Institutional Shareholder Services (ISS), a prominent proxy advisory firm, has given a thumbs down to Carl Icahn's proposal that wants Apple to buy back $50 billion in stock.
In 2013, billionaire investor Icahn, who owns about $4 billion in Apple shares, made a proposal to the company to buy back $50 billion worth of its shares. Apple has a cash reserve of more than $150 billion and Icahn proposed that the company should share some of its profits with shareholders. Icahn filed a precatory, non-binding shareholder proposal, which wants shareholders to vote on whether Apple should use its cash reserve to buy back some of its own shares in the public market.
Icahn believes that the share buyback will drive up Apple share price and also increase the value of holdings for its shareholders.
"(The Apple board) has returned the bulk of its U.S.-generated cash to shareholders via aggressive stock buybacks and dividends payouts," said the ISS report. "In light of these good-faith efforts and its past stewardship, the board's latitude should not be constricted by a shareholder resolution that would micromanage the company's capital allocation process."
ISS also noted that Apple has been wise in spending money and not using the cash reserve for unnecessary acquisitions. The ISS report also suggests that a major chunk of Apple's cash is held overseas, which means that bringing it back may have tax implications.
However, ISS did highlight Apple has failed to provide a long-term outlook on how it plans to utilize the cash stockpile.
"Given the rate at which the percentage of offshore cash is growing, moreover, a strategy which goes no further than returning the excess domestic cash will soon become inadequate," noted ISS.
Apple has authorized share buybacks in the past. In March 2012 and in April 2013, Apple announced share buyback. In January 2014, the company bought $14 billion of its own share and Tim Cook, CEO of Apple, said that the company had bought back more than $40 billion of its shares in the past 12 months.
Apple shareholders will vote on Icahn's proposal at the company's annual shareholder meeting on February 28 this year.
Apple's share price closed at $519.68, up by $7.17 per share (1.40 percent), on Friday, February 7. On Monday, it climbed further 1.79 percent to close up at $528.99.