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Why Apple doesn't need to make ‘drastic’ $150bn buyback
by Dylan Lobo on Oct 25, 2013 at 13:19
The managers of the top performing Nordea North American All Cap fund have questioned activist investor Carl Icahn's demands for Apple to conduct a massive share buyback.
In a letter penned to Apple chief executive Tim Cook, Icahn repeated his call for the tech giant to buy back $150 billion worth of its shares.
To emphasise the magnitude of this, the Nordea team of Ed Cowart and John Pandtle highlighted a recent Moody's report that said Apple's cash pile amounts to almost 10% of all corporate cash held by non-financial firms.
The pair's $1.2 billion (£740 million) fund has a 4% stake in Apple and they see no reason to put the same kind of pressure on the firm, pointing out how it returns cash to investors could prove detrimental to the firm.
'Apple’s situation with respect to the free cash currently carried by the company is unique. The company has an enormous amount of free cash trapped overseas due to domestic tax laws. Returning that money to shareholders through normal means would incur a large loss of capital through taxation,' Cowart and Pandtle said.
“The company has been able to return free cash to shareholders through ‘backdoor’ means involving the borrowing of funds domestically, using the overseas cash as collateral.
'This incurs a loss of capital as the company pays tax-deductible interest on the financing; however, the cost of that strategy is much less than the cost of repatriating the cash trapped overseas and using it to directly fund dividends and share buybacks.'
The duo said that while it appreciates Icahn's enthusiasm for returning cash to investors, it does not believe the measures have to be so 'drastic'.
'We would [however] like to see Apple continue to make best efforts to return that free cash to investors, while noting that the unique situation also lends itself to sensible international M&A activities since the net cost to shareholders of an acquisition would be discounted due to lack of ideal alternatives for returning the cash to investors,' Cowart and Pandtle said.
The Nordea North American All Cap fund, which launched in May 2012, returned 28% in the year to the end of September versus a 20.7% gain in the Russell 3000.
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