Billionaire investor and outspoken market influencer Carl Icahn has asked Apple to invest its trove of dollars into itself at what he considers a steep discount at $525.
Effectively, he's suggesting that Apple offer the market a broad put option (an option to sell stock) at a strike price of $525 up to $150 billion of stock, effectively purchasing up to 285 million shares, or ~31.5% of the outstanding stock.
Theoretically, if shareholders of 285 million shares were willing to sell at $525 per share and then the stock were to be immediately revalued according to its current P/E, that would represent a per-share value of ~$776, given there are ~907 million shares outstanding currently, leaving 622 million after such a buyback.
However, the likelihood of this happening is very low. 1 in 3 shareholders believing the stock is worth less than $525 would require some huge loss of confidence, as such a move would imply a per-share value to somewhere around $360 without the buyback.
But put all of that aside. What Icahn is suggesting Apple do is merely place a vote of confidence in its share value, which is not necessarily unreasonable, considering a publicly-traded corporation is required to prioritize its shareholders interests above all others. The key question that must be asked is: What should Apple do with all of its purchasing power? Certainly some should be retained for a healthy cash buffer for the rainy day, some should be retained for growth investments, and if there's any left, return it to the shareholders in one form or another. As for Icahn's suggestion that they borrow to buy back, I don't fully understand. I can see the value of retaining cash reserves, but going into debt sounds like a bad idea to the author, but maybe that's just because I'm a small business owner, and not a big-dog like him. :)
Many people are telling Icahn to mind his own business and to stop telling Apple how to do their business, but he is well within his rights as a shareholder to do just that, and his plea may not be so unreasonable. After all, does Apple really need that much cash?
Regardless, as long as this is a viable possibility on the table, $525 is likely going to serve as a pretty solid foundation for share price... unless their earnings bomb. :)
Disclosure: I am long AAPL.