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Hedge fund manager David Einhorn sues Apple over $137B cash hoard

post #1 of 175
Thread Starter 
David Einhorn, the high-profile hedge fund manager behind Greenlight Capital, has sued Apple over what he believes is a "cash problem" for the company.

Greenlight


Greenlight Capital issued a press release on Thursday calling on investors to vote against "Proposal 2" in Apple's proxy when the shareholder meeting takes place on Feb. 27. If it passes, the recommended proposal would eliminate preferred stock from Apple's charter.

Einhorn instead believes that Apple could better allocate its capital by distributing preferred stock and tapping into new value for shareholders.

We believe Apple must examine all of its options to unlock the growing value of its balance sheet for all shareholders"We believe Apple must examine all of its options to unlock the growing value of its balance sheet for all shareholders," Einhorn said. "Over the past several months, we have had an ongoing dialogue with Apple regarding one option to do so, namely the creation of a new security, a perpetual preferred stock that would be distributed at no cost to Apple's existing shareholders, and would provide an attractive, sustainable dividend while preserving Apple's financial resources to pursue its business strategy."

As part of his push, Einhorn's Greenlight Capital has sued Apple, and argued that shareholders deserve a larger share of Apple's $137 billion and growing cash hoard, according to Reuters. Einhorn is known for being a short seller of stocks, but he is long on Apple shares.

The hedge fund manager characterized Apple as having a "cash problem." He believes the issue could be addressed by giving away perpetual preferred stock with a 4 percent yield.

Greenlight


Apple's stock has seen a steady decline since the launch of the iPhone 5 late last year. Investors have expressed concern over Apple's slowing growth, along with increased competition from rivals such as Samsung.

For years some investors have called on Apple to do more with its cash and reserves as the money has continued to grow. Last March, Apple announced it would spend $45 billion over three years in a dividend payout and share repurchase program.

Even with the dividend and share buyback, Apple still continues to collect cash faster than it can spend it.

Einhorn and Greenlight don't think Apple is acting fast enough. The company said in a filing with the U.S. Securities and Exchange Commission that it is "dissatisfied with Apple's capital allocation strategy."Analyst Katy Huberty of Morgan Stanley asked Apple during its last quarterly earnings report why the company doesn't step up and buy back even more stock than it originally planned. Chief Financial Officer Peter Oppenheimer said Apple "continuously" assesses opportunities to invest in the business and return cash.

"Combined with our dividend, we returned about $4.5 billion of cash this quarter, and we started the buyback program and expect to return about $45 billion over three years to our shareholders," Oppenheimer said. "We do consider increasing these programs and we'll do what we think is in the best interest of our shareholders."

But Einhorn and Greenlight don't think Apple is acting fast enough. The company said in a filing with the U.S. Securities and Exchange Commission that it is "dissatisfied with Apple's capital allocation strategy."

Einhorn also spoke with CNBC and said that he believes Apple shares are "utterly misvalued" at current levels. He hopes that the open letter he issued to investors on Thursday will win a rejection of Proposal 2 at the company's Feb. 27 annual shareholder meeting.

"We understand that many of our fellow shareholders share our frustration with Apple's allocation policies," Einhorn wrote. "Apple has $145 per share of cash on its balance sheet. As a shareholder, this is your money."

More coverage


post #2 of 175
Oh great, now we have Patent Trolls AND Capital Trolls suing Apple for their money. I think these people need to take a big old dose of Getalife.
post #3 of 175
Greed is good.
post #4 of 175

Maybe Apple really needs a little prodding to take care of its stable long time investors...

post #5 of 175

So basically I have money, but I want more money faster and you aren't sharing it.  Got it.  

post #6 of 175
Originally Posted by seekingtheta View Post
Maybe Apple really needs a little prodding to take care of its stable long time investors...

 

How exactly haven't they been doing this already?

Originally posted by Relic

...those little naked weirdos are going to get me investigated.
Reply

Originally posted by Relic

...those little naked weirdos are going to get me investigated.
Reply
post #7 of 175
Not too long ago Bill Gates and Steve Jobs told Congress, we need to allow more immigration because Americans lacked technology skills. Why not use some of this "cash horde" and offer scholarships and internships so we can teach these important skills?
post #8 of 175
Quote:
Originally Posted by jkichline View Post

Oh great, now we have Patent Trolls AND Capital Trolls suing Apple for their money. I think these people need to take a big old dose of Getalife.


Crap !

 

One may argue that the shareholders are the OWNERS of the company. The BOD and Management are servants of the owners. So if Einhorn can persuade the shareholder majority, or whatever the company rules of incorporation define,   to do anything, then that's the way the ball will roll. Thats the capitalist system. I agree that it's not always the smartest way to run things, but it IS the legal way. This is evidenced by the current market cap of APPL. Many here seem to think that it is seriously undervalued. I personally think its seriously overvalued, but whatever your position on that may be, it seems pretty clear that it is corporate investors and speculators who are driving/manipulating the share price in search of a quick buck. That's the American way.

post #9 of 175
Quote:
Originally Posted by Tallest Skil View Post

 

How exactly haven't they been doing this already?

 

Apple has a fiduciary responsibility to protect the Apple brand and stock price.  When baseless 'reports' come out about crashing demand Apple needs to speak up.  Cook spoke about it in the earnings call but it was already to late.

 

Apple has almost $150 Billion and are doing NOTHING with it.  The cost of doing nothing with the money is a 8-10% loss every year.  There is no reason Apple needs to hoard so much cash.  They need to return some of it to investors, make an acquisition, or at least tell investors what they plan to do in the future.

post #10 of 175
Perhaps Wall Street is right on this one. I don't think Apple should give up it's conservative money management, but it shouldn't put more and more of it's shareholders money in such tight straights. The company needs 50 or 60 Billion on hand to weather any problems it faces. It does not have the right to tie up the money it's shareholders earned so that that money can't earn more money in it's own right. This is the secret to real wealth creation. Let the shareholders benefit from exponential growth. That is why they invested in the first place.

Are you aware that Apple has already set aside cash for the taxes on the money that is overseas? If there were a drop in the tax rate to return that money Apple would have a one time income benefit on it's bottom line that would dwarf the current quarter's record income.
post #11 of 175
Quote:
Originally Posted by seekingtheta View Post

Maybe Apple really needs a little prodding to take care of its stable long time investors...

 

It's unlikely that a hedge fund manager qualifies as a, "stable long time investor." It's exactly this sort of "shareholder action" that's screwed up many a company in this country, so hopefully they will stamp this out without him being able to do any damage.

post #12 of 175

Einhorn's position is similar to many people in general (although he's more aggressive about it): Shareholders "own" what a company owns. He should know better than that. Perhaps he does but is misleading the public on purpose.

post #13 of 175
In the words of Jeff Jarvis, "How dare they make money, HOW DARE THEY!"
"Picasso had a saying, 'Good artists copy, great artists steal.' And we've always been shameless about stealing great ideas."
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"Picasso had a saying, 'Good artists copy, great artists steal.' And we've always been shameless about stealing great ideas."
Reply
post #14 of 175
Originally Posted by sog35 View Post
Apple has a fiduciary responsibility to protect the Apple brand and stock price.  When baseless 'reports' come out about crashing demand Apple needs to speak up.  Cook spoke about it in the earnings call but it was already to late.

 

They spoke up with their actual earnings. It's not Apple's fault nor responsibility when people are too stupid to see what is right in front of them.

 

They had the best quarter of any company in recorded human history. The lawsuits need to be directed at the people that have so drastically reduced Apple's stock value, not Apple itself.


Apple has almost $150 Billion and are doing NOTHING with it.

 

You sure? They could very well have a plan that requires it.


at least tell investors what they plan to do in the future.

 

Looks like it's going to be one of the other two.

Originally posted by Relic

...those little naked weirdos are going to get me investigated.
Reply

Originally posted by Relic

...those little naked weirdos are going to get me investigated.
Reply
post #15 of 175
Quote:
Originally Posted by stelligent View Post

... Perhaps he ... is misleading the public on purpose.

 

Ya think?

post #16 of 175
Quote:
Originally Posted by anonymouse View Post

 

It's unlikely that a hedge fund manager qualifies as a, "stable long time investor." It's exactly this sort of "shareholder action" that's screwed up many a company in this country, so hopefully they will stamp this out without him being able to do any damage.

Einhorn has been an investor for almost a year now, its not like hes trading the name. He is, as he said, a long-term investor in Apple. 

post #17 of 175

It's one thing to use the media to press your position on company management, its quite another to sue them for not doing what in your opinion is the right move. 

 

I have no idea how a suit like this gets resolved or what the precedents are, but I think it's BS.  I support Apples' management team to pursue their very long range objectives for the company. So far, so good for them.  Secrecy is part and parcel of the companys MO and crucial to certain key components of their enormous success. 

post #18 of 175

He's probably one of the assholes that helped to sink AAPL below $500... a man with a plan...
 

na na na na na...
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na na na na na...
Reply
post #19 of 175
Originally Posted by island hermit View Post
…a man with a plan…

 

…destroy… Panama Apple… 

Originally posted by Relic

...those little naked weirdos are going to get me investigated.
Reply

Originally posted by Relic

...those little naked weirdos are going to get me investigated.
Reply
post #20 of 175
Quote:
Originally Posted by sog35 View Post

 

Apple has a fiduciary responsibility to protect the Apple brand and stock price.  When baseless 'reports' come out about crashing demand Apple needs to speak up.  Cook spoke about it in the earnings call but it was already to late.

 

Apple has almost $150 Billion and are doing NOTHING with it.  The cost of doing nothing with the money is a 8-10% loss every year.  There is no reason Apple needs to hoard so much cash.  They need to return some of it to investors, make an acquisition, or at least tell investors what they plan to do in the future.

Agreed.

post #21 of 175

There's no way AAPL would do this preferred shares thing anyway, it's silly, at best it's public tax evasion for the shareholders and at worst it's telling everyone that AAPL can't use the cash to grow.

 

Now what would I think the cash should be used for? I don't know either, but doing what this guy suggested is not the solution.

post #22 of 175

I think that Einhorn's approach -- issuing a 'perpetual' preferred (redundant, since default, preferreds are assumed to be perpetual unless mentioned otherwise) -- would be huge mistake. It entrenches Apple even further as a 'value' stock in people's minds. That just digs Apple deeper into a hole, and exacerbates the likelihood of clientele conflicts and see-sawing prices (as the 'growth' types get into a tug-of-war with the 'value' types).

 

Just do a $40B - $50B share repurchase, keep it as treasury stock to anti-dilutively hand out against future employee option exercises, and get on with it, Apple.

post #23 of 175

What a pathetic sleazebag. I hope that his major intestine will leap straight up through his neck and throttle his brain. I have no respect whatsoever for these parasites.

post #24 of 175
Quote:
Originally Posted by Macnewsjunkie View Post

Perhaps Wall Street is right on this one. I don't think Apple should give up it's conservative money management, but it shouldn't put more and more of it's shareholders money in such tight straights. The company needs 50 or 60 Billion on hand to weather any problems it faces. It does not have the right to tie up the money it's shareholders earned so that that money can't earn more money in it's own right. This is the secret to real wealth creation. Let the shareholders benefit from exponential growth. That is why they invested in the first place.

Are you aware that Apple has already set aside cash for the taxes on the money that is overseas? If there were a drop in the tax rate to return that money Apple would have a one time income benefit on it's bottom line that would dwarf the current quarter's record income.


This guy isn't part of "Wall Street." Wall Street is the group of "analysts," more appropriately known as armchair CEOs. This guy is worse than those Wall Street bigwigs who, in the words of a friend of mine, should stick to deciding what cereal to eat in the morning.

post #25 of 175
Quote:
Originally Posted by Taniwha View Post

APPL

AAPL
post #26 of 175

F'n tool. Lets make this clear. #1 He DOES NOT have the companies best interest in mine. $$ is all he sees. #2 This is the problem with our society and government. Oh man, we're sitting on too much cash... SPEND SPEND SPEND. That's assuming we even had the money which we don't, same with companies. Apple seriously needs to use the cash horde to go private. F investors. They don't care at all about the company other than getting their dividend and bleeding the company to death and then will move on to the next one to bleed dry.

post #27 of 175
...so Einhorn sues Apple for not getting into business with his company.
When a leech can sue for not being allowed to leech, we're doomed.

in other news: when companies do only what's best for the current fiscal quarter, they die.
post #28 of 175
Quote:
Originally Posted by Taniwha View Post


Crap !

One may argue that the shareholders are the OWNERS of the company. The BOD and Management are servants of the owners. So if Einhorn can persuade the shareholder majority, or whatever the company rules of incorporation define,   to do anything, then that's the way the ball will roll. Thats the capitalist system. I agree that it's not always the smartest way to run things, but it IS the legal way. This is evidenced by the current market cap of APPL. Many here seem to think that it is seriously undervalued. I personally think its seriously overvalued, but whatever your position on that may be, it seems pretty clear that it is corporate investors and speculators who are driving/manipulating the share price in search of a quick buck. That's the American way.

Crap yourself!

Read this...
http://www.directorship.com/stout-shareholders-as-owners/
post #29 of 175
Quote:
Originally Posted by stelligent View Post

Einhorn's position is similar to many people in general (although he's more aggressive about it): Shareholders "own" what a company owns. He should know better than that. Perhaps he does but is misleading the public on purpose.

Reminds me of the scene in 3rd Rock from the Sun where Dick is told that the stock he bought mean he owns part of the company…

(link)

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply
post #30 of 175
Quote:
Originally Posted by anonymouse View Post

It's unlikely that a hedge fund manager qualifies as a, "stable long time investor." It's exactly this sort of "shareholder action" that's screwed up many a company in this country, so hopefully they will stamp this out without him being able to do any damage.

Public ownership sucks. Fiduciary responsibility is just a catch phrase for wresting control of a company from those that comprehend it. IMO, most public companies should go private again (like Dell, curiously). The capitalist insanity disease in the USA needs a major remedy. Wall Street greed is self destructive to society. It's too complicated a system, and the complexity is in the interest of "lawyering what you want by force", over the people that actually comprehend the running of any particular business. Shareholder voting rights to guide a company is a nice idea that's taken to unreasonable extents. Public ownership quickly abandons the idea of any given business and focuses entirely on profits and stock value. There's a fundamental conflict of interest.
post #31 of 175
Quote:
Originally Posted by Creid1987 View Post

Einhorn has been an investor for almost a year now, its not like hes trading the name. He is, as he said, a long-term investor in Apple. 
Oh wow! A whole YEAR?!!
Which means he bought high and is pissed about his own poor judgement. Poor baby.
post #32 of 175

I'm surprised Obama and team haven't looked more at this potential source of new revenue. Section 531 of the IRS code calls for a 15% tax on excessive retained earnings. At least that's how I read it. It just hasn't been enforced aggressively.

 

I imagine the debate would then move on to what is excessive. Either way, holding excess cash from earnings does slow economic growth.

 

This is part of the damage that occurs when corporations and individuals are in a defensive mode. We see it in nearly all our clients. It's hammering the economy.

post #33 of 175
Personally, I don't think there is anything wrong with the Preferred approach. A 4-5% yield and some potential for growth would make a lot of investors very happy. The non-preferred shares get the growth potential and the preferred gets the stable income.

At the same time, Apple can horde the cash offshore and try to wait out a tax holiday or use the money for international expansion if they don't over-stretch their horde. 5% Doesn't seem like much of a stretch though.

Is the reason Apple always resisted dividends due to the insider shareholders?
post #34 of 175
I think Apple could do more, however, I would like to see them expand their current products and services logically. The problem is that I am virtually certain they are doing many of these things already.


Improve existing products and services:

AppleTV
iCloud
iLife
iWork
Maps
Siri


Do something (more?) with the companies they already purchased:

Authentec
Lala
Particle


Seriously consider purchasing the following companies:

Nuance (speech recognition used by Siri) but don't kill their products and services
Wolfram Alpha
Yahoo! (but the company may be overvalued)
Square (or something similar)
Waze


Return to the Enterprise market


Strengthen the Media Market


Research advancing technologies:

Brain-Computer Interfaces
Motion sensing Interfaces
Robotics (maybe a operating system or development platform for robotics rather than manufacturing robots)
post #35 of 175
Quote:
Originally Posted by sog35 View Post

Apple has a fiduciary responsibility to protect the Apple brand and stock price.  When baseless 'reports' come out about crashing demand Apple needs to speak up.  Cook spoke about it in the earnings call but it was already to late.

Apple has almost $150 Billion and are doing NOTHING with it.  The cost of doing nothing with the money is a 8-10% loss every year.  There is no reason Apple needs to hoard so much cash.  They need to return some of it to investors, make an acquisition, or at least tell investors what they plan to do in the future.

While you are right, Applecannot be blamed. That report came out on the first day of the "quiet period" before any earnings report where executives should not be speaking publicly or else the SEC will probably she their asses off.

That in itself should have given investors a hint about the BS the report was, however, our stock market system is no longer an investment tool, but a con game designed to scam the little guys out of their money.
post #36 of 175
Quote:
Originally Posted by bugsnw View Post

Section 531 of the IRS code calls for a 15% tax on excessive retained earnings.
Does that apply to offshore holdings though? The on-shore money relative to the market cap isn't that excessive.
post #37 of 175
What the... That's it! Einhorn is Finkle! Finkle is Einhorn! Einhorn is a man!
Oh, my GOD! Einhorn is a man!
[Que: The Crying Game music]
post #38 of 175

I'm siding with the hedge fund. 

 

Making the best products and devices doesn't mean anything if the stock is taking a severe beating. It is Apple's problem to fix and they haven't been proactive enough on that front.

 

Apple needs to convince me why I should put some of my money into AAPL and keep it there. I don't like the way that the stock has been performing for a while now. Apple has a duty to it's shareholders.

post #39 of 175
Quote:
Originally Posted by dysamoria View Post


Public ownership sucks. Fiduciary responsibility is just a catch phrase for wresting control of a company from those that comprehend it. IMO, most public companies should go private again (like Dell, curiously). The capitalist insanity disease in the USA needs a major remedy. Wall Street greed is self destructive to society. It's too complicated a system, and the complexity is in the interest of "lawyering what you want by force", over the people that actually comprehend the running of any particular business. Shareholder voting rights to guide a company is a nice idea that's taken to unreasonable extents. Public ownership quickly abandons the idea of any given business and focuses entirely on profits and stock value. There's a fundamental conflict of interest.

Nonsense. If it weren't for public ownership, the breadth and depth of wealth creation that companies like Apple have created would vanish overnight, available to just an already-wealthy few. It is the kind of wealth creation that has built many a house, sent many a kid to college, enhanced many a retirement.

 

If you bought your shares at >$450 and have the investing horizon of a gnat, are you likely pissed? Sure. But millions of people got in much earlier, have longer horizons, and are still massively more wealthy than they were before because of companies like Apple.

post #40 of 175
Quote:
Originally Posted by drewyboy View Post

F'n tool. Lets make this clear. #1 He DOES NOT have the companies best interest in mine. $$ is all he sees. #2 This is the problem with our society and government. Oh man, we're sitting on too much cash... SPEND SPEND SPEND. That's assuming we even had the money which we don't, same with companies. Apple seriously needs to use the cash horde to go private. F investors. They don't care at all about the company other than getting their dividend and bleeding the company to death and then will move on to the next one to bleed dry.

You're actually not that off...

We were sitting on top of budget surpluses in 2000, and instead of investing it or applying it to the Federal Debt, the administration said "Hey... its your money... go spend it", and then proceeded to pull the plug out of the economic tub.

So you're right... some people can't see cash without wanting to just blow it.

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