Henry Blodget, a former equity research analyst, CEO of Business Insider and a shareholder of Apple Inc. (NASDAQ:AAPL), vocally expressed his opposition to Carl Icahn’s demand that the tech giant immediately buyback $150 billion worth of its stock.
Blodget sent his own letter to Apple CEO Tim Cook explaining why he disagrees with Icahn, particularly Icahn’s idea that the company could fund the stock buyback by borrowing $150 billion or use some of its available cash and borrow the rest.
No to massive, immediate and debt-funded buyback
“I don’t want Apple Inc. (NASDAQ:AAPL) to do a massive immediate share buyback. And, I especially don’t want Apple to borrow more money to do it,” wrote Blodget.
He described Icahn’s recommendation as “short-tem financial thinking,” which he considers the exact opposite of what Apple Inc. (NASDAQ:AAPL) is all about. According to Blodget, the $150 billion immediate stock buyback would burden the tech giant with a huge debt that could reduce its flexibility and increase risk during a critical period.
Blodget pointed out, “A debt-funded buyback would not help Apple Inc. (NASDAQ:AAPL) build better products, improve its competitive position, help its customers, or increase the value of its long-term business. It would be nothing more than short-term financial engineering to appease short-term shareholders whose only interest in Apple is a quick score. To its great credit, Apple has never been about quick scores.”
On the other hand, he said Icahn is right about the fact that Apple Inc. (NASDAQ:AAPL) has more cash and cash flow than it needs, and he agreed that the company should increase its dividend and shares buyback over time, but not as a big one-time gift, and not by borrowing $150 billion.
He added that it is possible that Icahn could be right that the stock price of Apple Inc. (NASDAQ:AAPL) will increase by 33% instantly with the buyback, and it could reach as much as $1,000 a share if the company continues to grow cash flow. However, he said Icahn’s claim is far from guaranteed.
Cook should not worry about shares volatility
Blodget advised Cook not to worry about the share volatility, and emphasized that he is not responsible for the decline of the stock price from $700 to the high $300s. The stock regained some of its value and is currently trading at more than $500 per share. He said, “Short-term volatility in the stock market is nothing new, and it is not worth worrying about.”
Furthermore, Blodget said the long-term shareholders are doing better than fine. He noted that the stock was trading below $100 six years ago, and shareholders are enjoying a 5x return with the current stock price. He said the return delivered is better than any shareholder could ask for.
He speculated that Icahn will not keep his investments in Apple Inc. (NASDAQ:AAPL) for the long-term. He feels that once the company executes a huge stock buyback, the activist investor “will also soon be gone.”
Apple should focus on products and customers
Moreover, Blodget said that Apple’s stock price will take care of itself as long as the company continues to focus on products and customers. “As an Apple shareholder, I would much rather have you keep your $150 billion of cash, skip the financial engineering, resist the relentless short-term greed of Wall Street, and focus on what you do best: building great products”