Should Apple Throw $150 Billion at Shareholders or Not?
ONE investor in Apple, Carl Icahn, has demanded that Apple should throw $150 billion of the company’s money at shareholders. It seems like a reasonable enough idea, given that the company’s money does actually belong to the shareholders, but there’s a couple of minor problems. The most obvious being that despite Apple having $150 billion in cash it would have to go and borrow to pay that amount to the shareholders:
Mr Icahn took to Twitter to disclose that he had used a dinner meeting to press the tech giant’s chief executive Tim Cook to carry out further share buybacks. He said he had “pushed hard” for more share purchases by the iPhone and iPad maker.
Buybacks reward investors by lifting earnings per share and Apple shares rose 2.4pc on the news the influential investor was pressing the company over its share purchases.
“Had a cordial dinner with Tim last night,” Mr Icahn said on Twitter. “We pushed hard for a $150bn buyback. We decided to continue dialogue in about three weeks.”
Mr Icahn later told CNBC that he had invested $2bn in Apple. He added that the tech group’s finance chief had also attended the meal with Mr Cook.
The problem is that while Apple does have $150 billion, $100 billion of that is foreign profits that they’ve stashed in foreign banks. The reason they’ve done this is because they don’t have to pay US corporation tax if they do do this. If they take the money into the US to then pay to shareholders, either by buying shares or increasing the dividend, then they’d have to pay nearly 35% of that money to the taxman. Which doesn’t sound so appealing.
So, the actual suggestion is that Apple should go borrow a hundred billion or so and then pay that out to the shareholders. It’s not a terrible idea but there is one real problem with it. It’s only 15 years ago that Apple very nearly ran out of money and went bankrupt. So I’m absolutely certain that the management would really, really, like to continue to sit there on that big pile of money instead.