Icahn Turns up the Buyback Heat on Apple; Demands Immediate $150B Tender

Billionaire Carl Icahn revealed on Thursday a letter to Apple (NASDAQ:AAPL) that formally proposes the cash-rich consumer electronics giant buy back stock by immediately launching a $150 billion tender offer.

In a letter to Apple CEO Tim Cook, Icahn laid out his case for the company's shares being drastically undervalued and pushed the management team to act now.

“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,” he said.

Icahn stopped short of criticizing the company’s operational management team, but made clear his desire to unlock its $147 billion in cash.

“Our criticism relates to one thing only: the size and timeframe of Apple’s buyback program. It is obvious to us that it should be much bigger and immediate,” Icahn wrote in the letter, which was dated October 8.

The legendary activist investor revealed owning 4.73 million shares of Apple, up 22% from his previous position. Icahn said he raised his stake because he believes the market “continues to dramatically undervalue the company.”

Click here to read the full text of Icahn's letter

Immediately launching a buyback would boost Apple’s shares to $1,250, Icahn predicted. He also said that by launching a buyback at $525 a share and borrowing at a 3% interest rate, the company's earnings per share would immediately soar by 33%.

To demonstrate his long-term belief in Apple, the billionaire said he would withhold his shares from the proposed $150 billion tender offer. “There is nothing short term about my intentions here,” he said.

Cupertino, Calif.-based Apple didn't immediately respond to a request for comment.

After rallying on Wednesday when Icahn said he would release a letter, shares of Apple were largely unmoved Thursday morning. Apple was recently trading off 0.22% to $523.81.

Icahn first revealed a “large position” in Apple on August 13 through a message to his followers on Twitter that sent the company’s share soaring. At the time, Icahn owned 3.45 million shares, which were then valued at $467 a piece. Since then, the billionaire has bought 1.28 million shares for $2.5 billion and he said he plans to buy up more.

While Icahn praised the “innovative spirit” of Apple, he did note that the company’s board of directors does not have an individual with a “track record as an investment professional.”

“Any further delay in executing the buyback we hereby propose will reflect this lack of expertise on the board. My firm’s success and my expertise as an investor would be difficult for anyone to argue,” he wrote.

This is not the first time Apple has been pushed by activist investors to deploy the cash sitting on its balance sheet.

Hedge fund manager David Einhorn successfully persuaded Apple to return more cash to shareholders The company has repurchased about $60 billion of stock over three years.

The pressure comes as Apple's earnings growth has slowed since the death of founder Steve Jobs. The iPad and iPhone maker continues to throw off an enormous amount of cash, leaving much of it on the sidelines.

“Apple is the world’s greatest consumer product innovator and has one of the strongest and most respected brand names in history. We consider Apple to be our most compelling investment,” Icahn said.

This week Icahn announced the launch of his website, ShareholdersSquareTable.com, however the site appeared to be overloaded after the investor issued a statement regarding it earlier on Thursday.

“We realize there was a glitch that is now fixed so you can sign in if you were having problems before,” Icahn said in a later Tweet.