Carl Icahn gives Silicon Valley a 2 for 1 special, picking fights around Apple and Netflix this week
Silicon Valley finds itself in the middle of an entertaining spat among billionaire Wall Street investors. Yesterday, PIMCO co-chief investment officer and so called “bond king” Bill Gross told famed activist investor Carl Icahn to leave Apple alone.
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With a $1.97 trillion bond portfolio under management, Gross is one of the few people with the gravitas (and monetary clout) to tell Icahn where to stick his opinion.
Icahn has been stirring the pot in Cupertino, first by buying up a sizable stake in Apple and then telling CEO Tim Cook, both publicly and privately, that he should institute an additional $150 million share buyback program – a program in which, ironically, he will elect not to participate. Apple has already committed to spending $100 billion through 2015 on share buybacks and dividends.
The first shot was fired in this entertaining case on August 13 when Icahn tweeted cryptically:
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A second tweet followed, adding:
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The 135 and 139 character messages added more than $17 billion to Apple’s market cap in the less than the 90 minutes of trading left in the day, a rise of nearly 4 percent.
Earlier this week, Icahn took the unusual step of launching an online shareholder-rights platform called Shareholder Square Table. There on the free site he published an open letter to Tim Cook that read, in part:
Irrational 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. While the board’s actions to date ($60 billion share repurchase over three years) may seem like a large buyback, it is simply not large enough...
With such an enormous valuation gap and such a massive amount of cash on the balance sheet, we find it difficult to imagine why the board would not move more aggressively to buy back stock by immediately announcing a $150 Billion tender offer
This morning, Icahn increased his Apple holdings by an additional 22 percent to just over 4.7 million shares.
The spat between Gross, Icahn, and Apple is novel insomuch as it’s occurring in part over social media. Gross’ tweet, sent out through PIMCO’s account, reached the firm’s more than 152,000 followers. Icahn, who uses his own personal account, has approximately 106,000 followers.
Former Apple CEO John Scully weighed in during an interview televised on CNBC, saying:
Carl Icahn is one smart guy. But the reality is Apple is about building great products, great experiences, and if I were Tim Cook, I'd deal with him the way Steve Jobs would probably with him – not blink.
I would continue to invest in the business and grow the platforms they have. There's still a lot of growth ahead for Apple without having to use the—what I'd call the old recourse many companies follow when they don't have big ideas like Apple and just go in and buy their stock back or make bigger dividends.
Icahn has since responded via another CNBC interview and was uncharacteristically diplomatic.
"I have respect for both those guys,” he said referring to Gross and Scully. “I think Bill Gross certainly has a right to his opinion, as does Sculley. But it doesn't mean they are right.”
With regard to Gross’ suggestion that he spend more time helping people like Microsoft founder turned philanthropist Bill Gates, Icahn said, "I think the greatest use of my time would be to try to change the laws and rules in corporate governance today.” Presumably that's what he's aiming to do with the creation of Shareholder's Square Table.
Icahn also told CNBC he’s considering a proxy fight with Apple if Cook rejects his share repurchase proposal. Apple will report financial results for the most recent quarter on Monday, after which Icahn expects to speak with Cook again.
“A lot of critics are just keep saying why doesn’t Icahn just leave our companies alone,” Icahn said to CNN, referring to himself in the third person. “To me that like saying: Why didn’t Teddy Roosevelt leave the monopolies alone when they were strangling our economy.”
In related news, the Apple kerfuffle is not Icahn’s only public spat of the week. Yesterday, reports surfaced that the famed investor’s son, Brett Icahn, disagreed strongly with his father’s decision to sell half of his more than 9 percent stake in Netflix for a profit of nearly $800 million.
The pair decided to create a wager on the company’s future performance with stakes that could end up in the billions. If the streaming video company’s shares increase, the elder Icahn will have to invest an amount equivalent to the lost profit from the now sold shares into New Sargon Portfolio, a new fund managed by Brett and his investment partner David Schechter. The details of the agreement were detailed in a 43-page regulatory filing.
Like most things in business, each of these situations boils down to money and a heaping dose of ego. For a quick check of the scoreboard in each contest, Apple shares closed yesterday up 1.3 percent to a six month high of $531.91. Netflix shares, on the other hand, closed yesterday $331.22, down more than 2.5 percent since Icahn announced his sale after trading on Tuesday.
Expect more fireworks before either dispute is settled. As CNNMoney’s Paul R. La Monica wrote in a tweet, referencing a similar dispute around Herbalife with with fellow investor Bill Ackman:
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