Icahn Boosts Stake in ‘Overcapitalized’ Apple by Another $500 Million

Carl Icahn, Herbalife, Netflix

Billionaire investor Carl Icahn revealed in a tweet on Thursday that he has purchased another $500 million of Apple (NASDAQ:AAPL) shares today, making his total investment in the California-based company about $3.6 billion. The activist investor also continued his crusade to convince Apple to return more cash to shareholders in an open letter to investors that was filed with the Securities and Exchange Commission.

Icahn’s letter outlined the reasons why he believes Apple investors should vote for his Proposal No. 10 that requests “that Apple commit to completing not less than $50 billion of share repurchases during Apple’s fiscal year ending September 27, 2014 (and increase the amount authorized for share repurchases under its Capital Return Program accordingly.)”

In the letter, Icahn chastised Apple’s directors for “performing a great disservice to the owners” by not expanding the company’s share repurchase program. Although he noted that Apple has already implemented “the largest share repurchase authorization in history,” he argued that, “This share repurchase authorization can and should be even larger, and effectuating that for the benefit of all of the company’s shareholders is the sole intention of our proposal.”

Icahn pointed out that the S&P 500’s price-to-earnings multiple is 71 percent above Apple’s and if the company were valued at the same multiple, its share price would be $840. He also noted that Apple “had $130 billion of net cash as of September 28, 2013 and that consensus earnings are expected to be almost $40 billion next year.” Based on the size of the company’s cash hoard and its potential for “opportunity that stems from new products in new categories,” Icahn called Apple “the most overcapitalized company in corporate history.”

Although Icahn wrote that CEO Tim Cook seemed to agree with his assessment that Apple’s stock is undervalued, the company has recommended that shareholders vote against Icahn’s proposal. “While the Board and management oppose this shareholder proposal, they are fully committed to returning cash to shareholders,” stated Apple in its preliminary proxy filing. “The Board and management team believe that capital should be returned to shareholders on an efficient and sustained basis, and that the evaluation of capital return should be performed regularly and carefully with the best long-term interest of the business and shareholders in mind.”

As noted by Icahn, Apple has previously argued that the “dynamic competitive landscape” and its “rapid pace of innovation require[s] unprecedented investment, flexibility, and access to resources.” However, Icahn pointed out that, “The company’s unprecedentedly enormous net cash balance, robust annual earnings, and tremendous borrowing capacity” already provide more than enough liquidity.

“Even if the story ended with Apple’s existing product and software lines, we would still choose to make Apple our largest investment,” wrote Icahn. “But there is more to the story! Tim Cook keeps saying that he expects to introduce ‘new products in new categories’ and yet very few people seem to be listening.”

According to Icahn, no Wall Street analysts are including the potential impact of new products in their financial projections, despite Apple’s history of success with revolutionary new products. Icahn cited an Apple television set and an iWatch as two potential upcoming Apple hardware products. He also noted that the company had further earnings potential from its vast ecosystem. Apple may soon leverage its iPhone 5S Touch ID fingerprint scanner, iTunes accounts, and its iBeacon micro-location technology into a revolutionary new mobile payments system, wrote Icahn.

Here’s how Apple traded on Thursday.

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Follow Nathanael on Twitter (@ArnoldEtan_WSCS)

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