I stole the title for this entry directly from Asymco. After yesterdays news about Carl Icahn buying 0.2% (Yes that is all he could afford, still worth $1 billion) of Apple I wanted to highlight the same subject.
Asymco pointed out how Apple has been buying back shares for roughly $16 billion, while Nokias market cap is around $15 billion. Hence if Apple would have been scared of Windows Phone and Nokia they could have easily just bought Nokia, including their side businesses. Blackberry recently put out a for sale sign and of course Apple could have swallowed them whole too. It’s unusual for Apple to make large acquisitions and such a buy out is probably not likely, which obviously is a good thing. On the right side you can see the market caps and Apples spending on buying back shares.
I recently saw a documentary about Stora Ensos acquisition of Consolidated papers, which was a major deal and made Stora Enso one of the largest pulp and paper companies in the world. It was an incredible bad deal though and it ended with a cover up from the management.
There is plenty of stories about how management get megalomania and want their company to be the biggest, even if it means that they won’t be the best. It often goes hand in hand with a diversification from their main area, which one can find in Google for example. They are trying out every possibility that comes their way, even if they don’t have any knowledge in that area or that market. Sometimes it works, but most often it doesn’t.
Apple has done the same, they went from computers too Ipods, phones, tablets and the TV market. The have managed to stay in one area though, consumer electronics with a focus on media. Instead of diversify to areas they don’t have knowledge on they decided too start piling up their money and it was a lot of money!
This has enable them to start a massive buy-back program which so far has been buying back, as mentioned earlier, $16 billion worth of shares. Apparently Carl Icahn doesn’t feel that it’s enough, since he encouraged Apple to increase the buy backs because of how severely undervalued the company is. I couldn’t agree more, I’m a big fan of buy-back programs.
There are too many good examples of when the management have realised that the share is undervalued and started to buy back their shares instead of spending their money in a bottomless pit of diversification. Two really good examples are Washington Post and Coca-Cola, both of which has made massive buy-backs and as a result produced a good return to the (remaining) shareholders.
So Tim Cook, buy more and do it fast.