Apple urged by Carl Icahn to spend cash pile on share buyback

Tim Cook with the new iPad Air. Apple is sitting on a cash pile of more than $147bn. Photograph: Justin Sullivan/Getty Images

Corporate raider Carl Icahn stepped up pressure on Apple to hand back $150bn to shareholders on Thursday, when he published a letter to CEO Tim Cook on Shareholders' Square Table, a website he launched to promote shareholder activism.

Icahn and Cook met for dinner at the end of September after the investor disclosed he had bought 3.8m Apple shares and was calling for a $150bn share buyback. Apple chief financial officer Peter Oppenheimer has described the meeting as "cordial."

In the letter, Icahn disclosed that he now owns 4.7m Apple shares, which represent 0.5% of the company and are worth $2.5bn. The additional share purchase reflects "our belief the market continues to dramatically undervalue the company, even when taking into account the recent market appreciation," wrote Icahn.

"The criticism we have as shareholders has nothing to do with your management leadership or operational strategy. Our criticism relates to one thing only: the size and timeframe of Apple's buyback program. It is obvious to us that it should be much bigger and immediate," he said.

Apple is currently sitting on a cash pile totaling more than $147bn. The enormous sum is equivalent to almost 10% of all the corporate cash held by non-financial companies in the US, according to an analysis by Moody's. More than $100bn of that money is held overseas and would be subject to taxation if brought back into the US, a fact that sparked acongressional hearing on the company's tax strategies earlier this year.

In the letter, dated 23 October, Icahn suggested that Apple borrow the money to buy back shares. The scheme would give an immediate boost to Apple's stock, which is currently priced at $525, Icahn argued. "Longer-term (in three years), if you execute this buyback as proposed, we expect the share price to appreciate to $1,250," he wrote.

Icahn said he would not sell his shares if there was a buyback. "There is nothing short-term about my intentions here," he wrote.

Apple will reveal the latest sales numbers for its high-profile products like iPads and iPhones on Monday, when it releases its results for the last quarter.

In an event earlier this week in which he unveiled upgrades to products including the iPad Mini and the new iPad Air, Cook revealed that the company had sold its 170 millionth iPad in October. Analysts estimate Apple shipped around 14.9m iPads during the last quarter, up from 14m iPads sold during the same time last year. The company will also update investors about sales of its new iPhone 5S and iPhone 5C.

Colin Gillis, a technology analyst at BGC Partners, said Apple was already handing back $100m to shareholders through a buyback and an increase in dividend payments, and warned that taking on debt the way Icahn is proposing has risks.

"The fortunes of technology companies can change very quickly. Just look at BlackBerry," he said.

Gillis said he would rather see Apple do something to fuel growth, and suggested it could buy Tesla, the electric car company, or look for other opportunities to expand its business. "The worst thing they can do is just let it pile up on their balance sheet," he said.

Icahn has built a $20bn fortune from a series of often hostile takeovers, and clashed with US business leaders at companies including Time Warner and the now-defunct airline TWA. Most recently, he lost out on an attempt to block Dell founder Michael Dell from taking the struggling computer firm private