{"id":1424,"date":"2014-02-11T23:59:03","date_gmt":"2014-02-11T23:59:03","guid":{"rendered":"http:\/\/www.jlpp.org\/old_blog\/?p=1424"},"modified":"2014-02-11T23:59:03","modified_gmt":"2014-02-11T23:59:03","slug":"investor-to-apple-spend-your-cash","status":"publish","type":"post","link":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/2014\/02\/11\/investor-to-apple-spend-your-cash\/","title":{"rendered":"Investor to Apple: Spend Your Cash"},"content":{"rendered":"
\"C\/o<\/a>
C\/o Twitter<\/figcaption><\/figure>\n\nIn the summer of 2006, as I prepared for my freshman year of college, my undergraduate university sent me a list of information pertaining to requirements for computers. I remember chuckling to myself when I saw that half of the information was reserved for Macintoshes. Who owned an Apple computer anymore? This was a time when iPods had been available for almost five years, but the introduction of the iPhone was still a year away and many people still abided by the slogan \u201cFriends don\u2019t let friends buy Macs.\u201d\n\nFast forward to today: Apple is one of the most successful companies in the world and it has a consumer following that is unlike any other. And, it is sitting on $150 billion in cash<\/i>. This fact has prompted one investor\u2014activist shareholder Carl C. Icahn<\/a>\u2014to put pressure on Apple to return some of its money to the company\u2019s shareholders. In a letter<\/a> sent to Apple CEO Tim Cook<\/a> on October 23, 2013, Icahn urged Apple to undertake a $150 billion buyback of its shares, financed with debt or a mixture of debt and cash.\n\nThe gist of Icahn\u2019s argument is that, while he is completely supportive of Apple\u2019s management, he feels as though Apple\u2019s shares are irrationally undervalued. As of this writing, Icahn owns $3.88 million shares of Apple stock<\/a> and the company\u2019s stock price is hovering around $525 per share<\/a>. When a company engages in a buyback, this exhibits confidence to investors and usually leads to an increase in the company\u2019s stock value. From Icahn\u2019s perspective, rather than sitting on the money, Apple might as well benefit from its cash by using it to increase stock value. If successful, Icahn stands to gain a lot of money on his $2.05 billion investment. It is no wonder why Icahn is even willing to engage in an expensive proxy battle<\/a> in order to attain a seat on Apple\u2019s board of directors.\n\nIcahn\u2019s campaign touches upon one of the most fundamental aspects of business law. It has long been established that \u201c[a] business corporation is organized and carried on primarily for the profit of the stockholders [and the] powers of the directors are to be employed for that end.\u201d Dodge v. Ford Motor Co.<\/a><\/i>, 204 Mich. 459, 507 (1919). The directors of a company have a fiduciary duty to act in the best interests of the shareholders as a whole<\/i>. Indeed, Icahn\u2019s letter to Tim Cook<\/a> couches its proposal in language aimed at satisfying this requirement. Icahn wrote: \u201cIt is our belief that a company\u2019s board has a responsibility to recognize opportunities to increase shareholder value, which includes allocating capital to execute large and well-timed buybacks.\u201d Indeed, this case presents the very question as to what is in the shareholders\u2019 best interests. Icahn argues that a \u201cbigger and immediate\u201d buyback will increase shareholder value, but more risk-averse investors are not convinced.\n\nUnlike former CEO Steve Jobs, Tim Cook appears to be much more willing to work directly with Apple\u2019s partners and investors<\/a>. Under Cook\u2019s leadership, Apple has already pledged to buy back $60 billion worth of stock between 2012 and 2015, and Apple has issued dividends for the first time since 1995. However, the timing of Icahn\u2019s letter raises certain questions. In the two years since Steve Jobs\u2019 death, many commentators<\/a> have noted a decline in the excitement<\/a> surrounding Apple\u2019s product releases (although this point is subject to debate<\/a>). Many argue that Apple is no longer leading the way in innovation, and some attribute this trend to the idea that Cook, while \u201cas good as anybody can get<\/a>,\u201d is simply not the same as Steve Jobs. Whereas Apple stock is currently valued at $525 per share, the company\u2019s stock once peaked at around $700 per share<\/a>. While many shareholders would benefit from Icahn\u2019s plan, it may not be in their best interests to reduce the company\u2019s current cash holding to the extent proposed by Icahn.\n\nCritics also argue<\/a> that Icahn\u2019s interests are short-term. If Apple buys back stock and the company\u2019s stock value increases, there is nothing to prevent Icahn from selling his shares while the going is still good. Icahn has promised to demonstrate his good intentions by withholding his shares from the buyback<\/a>, but the true benefit of his proposal will fall upon shareholders, like him, who maintain an interest in the company throughout the buyback process. In his letter to Tim Cook<\/a>, Icahn wrote: \u201c[I]rrational undervaluation as dramatic as this is often a short term anomaly. The timing for a larger buyback is still ripe, but the opportunity will not last forever.\u201d If this is true and stock prices are bound to increase again, what is Icahn\u2019s immediate incentive to boost stock prices? If Icahn\u2019s interests are truly long-term, is he simply trying to increase his own influence by reducing competition in corporate voting and by reducing proxy solicitation costs?\n\nDue to the strong criticism and skepticism surrounding his proposal, it is unlikely that Icahn will fully succeed in his campaign. However, it will be interesting to see how Apple moves forward with the interests of its shareholders in mind.","protected":false},"excerpt":{"rendered":"

Craig Steen questions the advisability and motivation behind a shareholder-initiated campaign to have Apple undertake a $150 billion buyback of its shares. <\/p>\n","protected":false},"author":1,"featured_media":1427,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[28],"tags":[155,245,263,1390,1445,1534],"class_list":["post-1424","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-student-blogs","tag-apple","tag-buyback","tag-carl-c-icahn","tag-shareholders","tag-steve-jobs","tag-tim-cook"],"acf":[],"_links":{"self":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/posts\/1424","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/comments?post=1424"}],"version-history":[{"count":0,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/posts\/1424\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/media\/1427"}],"wp:attachment":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/media?parent=1424"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/categories?post=1424"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/tags?post=1424"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}