Apple 2.0

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The 'missile' Carl Icahn fired at Apple was more like a love note

December 5, 2013: 8:07 AM ET

He cut his buyback demand from $150 billion to $50 billion and gave Apple a year to do it.

407938354206FORTUNE -- From the headlines, you would think that Carl Icahn, America's most famous corporate raider, had donned a headdress and gone into his war dance:

The source for all this is a tweet from Icahn timed to coincide with his "Master of the Universe" cover story in Time:

"Gave $AAPL notice we'll be making a precatory proposal to call for vote to increase buyback program, although not at $150 billion level." (link)

The two key phrases in those 137 characters -- phrases the headline writers seem to have missed -- were "precatory proposal" and "not at $150 billion level."

A precatory proposal, from the Latin precari ("to pray"), is a request -- not  a "missile" or a "demand" -- for a nonbinding shareholder vote that Tim Cook is free to ignore.

And the request Icahn made -- for a $50 billion buyback, spread out over a year, per CNBC -- is one third of the immediate $150 billion buyback Icahn was talking about just six weeks ago.

Rather than upping his ante, as the AP had it, Icahn may have just folded.

"Tim Cook is doing a good job with the business," Icahn told Time's Rana Foroohar, repeating a line he's used more than a few times. "I think he's good whether he does what I want or not."

A $50 billion buyback, as it happens, was the high end of a proposal laid out last month by Bernstein's Toni Sacconaghi:

"We believe," Sacconaghi wrote in a Nov. 11 note to clients, "that AAPL ought to commit to an ongoing return of cash and look to take on incremental debt to provide flexibility and enable some upfront share repurchases. Specifically, we believe that a one-time buyback of $30 - $50B, and an ongoing commitment to return 75% of annual free cash flow generated would be viewed positively by investors. Moreover, a 60% dividend/40% buyback split of returned cash would generate a ~3.9% yield at current levels."

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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