Icahn vs. Apple: When Did Extortion Become Legal?
Corporate raiders by nature are company killers. Carl Icahn didn't buy $1B of Apple's shares because he loved Apple -- he bought them to milk the company. Like Dell, Apple needs every resource it has remaining to reverse its current decline, and it certainly doesn't need Icahn's "help" any more than Dell does. My only real question is this: How long does the guy get away with this behavior?
08/19/13 5:00 AM PT
If you look at what Carl Icahn had been doing with Dell -- and now with Apple, it starts to read like a protection racket. These were popular in the 1920s with organized crime -- you paid the syndicate a fee if you wanted to say in business.
I'm wondering if Icahn has found a legal way to extort money out of companies in trouble. It shouldn't be legal, because turning around a company is hard enough, and Icahn not only doesn't provide value for the "help" he gives -- he actually drains the resources the firm will need to complete the effort. I'll delve into that this week and close with my product of the week: Intel's impressive Haswell Processor.
A protection racket is basically an extortion scheme: A powerful group or individual coerces money from a victim in exchange for leaving the victim unharmed. In most instances, if the money isn't paid, the person's property will be damaged. While this is called "protection," it is protection from the service provider, and it is generally considered illegal.
What allowed these schemes to work was the relative power of the persons or organizations executing them. Either law enforcement was bought off, or it was afraid to get involved. Given the choice between paying money or facing catastrophic damage, victims paid.
This practice apparently continues in parts of Italy and Russia today, and the word "blackmail" has it origins in this scheme, which predated it.
Extortion is defined as "charging of unfairly high prices: the charging of an excessive amount of money for something." The Hobbs Act defines extortion as "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right." 18U.S.C. S 195(b)(2)
Carl Icahn vs. Dell
In the case of Dell, Icahn demanded that Michael Dell pay more money for the shares Icahn owned than three independent analyst firms said they were worth. If Dell didn't, then Icahn would move to hold up the effort to take the company private, stalling the related turnaround effort. He would also move to have both CEO Michael Dell and the board replaced. In short, pay Icahn more money for the shares he purchased than they were worth, or he would damage the company and the personal finances of Michael Dell and Dell's board.
Certainly, the elements for extortion are there. Icahn has demanded that Michael Dell and his team pay Icahn more than the Dell shares are worth to avoid the negative consequences of failing to meet his demands. Since this payment is predicated on his agreement to not harm the turnaround in the future, this looks like an updated use of the protection racket to me, but one that appears to operate under the radar of law enforcement. The jump to protection is a bit of jump, though, because he is demanding a payment for something -- his shares.
Carl Icahn vs. Apple
However with Apple, which isn't attempting to go private and whose CEO is clearly under massive pressure to recover Apple's stock price, Icahn's demands are more direct. Raise the dividend, or else. The details of the meeting he had with Tim Cook weren't made public, but given Icahn's history, it seems likely that he attempted to make Cook an offer he couldn't refuse.
Realize that Apple historically didn't pay dividends. Steve Jobs believed that his investors preferred Apple use profits to build the company and innovate -- something post-Jobs Apple has had some difficulty with -- and Tim Cook implemented an aggressive stock buyback program and high dividend in an attempt to prop up the stock price, at least temporarily. He undoubtedly appeared desperate, which is why Icahn felt he would be vulnerable and moved in to make Cook that irrefusable offer.
This has more of the appearance of a protection scheme. The "offer" is private -- but components of a payment that is greater than what was intended in order to make Icahn go away and not cost Cook his job appear self-evident.
The New Apple
You know, Steve Jobs really didn't like anything approaching extortion, and I have a feeling that had Icahn tried this with him, Icahn would likely have left the meeting wondering where his balls went. However, Jobs put Al Gore on the Apple board, and I doubt that Gore, who remains well connected in Washington, likes it any better.
Even though the new Apple is clearly far weaker than Steve Jobs' Apple, Gore was put on the board to protect the company, and he might still step up to that job -- something I'll bet Icahn didn't fully think through. It is a long shot, though, and Gore is clearly not tied to Cook like he was to Jobs.
Wrapping Up: Apple's Screwed
When Carl Icahn takes an interest in your company, it is the beginning of a never-ending nightmare. Icahn is credited with killing TWA, one of the most powerful airline carriers ever to exist. This makes the downside of not cooperating with him incredibly expensive, and corporate raiders by nature are company killers. He didn't buy US$1B of Apple's shares because he loved Apple -- he bought them to milk the company. Like Dell, Apple needs every resource it has remaining to reverse its current decline, and it certainly doesn't need Icahn's "help" any more than Dell does.
My only real question is this: How long does the guy get away with this behavior? It looks to me to be textbook extortion, and you'd think there would be repercussions. I'm guessing that with the administration regularly crossing legal lines itself that taking on Icahn is not something it is currently willing to do. That's kind of a shame for Apple, Dell, or whatever poor company Carl Icahn next wants to provide his unique services to. I kind of missed the day extortion became legal.
Product of the Week: Intel's Haswell Processor
I mentioned a few weeks ago that one of my hobbies is building PCs, and the latest I built is based on Intel's new Haswell processor. This was one of the easiest builds I've ever done, thanks both to the size of the case and the wonderful Asus Sabertooth Z87 motherboard I used. This motherboard rocks. One surprise was that I simply took my SSD drive running Windows 8 out of the old system and put it into the new system and, surprise, surprise, the rebuilt system just booted up.
I simply had to update the drivers and then revalidate Windows and Office, and I was up and running. Typically, you have to format the drive and reinstall everything from scratch. Not with Windows 8. I'd go on more about this but I know Windows 8.1 is even better, and I'll go into more detail when I do my next build with 8.1.
Haswell, Intel's latest core series, has been a wonder. I've set the system on quiet mode, and you really can't hear it when running. Suspend and hibernate are both working wonderfully, and I seem to have performance headroom to die for.
I went not only with a Corsair case, but also with the Corsair water-cooled processor solution the case was designed for. Haswell didn't disappoint, but overall it is just a ton of fun to build your own PC now, and most of the aggravating parts -- like loading all of the software and settings -- are pretty much gone.
Since it was Haswell that opened the door to this wonderful new system, Intel's latest i7 Processor, code named "Haswell," is my product of the week.