CUPERTINO -- The showdown at Apple's One Infinite Loop has ended in a draw.
After six months of trying to force the company to spend $50 billion on buying back its own stock, activist investor Carl Icahn is dropping his campaign, apparently satisfied that the company's recent decision to repurchase $14 billion worth of its shares was good enough for now.
In a letter to Apple shareholders published Monday, Icahn said his decision to stand down was prompted by the Cupertino company's recent buyback as well as a recommendation against his effort from an influential firm that gives advice to big shareholders. A day earlier, Institutional Shareholder Services had said the Icahn proposal would "micromanage" Apple's capital allocation process, and recommended shareholders reject Icahn's plan to shake loose more of Apple's cash.
"We see no reason to persist with our nonbinding proposal, especially when the company is already so close to fulfilling our requested repurchase target," Icahn wrote.
The move, at least for now, ends a very public scrimmage between Icahn and Apple's board over how the company plans to use its massive war chest of $160 billion in cash.
Apple investors responded by nudging shares up 2 percent in afternoon trading.
An Apple representative declined to comment.
Icahn, who owns roughly $4 billion in Apple shares, has seen his investment pop nearly 14 percent since he launched his campaign last August. Some observers felt Icahn was overreaching in trying to force Apple's hand.
"As I've said all along, everyone thought Carl was off his rocker for asking such a ridiculous number," said analyst Laurence Balter with Oracle Investment Research, referring to Icahn's $50-billion buyback target. "At the same time, in a very legal and logical way, he has used social and traditional media to get what he wants. Carl has done what he's been doing the past 40 years, which is shaking up boards and management and getting them to start thinking about their shareholders.
"I think he wanted to see how far he could take this thing," said Balter, "and now it's over."
The move ends a campaign by Icahn that began Aug. 13, when he tweeted about the huge chunk of Apple stock he had bought, pushing the share price up 5 percent by the end of the day. Although the company had said a year earlier that it intended to spend $100 billion on dividends and stock buybacks, Icahn said the company was still undervalued, asking Apple at one point for a $150-billion share buyback.
After publicly pushing CEO Tim Cook for months with tweets and letters, Icahn is now apparently suggesting the company is on the right track, writing in his note that because of "Cook's confirmed plan to launch new products in new categories this year (in addition to an exciting product road map with respect to new products in existing categories), we are extremely excited about Apple's future."
Contact Patrick May at 408-920-5689 or follow him at Twitter.com/patmaymerc.
Dear Fellow Apple Shareholders,
While we are disappointed that last night ISS (Institutional Shareholder Services) recommended against our proposal, we do not altogether disagree with their assessment and recommendation in light of recent actions taken by the company to aggressively repurchase shares in the market.
In their recommendation, ISS points out, and we agree, that "on the spectrum of options for allocating capital, the board appears to have been sluggish only in returning excess cash to shareholders," and even though the company has in place "one of the largest buybacks in history" we agree with ISS that this effort seems "like bailing with a leaky bucket" when "given the scale of the company's cash reserves."
That being said, we also agree with ISS's observation, taking into account that the company recently repurchased in "two weeks alone" $14 billion worth in shares, that "for fiscal 2014, it appears on track to repurchase at least $32 billion in shares." Our proposal, as ISS points out, "thus effectively only asks the board to spend another $18 billion on repurchases in the current year."
As Tim Cook describes them, these recent actions taken by the company to repurchase shares have been both "opportunistic" and "aggressive" and we are supportive. In light of these actions, and ISS's recommendation, we see no reason to persist with our nonbinding proposal, especially when the company is already so close to fulfilling our requested repurchase target.
Furthermore, in light of Tim Cook's confirmed plan to launch new products in new categories this year (in addition to an exciting product road map with respect to new products in existing categories), we are extremely excited about Apple's future. Additionally, we are pleased that Tim and the board have exhibited the "opportunistic" and "aggressive" approach to share repurchases that we hoped to instill with our proposal. It is our expectation that Tim and the board continue to exhibit this behavior as fiduciaries to the shareholders since they clearly seem to agree that our company continues to be extremely undervalued, and we all share a common optimism with respect to the company's bright long term future.
Carl C. Icahn
Source: Icahn Capital