New York Times DealBook, February 10, 2014 article: "New York City Comptroller Resists Investor’s Calls for Apple Buyback" [Investor support of capital allocations based on long term enterprise success]

Source: New York Times DealBook, February 10, 2014 article

February 10, 2014, 12:01 am

New York City Comptroller Resists Investor’s Calls for Apple Buyback

Chang W. Lee/The New York Times

Scott M. Stringer will urge investors to vote against a potential $50 billion buyback of Apple stock

As the activist investor Carl C. Icahn presses Apple for a $50 billion stock buyback, some other major shareholders plan to push back.

New York City’s comptroller, Scott M. Stringer, plans to urge other investors on Monday to vote against Mr. Icahn’s proposal, arguing that the plan puts handcuffs on the iPhone maker’s management. He says Apple’s executive team is better positioned to decide the company’s financial path.

“I strongly believe this proposal is unnecessary, risky and shortsighted,” Mr. Stringer said in a telephone interview Sunday. “It’s easy to get a quick financial hit off a large company, but I think it’s a lot harder to plan for the future.”

The emergence of Mr. Stringer, who oversees five pension funds that together own $1.3 billion worth of Apple shares, is the latest sign of a brewing battle ahead of the company’s annual investor meeting on Feb. 28. On one side is Mr. Icahn, who has used television appearances and Twitter posts to push the company into returning more of its $159 billion cash hoard to investors.

He has said that he owns about $4 billion worth of Apple stock since building up his stake in August, and has argued that his proposal, aimed for completion by late September, is nonbinding.

While Mr. Icahn is not the first to demand that Apple give out more of its cash to its investors — his fellow hedge fund manager David Einhorn publicly fought with the technology giant early last year — he has become the most vocal and persistent critic of its financial practices.

On the other side of the fight are institutions like the New York City comptroller’s office, which has argued that Mr. Icahn has overstepped his bounds and is pushing Apple into riskier territory. These financial decisions, Mr. Stringer said, “shouldn’t be on one investor’s terms.”

Apple itself has already committed to returning $100 billion to investors through both share buybacks and dividends, which Mr. Stringer praised as a more balanced approach. Tim Cook, Apple’s chief executive, told The Wall Street Journal last week that as part of the company’s existing plan, it has repurchased $14 billion of its own shares in the previous two weeks alone.

Mr. Stringer is joining the likes of Calpers, the giant California public pension fund that owns $1.6 billion worth of Apple shares and has spoken out publicly against the proposal. In an interview on CNBC last week, Anne Simpson, the head of the pension fund’s corporate governance unit, criticized Mr. Icahn’s approach as unproductive in light of Apple’s own capital plans.

“Standing outside and lobbing a brick through a window really is not a sensible way to engage in the conversation,” Ms. Simpson told CNBC, accusing Mr. Icahn of pursuing a short-term agenda.

Mr. Stringer and Calpers received support for their position on Sunday night when Institutional Shareholder Services, an influential investor advisory firm, recommended that shareholders vote against Mr. Icahn’s proposal.

“The board’s latitude should not be constricted by a shareholder resolution that would micromanage the company’s capital allocation process,” I.S.S. wrote in a note to clients.

In the letter sent to investors, Mr. Stringer argues that Apple’s board is better positioned than Mr. Icahn to determine how much cash the company will need. Combining Apple’s existing $100 billion program with the new proposal could force the company to either retrieve some of its overseas cash holdings — and pay out taxes of about 30 percent — or to borrow more money.

Mr. Stringer pointed to a warning from Moody’s Investors Service in December, which suggested that the credit rating agency would downgrade Apple’s debt rating if it borrowed more money to “accommodate calls to boost shareholder returns.”

“It’s very important that we give this company some financial cushion as they put new products on the market and continue to innovate,” Mr. Stringer said.

A version of this article appears in print on 02/10/2014, on page B4 of the NewYork edition with the headline: New York City Comptroller Resists Investor’s Calls for Apple Buyback.