Icahn has said publicly that he thinks the stock is undervalued, and that he’s talked to CEO Tim Cook about unlocking value in Apple shares through a large stock buyback. While everyone’s focus is on Apple, Icahn may have very well have taken a chunky position as a strategic move to influence another big holding.
Mr. Icahn owns 16% of Nuance. Nuance is the maker of the software that powers the voice feature, Siri, in Apple’s iPhone. He now has a nearly $1 billion bet on Nuance, upping his stake in the recent quarter from about $600 million. Perhaps Icahn wants Apple to buy Nuance.
Nuance is selling near a 2-year low. And it’s extremely undervalued, trading at its lowest price-to-sales ratio since mid 2009. The last time Nuance was this cheap, it climbed from $12 to over $30 per share over the next three years. Now it's earning money and its Siri technology is part of every iPhone.
Now, consider this: Apple could acquire Nuance for just a blip on its balance sheet. Apple has $43 billion in cash and short term marketable securities. Moreover, it has $68 billion in assets that can be converted to cash within one year. That figure grew by $10.5 billion in the past twelve months. In comparison, the current market value of Nuance is just $6.2 billion.
If Apple were to acquire Nuance for a 35% premium (a price of $8 billion, or around $26 a share) it would still barely dent Apple’s cash position. It would mean nice synergies for Apple and it would give Mr. Icahn a big pay day on his Nuance shares.
Bryan Rich is CEO of Logic Fund Management and founder of BillionairesPortfolio.com and FXTraderProfessional.com. Our activist investor newsletter, Billionaire’s Portfolio, recommended buying Nuance on April 24.
