Who wants to pick the Apple?
For those who may never have heard of him, Carl Icahn is a famous corporate raider with a fortune of more than 20 billion dollars, and his Ichan Enterprises is his “secret weapon” to achieve the objectives that he has been pursuing for years. These objectives can be summarised as: to take a prominent position on the boards of major corporations and drive them towards change.
Change, for a corporate rider, means relaunching or dismembering a company that is almost always indebted or undervalued on the stock exchange.
Icahn’s target for 2013 was (and is) Apple. He would, in fact, like to be able take control of it by acquiring a sufficient number of shares to then force the company to use its profits to repay its investors, thus regaining ownership of most of the shares issued (buyback).
This strategy certainly has a positive effect on the shareholders portfolio in the short term. In actual fact, if this should happen, there would be an immediate rise in the value of shares, to the benefit of those who wish to sell.
What is the flip side?
This approach is certainly profitable if adopted with companies that are teetering on the brink of disaster or that have a low level of technology, but becomes much riskier if applied to a company like Apple.
Apple thrives (like all companies in the sector) on a combination of research and innovation, design, technology and futuristic vision. Like all those businesses with a very high level of technology, Apple is a “colossus with feet of silicon” that must battle it out with competitors and ideas that are more than fierce. These types of company often have hyperbolic success, but their base is still a product that is, to some extent, ephemeral. In fact, we’re not talking about a company that produces primary goods, such as food commodities, for example, which never run the risk of going out of fashion, here it all comes down to always being just one step ahead of others, technologically speaking, not to mention in terms of image.
So using profits to buy back shares, instead of pursuing targets to improve products, could be, in the long run, corporate suicide.
There is an infinite number of ways to better reinvest capital, even crazy ideas like drastically lowering the prices of devices using revenue would be, in the long run, more profitable. Doing so would, in fact, encourage penetration of the brand on a wider scale and, as a consequence, also the ancillary services provided by Apple, which over time would be a way to recover lost earnings. Also seeking to acquire or build their own cellular communication network could be a smart way to strengthen the company.
We’ll just have to wait and see if Tim Cook can stand up to Carl Icahn!