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

Posted:
in AAPL Investors edited January 2014
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."

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Comments

  • Reply 1 of 169
    jkichlinejkichline Posts: 1,348member
    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.
  • Reply 2 of 169
    cnocbuicnocbui Posts: 3,613member
    Greed is good.
  • Reply 3 of 169


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

  • Reply 4 of 169


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

  • Reply 5 of 169


    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?

  • Reply 6 of 169
    rs9rs9 Posts: 68member
    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?
  • Reply 7 of 169

    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.

  • Reply 8 of 169
    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.
  • Reply 9 of 169

    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.

  • Reply 10 of 169


    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.

  • Reply 11 of 169
    In the words of Jeff Jarvis, "How dare they make money, HOW DARE THEY!"
  • Reply 12 of 169


    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.

  • Reply 13 of 169

    Quote:

    Originally Posted by stelligent View Post


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



     


    Ya think?

  • Reply 14 of 169

    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. 

  • Reply 15 of 169


    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. 

  • Reply 16 of 169


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

     

  • Reply 17 of 169


    Originally Posted by island hermit View Post

    …a man with a plan…


     


    …destroy… Panama Apple… 

  • Reply 18 of 169
    rogifanrogifan Posts: 10,669member

    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.

  • Reply 19 of 169


    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.

  • Reply 20 of 169


    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.

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