As institutional investors side with Apple, Carl Icahn withdraws his buyback proposal

By , Feb 10, 2014

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Controversial activist investor Carl Icahn continues to aggressively purchase shares of Apple while insisting that the company increase the size of its share buyback program. His proposal for a $50 billion buyback has been met with resistance by proxy advisory firm Institutional Shareholder Services (ISS) which now recommends voting against the plan.

ISS argues that the Apple board has already returned the bulk of its U.S.-generated cash to shareholders through the company’s aggressive stock buybacks and dividends payouts. As a result of large institutional investors siding with Apple, Icahn has withdrawn his proposal…

Reuters has the quote from ISS’s report:

The Apple board has returned the bulk of its U.S.-generated cash to shareholders via aggressive stock buybacks and dividends payouts.

In light of these good-faith efforts and its past stewardship, the board’s latitude should not be constricted by a shareholder resolution that would micromanage the company’s capital allocation process.

I totally agree that Icahn’s motion would “micromanage” how Apple uses capital. The last thing Apple’s leaders need at this point is for some investor to dictate how they should spend its cash pile.

UPDATE: writing on his investment firm’s website, Icah confirmed that he has withdrawn his proposal. Here’s the message in its entirety.

Dear Fellow Apple Shareholders,

While we are disappointed that last night ISS 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 non-binding 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 roadmap 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.

Apple CEO Tim Cook made it clear in a wide-ranging interview with The Wall Street Journal that his company is open to spending some of its $160 billion in cash and marketable securities on making big acquisitions, provided they make sense.

We’ve looked at big companies. We have no problem spending 10 figures for the right company, for the right fit that’s in the best interest of Apple in the long-term. None. Zero.

Another proxy advisory firm, Egan-Jones, on Friday also advised shareholders to vote against Icahn’s proposal. The investor has been pushing relentlessly – and has filed a precatory proposal – that Apple return $50 billion more to shareholders.

Earlier in the month, he wrote on Twitter that the Apple board is “working against shareholders” and then went on to buy $500 million more shares. A few days later, he bough another $500 million worth of shares, bringing his stake to about $3.6 billion.

Apple shareholders will vote on the proposal at a February 28 meeting.

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