Icahn Is Right: Apple Is Not Dell

 | Sep 12, 2013 | 11:00 AM EDT
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At some point today, the recent saga of Dell (DELL) will come to a conclusion. After weeks of fighting, Dell's two largest shareholders, Carl Icahn and Southeastern Asset Management, have decided that lobbying to keep Dell public is a pipe dream -- not because these holders are willing to fight the good fight but because the Dell board of directors has essentially manipulated itself to a victory.

When Dell couldn't muster the votes to go private, the board worked to delay the vote three times. When that didn't work, the board then decided it would not count abstention votes as voting against the deal. In the end, Dell ended up boosting the buy price by a few hundred million dollars in exchange for this voting amendment.

In one the best letters I've read in a long time, Carl Icahn basically told Dell shareholders that Dell's tactics illustrate the manipulative powers that boards possess. He was backing off, glad that he and Southeastern managed to extract a little more money for shareholders, but he said he would use the power of social media to bring boards to task.

Now that Dell is out of the picture, Icahn's banner investment today is Apple (AAPL), and Icahn has stated that Apple is no Dell. The easy part is that no one has to worry about a leveraged buyout of Apple anytime soon: Apple's $420 billion market cap ensures that. But what Icahn is really getting at is that Apple CEO Tim Cook is no Michael Dell. Cook seems very committed to maximizing shareholder value for all Apple shareholders and has committed do so with the creation of a dividend and a commitment to a stock buyback. With Icahn in the mix now, I think it's safe to say that Apple will be asked to increase its dividend, buy back even more shares or do a combination of both. Thus far, Icahn has had only good things to say about Tim Cook.

Icahn also told the public yesterday that he bought more Apple stock as shares fell 5% on Wednesday. Apple shares, which have returned to $471, look even more appetizing when you consider the value-creating potential that Apple has when its earnings are growing and its share count is declining. Imagine if Microsoft (MSFT) had started buying back buckets of shares and paying 2% to 3% dividend back in 2000 rather than a few years ago. Although Microsoft began paying an $0.08 annual dividend in 2003, the dividend really didn't matter until around 2007-2008, years after it was evident that Microsoft was more of a cash cow than a high growth enterprise.

Apple still possesses solid growth, and that growth will now be magnified as dividend payments and share repurchases are accelerated. Perhaps the 30% to 40% annual returns are a thing of the past, but if the share price continues to fall back, 15% to 20% annual returns are not at all impossible. Given where the market is today, the risk-adjusted return for Apple may be as good as it has been in some time. Icahn thinks so.



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