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Apple responds to Greenlight lawsuit, says preferred stock won't be barred

post #1 of 69
Thread Starter 
Apple on Thursday issued a public statement in response to a lawsuit from hedge fund Greenlight Capital, revealing that the company has been holding "active discussions" on what to do with its $137 billion in cash, while also disputing the assertion that the company hopes to prevent the issuance of preferred stock.

Cash
Apple added $38 billion in cash in 2012. Chart by Asymco.


The statement made by Apple comes in response to a high-profile lawsuit filed earlier in the day by Greenlight and the fund's manager, David Einhorn. That complaint accused Apple of having a "problem" of hoarding cash in a manner that is a disservice to investors.

For its part, Apple said it welcomes Greenlight's views, though it disagrees with the fund's take on "Proposal 2," an item up for vote at the company's annual shareholder meeting later this month.Apple says Greenlight is wrong: The passage of Proposal 2 would give shareholders the right to approve the issuance of preferred stock, but won't ban it entirely.

"Contrary to Greenlight's statements, the adoption of Proposal #2 would not prevent the issuance of preferred stock," Apple's statement reads. "Currently, Apple's articles of incorporation provide for the issuance of 'blank check' preferred stock by the Board of Directors without Shareholder approval."

Apple contends that the passage of Proposal 2 would give shareholders the right to approve the issuance of preferred stock.

Earlier Thursday, Greenlight and Einhorn said they believe Apple should give away perpetual preferred stock with a 4 percent yield. Einhorn advised investors to vote against Proposal 2, which Apple is recommending, because he believes it would eliminate preferred stock from Apple's charter.

Greenlight


But Apple's statement made on Thursday refutes the claims by Einhorn, suggesting that his idea of preferred stock could still be on the table. Einhorn believes that by distributing preferred stock, Apple could tap into new value for shareholders while leaving its massive cash hoard largely untouched.

Apple was questioned about its cash and reserves during the company's quarterly earnings report last month, and Chief Financial Officer Peter Oppenheimer responded by saying Apple "continuously" assesses opportunities for its growing cash, which totaled $137 billion as of the conclusion of the December quarter.

"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."

Apple's statement issued Thursday afternoon follows in its entirety:

By early last year, Apple?s cash balance had built to a point beyond what we needed to run our business and maintain flexibility to take advantage of strategic opportunities, so we announced a plan to return $45 billion to shareholders over three years. As of next week we will have executed $10 billion of that plan.

We find ourselves in the fortunate position of continuing to generate large amounts of cash, including $23 billion in cash flow from operations in the last quarter alone.

Apple?s management team and Board of Directors have been in active discussions about returning additional cash to shareholders. As part of our review, we will thoroughly evaluate Greenlight Capital?s current proposal to issue some form of preferred stock. We welcome Greenlight?s views and the views of all of our shareholders.

As a part of our efforts to further enhance corporate governance and serve our shareholders' best interests, Proposal #2 in our proxy includes some recommended changes to our articles of incorporation. These changes were recommended independently of Greenlight?s proposal and would not preclude Apple from adopting their concept. Contrary to Greenlight?s statements, adoption of Proposal #2 would not prevent the issuance of preferred stock. Currently, Apple?s articles of incorporation provide for the issuance of ?blank check? preferred stock by the Board of Directors without shareholder approval. If Proposal #2 is adopted, our shareholders would have the right to approve the issuance of preferred stock. As such, Proposal #2 has the support of many of our shareholders.

We remain committed to having an ongoing dialogue with our shareholders to get perspectives around return of capital and driving shareholder value.

post #2 of 69
That seems to address the concerns of many about Apple's excessive cash hoard. Taxes be damned, I like dividends and buybacks.
post #3 of 69
Great PR response.
post #4 of 69
Apple had $137.1 Billion in cash at the end of 2012.

We are now 5 weeks into 2013, so you could add another ~$10 billion to that figure.
post #5 of 69
I guess that means we can assume that they've re-purchased about $2.5 billion of AAPL stock? With next week being their third dividend payout since the announcement at roughly $2.5 billion each, that leaves another $2.5 billion for the re-purchase program.

Who knows when(if) they actually re-purchased the shares but at recent prices (~$455 before this afternoon's announcement) that would be about 5.5 million shares off the street.
post #6 of 69
Apple PR can certainly turn the statement, "Greenlight, you're a bunch of morons, especially David Einhorn" into something so eloquent and conciliatory. I would have just gone with "Greenlight, you're a bunch of morons."
post #7 of 69

Tim, tell the whiners to "get bent".

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #8 of 69
Apple had about 5 billion (a considerable sum back then) to hand when it was a small fraction of it's current size in the late ninetees. Thank god they had the foresight to stash money away for a rainy day , else Apple would not be here right now.
post #9 of 69

Also, it appears what Greenlight wants Apple to do is issue new preferred stock, and start paying high dividends on those new shares.

 

It phrases this as "giving back to shareholders," but it does nothing for current shareholders. It just creates a new class of financial paper designed to syphon cash from Apple's reserves exclusively to a group of new investors. And somehow, this reduction in Apple's cash reserves is supposed to be good for Apple's current shareholders because it will somehow lift the share price.

 

This sounds like trickle down economics, where the middle class is "helped" by the disbursement of public funds to the rich, who "create jobs" and invent prosperity out of thin air. Something that has never ever happened. Apple can give its cash to a bunch of new plugged in "investors," but it would seem more consistent with the company's values to either use that cash or to distribute it to its existing shareholders, not create a new type of paper to enrich the hedge funds who have gamed the market and helped depress Apple's stock prices in cycles to create short term gains out of the backs of long term investors. 

post #10 of 69

Terrific news for AAPL longs.  About time a brilliant investor and hedge fund titan like Einhorn step in and open the eyes of the InCompetence in Cupertino.  Enough destruction of shareholder value, Apple's image and its public perception, and it only took several months late. 

 

The next step is to strike the Samdung dogs back, and start being the leader in innovating again.  David Einhorn for special advisor to Tim Cook!

post #11 of 69

Those of you calling for Apple to give the money to investors are frankly just short term thinking idiots.

 

(oh and I'm fully AAPL long and would be one of those who would supposedly 'benefit' from frivolously throwing money down the drain.)

 

Rather than moan that the stock has dropped, use you brain and realise that this is a short term negative blip and the product of 100% pure manipulation. Buy more shares and capitalise on the situation, rather than moan about it. These dips are your friend, not your enemy.

 

There is SO much more money to be made on the return journey, than whatever handouts you desire in the form of dividends.


Edited by monstrosity - 2/7/13 at 1:29pm
post #12 of 69
Originally Posted by AppleInsider View Post
Apple on Thursday issued a public statement… …revealing that the company has been holding "active discussions" on what to do with its $137 billion in cash…

 

1000

 

Isn't swimming in it enough?

Originally Posted by Marvin

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Originally Posted by Marvin

The only thing more insecure than Android’s OS is its userbase.
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post #13 of 69
Apple has a duty to its shareholders to run the company well etc. etc.

The whole Greenlight proposal, indeed much of Wall street's ideas I would describe as extortion.
These are like, their demands. You kidding me?
What is really factored into the price is a kind of perpetual sense of disbelief that any company could be as good as Apple is. ~Retrogusto
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What is really factored into the price is a kind of perpetual sense of disbelief that any company could be as good as Apple is. ~Retrogusto
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post #14 of 69
Quote:
Originally Posted by monstrosity View Post

Those of you calling for Apple to give the money to investors are frankly just short term thinking idiots.

 

(oh and I'm fully AAPL long and would be one of those who would supposedly 'benefit' from frivolously throwing money down the drain.)

 

Rather than moan that the stock has dropped, use you brain and realise that this is a short term negative blip and the product of 100% pure manipulation. Buy more shares and capitalise on the situation, rather than moan about it. These dips are your friend, not your enemy.

 

There is SO much more money to be made on the return journey, than whatever handouts you desire in the form of dividends.

 

Better Apple have a plan for their excess cash than wait for the IRS to penalize them for it. I'm curious to those that prefer the status quo (even though Apple agrees with those of us that want to participate in some of the profits). At what point do you start speaking out for distributions or buybacks? When Apple has a trillion in cash on hand? Two trillion? More?

post #15 of 69
Back in Steve's day, no response would have been given. Loving Cook's approach to things.
Can I get my icons in cornflower blue?
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Can I get my icons in cornflower blue?
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post #16 of 69
Quote:
Originally Posted by Corrections View Post

Also, it appears what Greenlight wants Apple to do is issue new preferred stock, and start paying high dividends on those new shares.

 

It phrases this as "giving back to shareholders," but it does nothing for current shareholders. It just creates a new class of financial paper designed to syphon cash from Apple's reserves exclusively to a group of new investors. And somehow, this reduction in Apple's cash reserves is supposed to be good for Apple's current shareholders because it will somehow lift the share price.

 

This sounds like trickle down economics, where the middle class is "helped" by the disbursement of public funds to the rich, who "create jobs" and invent prosperity out of thin air. Something that has never ever happened. Apple can give its cash to a bunch of new plugged in "investors," but it would seem more consistent with the company's values to either use that cash or to distribute it to its existing shareholders, not create a new type of paper to enrich the hedge funds who have gamed the market and helped depress Apple's stock prices in cycles to create short term gains out of the backs of long term investors. 

Actually, the preferreds would be issued to existing shareholders, not new ones. You would have a class of common shares and a class of preferred shares stapled to the common. You're free to sell the preferred to new investors or hold on to it and receive your dividend.

 

His proposal is 4% on $50bn which means effectively $2per share more in total dividends in addition to apples existing $2.65 per quarter.

 

Einhorn thinks that the common shares aren't getting credit for Apple's cash and the issuance of interest bearing securities will unlock the value of that cash. This has absolutely nothing to do with "syphon"ing cash away to a new group of investors. 

post #17 of 69

I'm glad we have financial leeches like Einhorn to point out issues with one of the greatest, most profitable companies on the face of the planet...

 

Apple managed the astonishing feat of getting the equivalent of a personal computer into the hands of everybody from eight to eighty year olds, and did so while providing absolutely no instructions...
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Apple managed the astonishing feat of getting the equivalent of a personal computer into the hands of everybody from eight to eighty year olds, and did so while providing absolutely no instructions...
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post #18 of 69
Quote:
Originally Posted by broadbean View Post

Great PR response.

That's all it is.

 

Standard legal boilerplate response to a hedge fund nuisance at the door. Nothing to see here....

post #19 of 69
Quote:
Originally Posted by Gigawire View Post

Back in Steve's day, no response would have been given. Loving Cook's approach to things.

Except now this guy and every other douche will think that making a wild claim against Apple will result in an official Apple response.

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"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

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post #20 of 69
Quote:
Originally Posted by Gigawire View Post

Back in Steve's day, no response would have been given. Loving Cook's approach to things.

That would not be an option. He (or the Board) would have to respond to such 'material' events. Doesn't matter whether Apple likes it or not.

post #21 of 69
Quote:
Originally Posted by anantksundaram View Post

That's all it is.

 

Standard legal boilerplate response to a hedge fund nuisance at the door. Nothing to see here....

I think its a bit more.

 

That they responded so quickly illustrates that 1) they consider this an important issue 2) they've likely been thinking about the issue and anticipating an action like Einhorn's.

 

Also, they went beyond boilerplate when they said that have much more cash than they need to run their business since early last year. The implication of that statement, along with the continued repetition that they are evaluating options implies they are up to something. 

post #22 of 69
Quote:
Originally Posted by bugsnw View Post

 

Better Apple have a plan for their excess cash than wait for the IRS to penalize them for it. I'm curious to those that prefer the status quo (even though Apple agrees with those of us that want to participate in some of the profits). At what point do you start speaking out for distributions or buybacks? When Apple has a trillion in cash on hand? Two trillion? More?

 

It depends on the size of Apple when they reach a trillion. Or in other words: How much could they potentially lose in another dot com crash? And how quickly could they recover? You need that amount in the bank plus a sizeable buffer. 

 

A trillion in the bank would mean that AAPL would rise irrespective of buybacks, else the value of the shares may be less than the value in the bank (or book value).

post #23 of 69
Quote:
Originally Posted by SolipsismX View Post


Except now this guy and every other douche will think that making a wild claim against Apple will result in an official Apple response.

No, it has to be seen as a serious proposal from a large shareholder.

 

Even though I am a shareholder and I want Apple to do a $40B repurchase -- one shot -- I couldn't do something similar to Einhorn and generate a response, for example.

 

That's the way the system works...1hmm.gif

post #24 of 69
Quote:
Originally Posted by monstrosity View Post

Those of you calling for Apple to give the money to investors are frankly just short term thinking idiots.

 

(oh and I'm fully AAPL long and would be one of those who would supposedly 'benefit' from frivolously throwing money down the drain.)

 

Rather than moan that the stock has dropped, use you brain and realise that this is a short term negative blip and the product of 100% pure manipulation. Buy more shares and capitalise on the situation, rather than moan about it. These dips are your friend, not your enemy.

 

There is SO much more money to be made on the return journey, than whatever handouts you desire in the form of dividends.

 

Still believe in the fantasy of manipulation as the reason for the stock getting hammered.. are you serious?  Please share with us who has the money to manipulate 10 billion of market cap in AAPL every day for the past several months.  It's not manipulation when the stock went up from low 400s to 700s though, but it is when it goes down?

 

The reason why this stock has been plummeting is because the bus was over levered, over crowded with hedge funds who thought AAPL would continue to innovate and keep their massive profit margins.  Well the street doubts AAPL's ability to innovate in the near-med term until it proves itself again, competition has clearly caught up, and hedge funds scrambled to get out at the same time.  That's not manipulation. 

 

So AAPL's margins are shrinking fast, demand is flattening, innovation is in question so why would any hedge fund want to pour  any more money into this broken stock when so many hedgies are still invested in it already?  

 

This was a growth stock, not anymore and the street has voted.  The only way AAPL can attract more institutional money right now is if they fix those problems, and since they can't fast enough, they have to offer some incentive to invest ie., attract the value investors to up the divvy. 

 

The Einhorn proposal is a solid one if you analyse it thoroughly while protecting the common. 

 

There is absolutely no reason for AAPL to continue letting all that cash rot and do nothing with big investors giving up, fleeing daily and weekly because the company won't do more to protect its shareholder value because it is anti-wall street.  Don't forget, its the big institutional investors like Einhrn who end up BUYING the stock and lifting the share price and help YOU the retailers make money.

post #25 of 69
Quote:
Originally Posted by KingChael View Post

 

Still believe in the fantasy of manipulation as the reason for the stock getting hammered.. are you serious?  

 

 

Oh come on, any fool can see the manipulation surely? It doesn't take a genius. Institutions own 67% and hedge funds don't need the raw cash because they use huge leverage.

 

Plus you don't need that much money because much of the manipulation happens in low volume premarket.


Edited by monstrosity - 2/7/13 at 2:13pm
post #26 of 69
Quote:
Originally Posted by monstrosity View Post

100% pure manipulation

 

It's 100% the result of actions by market participants, for better or worse, reasonable or emotionally driven. Call it manipulation if it makes you feel better. If you have evidence of actual crimes, please forward that to the authorities. I have a hard time believing in wide conspiracies for a stock under as much scrutiny as AAPL.

post #27 of 69
Quote:
Originally Posted by SolipsismX View Post


Except now this guy and every other douche will think that making a wild claim against Apple will result in an official Apple response.

 

Yeah.  Apple just fed the troll.  I would have loved a two-word response from SJ, though.

post #28 of 69

 

Quote:
Originally Posted by Creid1987 View Post

I think its a bit more.

 

That they responded so quickly illustrates that 1) they consider this an important issue 2) they've likely been thinking about the issue and anticipating an action like Einhorn's.

 

 

they don't want this to cause the stock price to drop any lower.

 

 

Quote:

Also, they went beyond boilerplate when they said that have much more cash than they need to run their business since early last year. The implication of that statement, along with the continued repetition that they are evaluating options implies they are up to something. 

 

I'm not sure I agree.  Stating that they have more cash than needed is really only stating the obvious.  And 'evaluating options'--even noting that the article said they were holding active discussions--is about as weak on information as any statement could ever be.


Edited by BigBillyGoatGruff - 2/7/13 at 2:50pm
post #29 of 69
Quote:
Originally Posted by palomine View Post

Apple has a duty to its shareholders to run the company well etc. etc.
 

 

No they don't. Shareholders expect profits at any cost so running the company into the ground for short term profit would suit them just fine. To hell with running it "well." That would mean looking to the future at the possible expense of profits and we can't have that can we. Gimme that money now¡

post #30 of 69

Here is what I'd do with "all that cash" if I were in charge of Apple:

 

Listen up, shareholders (read Einhorn and all others complaining about the cash). We will start selling every iPhone, every iPad, every iPod and every Mac at cost or at loss. This will solve two problems: 1. Our cash reserves will stop growing and gradually diminish. 2. Our market share will go sky high.

 

After a decade of this, we will no longer be irresponsibly sitting on too much cash. Our market share will be dominant. To boot, since our strategy will be aligned with that of Amazon, investors should value our company the same way, while taking into account our stratospherically high revenues.

post #31 of 69
Quote:
Originally Posted by JollyPaul View Post

 

It's 100% the result of actions by market participants, for better or worse, reasonable or emotionally driven. Call it manipulation if it makes you feel better. If you have evidence of actual crimes, please forward that to the authorities. I have a hard time believing in wide conspiracies for a stock under as much scrutiny as AAPL.

Well, you keep thinking that, and I will continue making money from the naive! I have no monetary interest in convincing people otherwise that's for sure.

post #32 of 69
Originally Posted by BigBillyGoatGruff View Post
I would have loved a two-word response from SJ, though.

No.
 
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At this point, we think the way we handle our money is fine.
We have no plans to give you a dime.
I respect and admire shareholders. We just don't waste our money.

Originally Posted by Marvin

The only thing more insecure than Android’s OS is its userbase.
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Originally Posted by Marvin

The only thing more insecure than Android’s OS is its userbase.
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post #33 of 69
Quote:
Originally Posted by stelligent View Post

Here is what I'd do with "all that cash" if I were in charge of Apple:

 

Listen up, shareholders (read Einhorn and all others complaining about the cash). We will start selling every iPhone, every iPad, every iPod and every Mac at cost or at loss. This will solve two problems: 1. Our cash reserves will stop growing and gradually diminish. 2. Our market share will go sky high.

 

After a decade of this, we will no longer be irresponsibly sitting on too much cash. Our market share will be dominant. To boot, since our strategy will be aligned with that of Amazon, investors should value our company the same way, while taking into account our stratospherically high revenues.

 

No... That would result in charges of "unfair competition", "dumping" or some such nonsense from government overseers.

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #34 of 69
Quote:
Originally Posted by Tallest Skil View Post
 

It is simply not an option in a situation like this. They -- Steve or no Steve -- have to respond. You can be cute on internet boards, but not on corporate boards.

 

(I have no idea why your quote didn't show).

post #35 of 69
Quote:
Originally Posted by Creid1987 View Post

 

That they responded so quickly illustrates that 1) they consider this an important issue 2) they've likely been thinking about the issue and anticipating an action like Einhorn's.

 

Also, they went beyond boilerplate when they said that have much more cash than they need to run their business since early last year. The implication of that statement, along with the continued repetition that they are evaluating options implies they are up to something. 

Nothing of that sort. Yes, it is a material issue, and any halfway decent corporate law team in a company will have a boilerplate response to something like this (along with other similar requests that may show up, such as "we want more diversity on our Board").

 

Apple has said many times before that they have more cash than they need and that they'e evaluating options. Oppenheimer has mentioned that in prior conference calls with analysts. Nothing new there.

post #36 of 69
Originally Posted by anantksundaram View Post
It is simply not an option in a situation like this. They -- Steve or no Steve -- have to respond. You can be cute on internet boards, but not on corporate boards.

 

Absolutely. They're dealing with an actual lawsuit here. Regardless of the intelligence behind it, they'd have to say something meaningful.


(I have no idea why your quote didn't show).

 

You just have nested quotes turned off. You can turn them on in your user page's preferences. I think it's actually a lot better this way, since after long conversations you don't wind up looking down ten formatting steps for the actual content.

 

And because I'm the only one that removes the extra space inside quotes (and the unnecessary "Quote:" line above), it saves all that formatting space, too.

Originally Posted by Marvin

The only thing more insecure than Android’s OS is its userbase.
Reply

Originally Posted by Marvin

The only thing more insecure than Android’s OS is its userbase.
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post #37 of 69
Good for Einhorn, at least he got their attention. Anyone saying they shouldn't raise the dividend is a moron. They cant possibly have any use for ALL the cash they have and if they ever do it will be a dark day indeed. Now factor in even a 25% increase raises the quarterly payout from 2.5 to 3.125 billion, ie they will still be piling up cash faster than they can count it, and it's even more obvious that is what they should do.

My guess is the increase will come in March, one year after they announced the original dividend. Hopefully it will be a 25% increase which should attract a whole new class of investors.
post #38 of 69
So how does this impact existing Apple stock holders?
post #39 of 69
Quote:
Originally Posted by KingChael View Post

Terrific news for AAPL longs.  About time a brilliant investor and hedge fund titan like Einhorn step in and open the eyes of the InCompetence in Cupertino.  Enough destruction of shareholder value, Apple's image and its public perception, and it only took several months late. 

 

The next step is to strike the Samdung dogs back, and start being the leader in innovating again.  David Einhorn for special advisor to Tim Cook!

phhhst - King Chael ?

Come off it Dave, we know that's you.

post #40 of 69
Quote:
Originally Posted by tkell31 View Post

Good for Einhorn, at least he got their attention. Anyone saying they shouldn't raise the dividend is a moron.

 

I don't consider myself a moron and I don't want them to raise the dividend. I think they actually do have plans for that cash and self-serving lawsuits by suspect investors to goad Apple into acting in a manner that is not beneficial to the company should be squashed.

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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