some of the critics that you listen to are just absurd. I just heard someone say that Apple might need the money for other things. That is tantamount to saying that Bill Gates should not fix his house because he needs the money for charity. They have so much cash, with no ballroom, how can you possibly have that type of criticism of a buyback? They might need the money for other things? Apple is not a bank and shareholders did not buy the stock to be a bank. We have no complaints about the management and what they are doing with technology, but there is no one on that board who really had a great knowledge of fiancé as far as I can see, but maybe I am wrong on that, I do not want to start a new war. I will say this, to a list criticism saying that they need money for other things, it is idiotic. Or it is a complete lack of reading a balance sheet."

On why he thinks a buyback program is something Apple needs to be doing right now:

"I think a company and its board should do everything they chance to enhance value. This is what you call a no-brainer. At the risk of being a modest, we have the best record by far over the past 12 to 13 years and it is done because of activism and because we proved over and over that you can go into companies and make management accountable or change them, which the boards are lax in doing. If that were done more and the law allowed for it more, we could not have the problems."

"Look, the market is up right now, but I believe the market is up not because our companies are doing that well but because interest rates are ridiculously low and as a result is companies are making money, but making it the wrong way. Jobs? There are no jobs. The jobs are very scarce. Therefore what you need are companies that are better run. I will say that there are many well-run and great companies. Apple, I believe, is managed well, but the board is not doing the job they should be, take this cash that is making them no money, or borrow, which is the same thing, if you get into financial engineering. If you borrow money at 3-percent, which they can do, they can buy stock that returns 16-percent. It is a no-brainer. To have critics say that you should leave Apple along because they aren't icon and because of this and that, they have no knowledge of how to read a balance sheet. They have plenty of money to do anything they want, even if they did the buyback. The interest alone would purchase $150 Billion. It is absurd to make this kind of criticism. I will obviously not tell you what is in the letter, but you can judiciously guess that we are not leaving Apple, we are there to stay and our record shows that we have been very successful in the last 12, 13 years going in, cleaning up companies that need to be cleaned up or changed. I think that Apple needs a board that goes in and does a huge buyback. We are saying that. I respect Tim Cook and I expect to talk to him again very shortly and I think he is doing a very fine job."

"I would think that Tim would not want to talk to me until his earnings come out, and I would respect that."

On whether the model will have to change and Tech companies that are averse to debt will need to adopt new models where they take on debt:

"There is a time to borrow and time not to. But I do not want to digress from what you are really asking. If the company has $150 Billion cash, there is nothing wrong with them borrowing. They are sort of borrowing against the cash in because they cannot repatriate it. Borrowing there is not the same as borrowing money and leveraging your balance sheet, in a sense. It is a completely different equation or dynamic. We are not talking about it being wrong tomorrow. That is a different question that you could argue. Here you are not a bank, sitting on $150 Million. The stock is so low on value related to earning, related to the $50 Billion cash flow, it is patently absurd not to buy it."

"I owned a bunch of oil wells in 2000. There was a partner that we had, and the partner wanted to sell for one reason or another at a very cheap price. Well, he was nice enough to offer them to me. It is no different with Apple. Apple is selling their stock. Apple stock is selling at a very low price. Why should the shareholders not get the benefit of that if they have another buyer? I get the benefit of buying stock as opposed to Apple getting it."

On how big of a buyback does Apple need:

"We have recommended several times, $150 Billion. We are making a bunch of pledges in the leter, and I think you will find it very interesting. I think it will stop any criticism saying I am just looking for a quick trade. We do have a good profit in Apple, but that could not be further from the truth. To do in and make a quick turn here. We do not really. In many cases, look, we held Netflix while others sold it. I am not saying they were wrong. I am saying we held Netflix, well, it was only 13 months, but it went five times higher before we sold it, so we are not in for the quick turn. They need money for other things. They have not bothered to read the balance sheet or maybe does not know how to read a balance sheet.

On why he is active in a large company like Apple where it is harder to have a voice:

"I am not sure of that. I saw somebody have a pretty big voice with Procter & Gamble. I think on this one point, we can have a voice because it is so absurd not to have a buyback, and we are not criticizing Tim Cook. I am not sure we cannot have a voice there. A lot of shareholders have called us and have said 'Right on. Right on. Get the deal done.' We do not represent a number. If shareholders say, do not do the buyback, that is one thing, but to listen to the commentators go on about it, it is amazing to me. I do not mind people criticizing doing it for other reasons, but just to say that Apple cannot afford it because they need the money for other things is patently absurd. It is saying that activism in the right way does not work. Just look at our record, and look at how many companies we have cleaned up. It is not that we just trade stocks. We have held stocks for years and years and years, and the trouble with the company and with the economy is we protect management doing a bad job. I believe in really enhancing value, but I will say that I think I am not the only one that believes that, and if that is true, hey, let it be, you know."

On whether Tim Cook is willing to give on this:

"I cannot talk to Tim. I have met him. I find he is doing a very good job. This is not a criticism of him. I think he believes as strongly as I do that the company is undervalued. Therefore, you can deduce from that, or you should be able to that if the company's stock is very cheap and I have $150 billion, why do I not use some of it to buy the stock? It makes no sense. Tim. He is not going to run ahead of his board. I know he believes the stock is very cheap, as I do."

On other institutions that are coming forward saying "Yes, This makes sense:"

"There is a fact that so few institutions speak out, and I think it is a sad fact. I think institutions should get a lot more active in making their companies more accountable and making management more accountable. Hey, tomorrow, when we come up with this, we are going to come up with Twitter followers, going on what I am calling the shareholder square table. There is an interesting thing in the beginning of it, and there will be some interesting things, one of the articles will be the letter, and we hope people join the square table. You subscribe. You do not pay money for it. You sign in for it. You will see something I think you will find very interesting, which is sort of a depiction of how a lot of our companies are, and it is a sad commentary that these companies do not have accountability and are not really that focused on enhancing shareholder value. Again, there are many good companies, many good boards, and we are not in any way criticizing Tim Cook here. We agree with what he is doing as far a coming out with all of these new iPhones and what I have you, but that is not what the criticism is about."

On whether he has spoken to David Einhorn about Apple:

"I am not at all going to discuss what is talking to me about in private. I am not talking about any other institutions by name, but there are a lot of shareholders that have spoken to us and think we are right. Now, that does not mean they are going to vote for us or vote for this or what have you, but that is what I do believe."

On the Shareholder Square Table:

"Twitter followers can get on tomorrow, and, again it has a few different articles, and it will continue to have articles. I think the time might have come in our economy where shareholders want to stand up a little bit more to what goes on, and to say that we are just doing this to enhance our own portfolios is another ridiculous thing, because we own things for years and years in certain cases. Look at how well we have done for the companies over and over that we have been involved with, and look at how they have changed."

On whether he purchased a stake in JC Penny:

"We do not elaborate too much on positions. That was an example of activism, where you micromanage, and we do not presume to micromanage. I am not going to say anymore about that except, we have stayed away from years. And we continue."

On how Netflix is playing out, given that his son is a big believer:

"I can only say that my son and Dave, his partner, have certainly earned a say in what they believe we should hold or not, and I do not think they are wrong with what they said in that press release. Basically, Netflix is a great company, but, you know, as I said, I have been a veteran, and a battle hardened veteran of seven bear markets, and, therefore, there comes a time when you are making 500% on your money that you take your chips of the table. Some of them, anyway. And that is really why I did it, that I think Netflix, actually, if I had not had the position, I probably would have kept it. I think they are right in most of their arguments, but that does not mean, I mean, there is a different way to looking at life or investing life and I think for Apple to have this huge position, and the position obviously by dent of the investment got much bigger, so it got to be a larger percentage of the portfolio, and I do not know if it is judicious to have one company with that large of a percent in a portfolio, and you have to worry about just, as I say, I have been through a bunch of bear markets, and when they come, they are not pretty things."

"... They only different is Netflix, which is say again, I basically agree with their argument, but I still did it, so that is what I think of Netflix. I think Netflix has a great model. But I did take some chips off the table."

bloomberg.com

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