By Todd Bernhard on Fri, 05/16/2014
Has Apple's pending stock split made you think about picking up a share or two? Well get in line, because Carl Icahn just added 2.8 million shares to the 7.5 million he already owned! Icahn is an activist investor who uses his holdings in firms to push his agenda. It often works, at places like eBay and even Apple.
Apple has reacted to his demands over the years with a buyback plan, dividends, and the recent stock split announcement. Specifically, Apple increased their stock buyback plan from $60 billion to $90 billion, although Icahn wanted Apple to increase the plan by $50 billion. Apple's dividend increased by 8 percent, offering more value for existing stockholders. Additionally, through Apple's 7-for-1 stock split planned for June, the individual share price should be under $100.
Not all investors agree on the benefits of stock splits, since most of the benefits are psychological. If you owned 10 shares at $600 that becomes 60 shares at $100, after a 6 for 1 split. Either way, your shares are worth the same $6,000 value. However, that lower price makes it easier for individual buyers to afford a share or two, increasing the liquidity and making that stock easier to buy and sell. After the split, the stock is less likely to seem overpriced, as well, making it more attractive. However, small changes are worth more, which can be good or bad, depending on the change.
Beware of a reverse split, where a stock is priced so poorly that it is in danger of being delisted from a stock index. I worked for Sun Microsystems from 1988 to 1993. Sun had amazing highs in the 1980s and 1990s, and tragic lows in the 2000s. In 2007, as a sign of desperation, after a 90 percent drop in stock price, Sun announced a 1-for-4 reverse split. That too was psychological and didn't help. Ultimately, Sun was consumed by Larry Ellison's Oracle.
Apple is in no risk of such a future, which is all the more ironic because Sun Microsystems almost bought Apple in 1996! And when Oracle acquired Sun, it was part of Ellison's goal is to have Oracle be “the Apple of Enterprise!