Carl Icahn Has Big Plans for Apple, Inc.
Apple, Inc. (NASDAQ:AAPL) is coming off a weak six months. But its outlook is turning up thanks to just one man: Carl Icahn. Icahn took a huge stake in Apple and started pushing the firm to repurchase more of the company’s stock. Now Carl Icahn is showcasing his full repertoire of activism skills in order to drive Apple stock higher.
Of course, there’s nothing sinister about Carl Icahn’s goals. He’s the classic model of an activist investor, which is why the prospects of Apple stock improved dramatically when he bought a ton of it. His reputation for pressuring management is legendary, mainly because it gets the job done.
So how does Carl Icahn plan to lift Apple stock from its current slump? Easy: He opened up a lobby group, known as a Super-PAC, to advocate a tax holiday for companies to repatriate their cash reserves. Apple stock would benefit enormously if Carl Icahn wins that political fight. (Source: “Carl Icahn creates $150 million Super PAC advocating enormous tax cut for Carl Icahn,” Vox.com, October 21, 2015.)
AAPL Stock Depends on Carl Icahn Super PAC
A lot of American corporations keep their cash overseas to avoid paying a big tax bill in the U.S. Currently, Apple has $180 billion in offshore accounts, meaning there is huge potential for buybacks. Icahn’s 0.5% stake of Apple amounts to roughly $900 million of those cash reserves.
Icahn funded his new super PAC with $150 million and gave it one mission: pass a law so companies like Apple can bring cash back to the U.S. without paying a ton of tax.
Although the law would apply to all types of corporations, this would hugely benefit Carl Icahn. After all, Apple could hardly justify not buying back more of its stock when it becomes inexpensive to repatriate their capital.
The way a tax holiday works is fairly simple: American corporations like Apple would get a one-time opportunity to bring back cash at a rock bottom interest rate. Then, they’d face a reduced rate in the future.
Here’s what it means for Icahn’s Apple stock. Under current tax rates, bringing back all that cash would run Apple a tax bill of $315 million on Icahn’s portion of their stock. Yet if the reduced rate was, let’s say eight percent, Apple would save $243 million in taxes.
Can Carl Icahn Save Apple Stock by Himself?
With the board tilted in their favour, how could Apple not buy back more stock? Lightly taxing $180 billion (that’s billion with a “B”) means that Apple has a bunch of options to pass on their substantial profits. It could pay out dividends on its stock, pour the cash into new technology, or buy back more of its own shares.
Considering that Carl Icahn has a long history of getting his way, I’d bet on the buyback option for Apple stock. His super PAC has $150 million to push a tax holiday up the political agenda. Once he wins that fight, his ongoing demands to Apple’s board of directors start looking pretty reasonable.
Carl Icahn will have tipped the odds in his favour, setting the stage for huge returns on Apple stock. The man is a genius.