With its charismatic founder and savior dead and its share price continuing to underperform relative to objectively successful product sales, it’s no surprise that Apple has become a target for activist investors. The company is far too big to be actually seized by corporate raiders, but as it has no large non-institutional shareholders, Carl Icahn’s purchase of 0.5 percent of the company is enough to make his ideas a big deal. And he’s got a plan for Apple that he tweeted about over the summer and discussed in more detail on CNBC yesterday.
Unfortunately, the plan is really boring and lame (though, to be clear, not necessarily a bad plan from the standpoint of Carl Icahn).
It starts, though, with a kind of bold idea. Apple has made a ton of profits over the past five years, but those profits are largely held “abroad” so as to avoid U.S. corporate income tax. Apple is also going to make a ton of profits in 2013, and there’s every reason to believe that will continue. Icahn’s bold idea is that given today’s low interest rates, Apple should borrow $150 billion. Since Apple has all this offshore money that it always could pay taxes on and repatriate, Apple is very creditworthy. But if things go well for Apple, it’ll be able to just pay the loan off out of future profits (and interest payments are tax-deductible) and keep its “offshore” money offshore.
The lame part is that Icahn’s idea of what Apple should do with $150 billion is … buy $150 billion worth of AAPL shares.
In other words, it’s a clever financial engineering scheme whose objective is to keep everything Apple does the same while enriching Apple’s shareholders somewhat. And financial engineering is what Icahn is all about. But obviously the world looks to Apple for hardware and software engineering. Decent ordinary people want to see a bold plan to spend $150 billion on doing something awesome. Build (or buy) a mobile broadband network and crush the awful carriers. Buy a television studio. Build cars. Make an army of giant battlesuits capable of defending human population centers against kaiju invaders. Larry Page’s musing about his desire to create an island of private techno-anarchic dystopia was kind of deranged, but at least it’s an ethos. These are the kind of insane schemes that make America so great.
At any rate, don’t take this as a knock on Icahn. But Apple’s executive team needs to think about this. Cash on the balance sheet sounds nice. But if you don’t find real projects to spend the money on, then the pressure to spend it on financial engineering eventually becomes irresistable. Use it or lose it.