I sit here on this fine fall morning, drinking my coffee, and perusing the financial headlines from the past week to see if there is any significant news out there specific to my portfolio holdings. A headline from Businessweek.com catches my attention right as I was about leave and grab another cup of coffee, "Carl Icahn Increases Stake in Nuance, May Seek Seat on Board".
Now, while I do not own any shares of Nuance Communications (NUAN), I found this article quite interesting based on some of Mr. Icahn's other recent investments, quite notably his recent investment in Apple (AAPL), which is a holding in my portfolio. While I did enjoy the "pop" in the share price from Mr. Icahn's tweet of his Apple investment, I also cringe to think of the short-term ideas that this corporate raider, I mean activist shareholder, might have in mind.
For those that might not be aware of the potential implications here, Nuance Communications provides speech recognition technology for several tech companies, one of them being Apple. Have you heard of Apple's speech recognition assistant, Siri? Well, that technology comes from Nuance Communications.
Now it's definitely time for another cup of coffee as I start brainstorming about Mr. Icahn's recent stock purchases, and just then I remembered a recent comment of his - that he wanted to help "unlock Apple's hidden value". Now I am getting nervous because Mr. Icahn does not necessarily have the best track record for furthering the interests of the common shareholder, like me, as seen in this Seeking Alpha article.
So after filling up another cup, I sit back down in front of my laptop and start sifting through all the recent Apple articles that I could, trying to figure out what could be possibly meant by the phrase "unlocking hidden value".
Most of the next batch of articles that I read focused on the share buy-back program. More specifically, about how Apple should borrow tens of billions of dollars more at historically low interest rates and use the money for additional share buybacks above and beyond the current $60 billion authorized program. Interest paid on these bonds would be deducted from earnings and therefore not subject to income taxes. However the 2.47% annual rate that the 10 year bonds pay hardly amounts to a rounding error on Apple's income statement. Apple could probably pay the bond interest from "petty cash".
But taking on debt to artificially increase earnings per share in the short-term is not the best route if you consider yourself a long-term investor, even if the interest rates are at historical lows.
And as I keep browsing articles, I come across the headline "Carl Icahn's Ulterior Motive: He Might Want Apple To Buy Nuance". The aha moment. Carl wants to unlock value for Carl, not Joe (me). Mr. Icahn is going to try and persuade Apple to purchase Nuance - it definitely sounds plausible. And just as I am starting to get mad at Mr. Icahn, I see another headline "China Mobile and Apple: Could It Finally Be?".
What if the "unlocking the hidden value" in Apple meant not only increasing the size of the current share buyback program, but it also meant that Mr. Icahn is interested in escalating talks with China Mobile (CHL)? After all, China Mobile has approximately 740 million users. To put that into perspective, Apple sold 31 million iPhones in the most recent quarter according to this Apple Press release. Maybe Mr. Icahn does have good intentions after all. He wants Apple to seal the deal with China Mobile and open the doors to China Mobiles 700+ million users. "That's it - that is how he wants to unlock hidden value" I mumble trying to convince myself.
However, if the long-anticipated deal with Apple and China Mobile does actually get finalized, a new region and therefore revenue stream gets opened for Apple and I could see revenues for the next few quarters starting to accelerate again - I believe that accelerating revenues were one of the reasons why Apple's share price had previously risen to $700, along with a few other factors. As I stated in my first Seeking Alpha article seen here, accelerating revenues usually have a positive effect on a stock's share price.
After several hours of article reading, I kick back in my chair feeling a little better about the prospects of my Apple investment even though Mr. Icahn still lurks in the shadows. With the largest share buyback program in history already in place and a deal with China Mobile imminent, the prospects for an increase in Apple's share price seem good. And while Mr. Icahn doesn't necessarily have a good reputation as an "activist shareholder", I believe every person has some good in them. I mean, even Darth Vader converted from evil to good! Yes, I am comparing Mr. Icahn to Darth Vader!
So make a believer out of me Mr. Icahn and show that you have the interest of all shareholders in mind when you speak of "unlocking hidden value" for Apple. I just hope that Mr. Icahn doesn't end up putting us common shareholders in the choke-hold as he states "I find your lack of faith disturbing", and then all goes black.
Disclosure: I am long AAPL.
Additional disclosure: I may look to purchase additional shares if Apple's share price was to pullback to the $475 area.