As an Apple (AAPL) shareholder, the recent handling of disclosures regarding the health of CEO Steve Jobs has me upset like most other investors. For some reason, Apple’s board of directors believes that a CEO facing a potentially fatal cancer is not “material” piece of news.
They didn’t tell us right away when Jobs was diagnosed with pancreatic cancer several years ago, despite a five year survival rate of less than 50%, and they have refused to update us on his health. Now we have to rely on tech-related blog sources to update us and when finally forced to give more details, the Apple board said he was fine, only to announce his six month leave of absence days later.
As if this is not difficult enough for shareholders, the company is currently sitting on $28 billion of cash in the bank. Apple’s cash hoard would rank it the 55th most valuable company in the S&P 500 even if it had no operations whatsoever. Why on earth is Apple keeping this much cash on its books?
They will tell you they want to keep money available to make strategic acquisitions and to weather economic downturns. Has Apple ever made a large acquisition? Did they not just announce better than expected earnings for the fourth quarter despite this severe recession? There is simply no reason for them to have $28 billion just sitting there.
I have two suggestions for Apple’s board of directors. Not only will both moves boost Apple’s share price, but more importantly it would simply show some desire on their part to be fair to their shareholders, the same people who pay their salaries.
1) Announce a Management Succession Plan
How hard is this, really? Apple has plenty of competent managers. All the board has to do is announce what the management hierarchy would look like if Jobs left the company for personal reasons. With that knowledge in hand, he can stay as long as he wants as far as I’m concerned! The board knows this is a crucial issue (the stock plummets each time the health issue appears troubling), but simply ignores it for some reason.
Personally, I do not believe that a Jobs-less Apple would be in trouble. The idea that he is the entire brains behind the company and its products, and not the other 35,000 employees is pretty silly. Jobs is certainly a very good CEO, but the idea that Apple lacks the talent to innovate without him seems far fetched to me.
2) Announce a Stock Buyback Plan and Repurchase 20% of the Company
At current prices they could retire 20% of the company’s outstanding shares and still have $12 billion of cash in the bank (and that number would grow every quarter from there). Can anyone really make the argument that Apple needs more than $10 billion of cash? I guess if you think they are going to buy Dell for cash or something than you could, but large tech acquisitions rarely are successful and more importantly, Apple has no history of even attempting them. A large buyback would be significantly accretive to earnings per share and could get the stock rolling again after the latest Jobs-related hiccups.
Neither of these moves would hamper the future outlook for Apple whatsoever. They would simply show that the board of directors is actually doing their job; working for the shareholders of the company.
Full Disclosure: Peridot Capital was long shares of AAPL at the time of writing, but positions may change at any time