Carl Icahn tries a charm offensive at Apple

The usually feisty activist investor is playing nice, for now, but analysts are skeptical that he can make much of a difference.

By Jonathan Berr Aug 14, 2013 12:01PM
Carl Icahn in Oct. 2007 (© Mark Lennihan/AP Photo)Carl Icahn is the Energizer Bunny of hedge fund billionaires, with a seemingly endless amount of energy to stir the pot at companies that attract his attention. His latest target is Apple (AAPL), which he said yesterday was now a part of his enormous portfolio.

As he has done with countless other companies, Icahn argues that Apple is "extremely undervalued." In an interview with The Wall Street Journal, he estimates that Apple shares should be worth $625, well above the levels where they recently traded.

Icahn's solution to Apple's depressed share price, not surprisingly, is for the company to buy back more shares immediately. He has made similar demands many times at countless other companies.

Apple shares, which have slumped more than 8% so far this year, are up in Wednesday midday trading, rising by more than $12 to $502, or 2.6%. That puts them back over the $500 mark again where they haven't been since January, on the way down from the $700 peak in September 2012.

In a note to clients, UBS analyst Steven Milunovich argued that Apple CEO Tim Cook probably isn't going to take Icahn's advice because the company already is repurchasing about 5% of its shares annually and offers a 2.5% dividend yield.

"There doesn’t appear to be much to agitate for aside from a larger buyback unless Icahn thinks Cook isn’t doing a good job," writes Milunovich, who rates Apple as a "buy" with a $500 price target.

The Journal pegged the value of Icahn's investment in the maker of the iPad and iPhone at more than $1.5 billion. Although that may seem like a lot of money, it's pocket change for Icahn, whom Forbes estimates has a net worth of $20 billion.

The investor certainly has the power to move markets. As Henry Blodget of Business Insider noted, a whopping  $17 billion in market value was added to Apple on Tuesday after Icahn announced via Twitter that he had acquired a position in the tech giant.

For now, the feisty Icahn is keeping the gloves on with Cook, with whom he said he had a "nice conversation." Apple spokesman Steve Dowling also extended the olive banch to Icahn, telling The Journal "Tim had a very positive conversation with Mr. Icahn today."

Even though Apple has a market capitalization topping $444 billion, Cook is smart enough to know that it's dangerous to underestimate Icahn.

Some pundits, such as Business Insider's Blodget, who also owns Apple shares, have criticized Cook's approach to Icahn, saying late co-founder Steve Jobs would never waste his time talking to shareholders, even one as big as Icahn. But they're missing a larger point. Cook's Apple isn't the same company that its revered co-founder ran. The days of hyper-growth are long gone, and many wonder if they'll ever come back.

Apple's penchant for secrecy was charming in Jobs' day, but it's annoying now. Investors don't have endless patience. If anything, Cook likely needs to communicate a lot more with shareholders.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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