Apple and Icahn: Can $2 Billion Buy $150 Billion?

The encounter shows two things. The first is that Cook is at least willing to go through the motions of having conversations with shareholders — even ones with relatively modest holdings. The second is Apple wants to defend its extraordinary balance sheet, which was built up over the years by Steve Jobs. Jobs was not willing to discuss the cash balance, although, as it increases, there became fewer and fewer defenses for its magnitude. It is too large for M&A purposes. Like cash balances at most public corporations, it is likely to be invested in fixed income instruments that yield next to nothing.

Apple’s board certainly has discussed the future of the company’s cash hoard, which balloons more and more each quarter. What the board has to avoid is the perception that any outside investor can jar the money loose, causing the board to look weak, and subject to the demands of investors with modest ownership. It is one thing for Icahn to own less than $2 billion in shares. It would be quite another if he owned $20 billion. A much larger stake would, at least buy him a seat at the table.

The raider business in back in vogue, as it was in the 1980s. Icahn and his peers have bought pieces of a number of public companies and threatened managements unless they change their course. Some of these firms are susceptible to the pressure. Their market caps are small enough that raiders can force decisions on them through taking a substantial positions. Boards of directors cannot afford to ignore these raiders, because they can become huge investors.

Icahn cannot hope to buy 10% of the shares of Apple, and cannot afford to risk, if he could, a larger position than that. Cook needs to decline any more of Icahn’s invitations. The future of Apple’s cash is a matter for Apple’s board. It is one that should be the subject of private deliberations, and not a dinner out with Icahn.