As we saw last time, Apple has a lot of cash. About $206 billion of it, sitting unused. It came from selling great products at premium prices. Apple customers and investors became used to Steve Jobs walking across stage by himself, exemplifying the minimalist design concepts of Apple products in his blue jeans and black sweater, backed by sparse slides, touting the latest bit of magic from Apple for its faithful consumers. Year after year, one great idea after another.
This is a quite deliberate modern mythology, though. Apple’s alleged product superiority and undoubted market superiority was, many have argued, not a result of having ideas no one else did, but on “borrowing” other people’s ideas and putting them together better. Design, I would argue, not technology, fueled the Apple engine.
The consumer market showed an astonishing appetite for Apple products. But in running out of ideas for how to reinvest its profits, Apple created its excess cash problem, and became by 2013 what I have called a glorified mutual fund company.
Enter Carl Icahn. Icahn is what is known as an “activist shareholder.” This makes him sound like a peacenik or a member of Greenpeace, but nothing could be further from the truth. Icahn is just a very rich person who runs his own hedge fund, and who isn’t afraid to rattle some cages in order to make himself richer. In 2013, he purchased a substantial quantity of Apple shares - substantial compared to other investors - and promptly announced to the world that they were undervalued. This, of course, led to Apple shares going up in value, which suited him fine.
Icahn set his sights on Apple’s pile of cash. He started demanding that Apple distribute this cash to its shareholders, including himself.
Icahn’s actions were not those of an “owner” of Apple telling the employees what to do. As I have argued previously, Apple, like every other major corporation, isn’t actually owned by anyone. Shareholders have a residual claim on the company’s wealth, but the company is under no obligation to actually pay them anything. Shareholders can grumble and complain all they want, but until the Board of Directors declares a dividend, the company’s money is going nowhere.
Apple, however, buckled under the pressure being applied by Icahn. Perhaps “buckled” is too strong a word, as they had already, in 2012, begun to pay shareholders a small dividend. However, in response to Icahn, they ramped up this plan considerably. The reason is probably quite simple: the longer Apple sat on its pile of money, the more obvious it would become to everyone that Apple had no new great product ideas. This is only a theory, of course, since we don’t know what went on in the Apple boardroom, but it does seem that Apple did not like the negative publicity Icahn was bringing as a loud-mouthed investor who wasn’t afraid to annoy the mythically brilliant leaders at Apple.
Apple put in place a plan to distribute a sufficient amount of cash to its shareholders to defuse the Icahn situation. Initially, it announced a plan to distribute $10 billion, but this was later raised substantially, to the point where Apple has now committed to distributing $100 billion to shareholders.
Did this solve the excess cash problem? Let’s see, in tomorrow’s posting.
Photo of Carl Icahn by Scott Eells, 2012, from Bloomberg's 2013 article on Carl Icahn's tussle with yet another tech company, Dell Computers. I have never seen Carl Icahn in person, so I couldn't take my own picture of him. Thanks you, Bloomberg.
Photo of an old-fashioned record player taken in Brussels in 2014.