Apple Inc. confronted its first major challenge from an activist shareholder in years as hedge fund manager David Einhorn’s Greenlight Capital filed suit against the company and demanded it dole out a bigger piece of its $137 billion (€102 billion) cash pile to investors.
The unusual move comes as the world’s largest technology company grapples with a tumbling share price, mounting competition in the smartphone and tablet markets and concerns about its ability to produce new breakthrough products.
Einhorn, a well-known short-seller and Apple gadget fan, said in an interview with CNBC that the company harboured a “Depression era” mentality that led it to hoard cash and invest only in the safest, lowest-yielding securities.
Apple nearly went broke in the 1990s before Steve Jobs returned and engineered a sensational turnaround, with products such as the iPhone and iPad that became must-haves for consumers around the world. The company’s near-death experience has led Apple to be exceptionally conservative with its cash.
Last March, just months after Jobs’ death, Apple responded to a barrage of investor criticism over its large cash hoard by initiating a quarterly cash dividend and a share buyback that would pay out $45 billion (€34 billion) over three years. At the time, Apple was sitting on $98 billion (€73 billion) in cash.
Einhorn’s lawsuit filed in US District Court in Manhattan targets a proposal by Apple to eliminate from its charter “blank cheque” preferred stock. The board now has discretion to issue preferred stock but is asking shareholders at its annual meeting on February 27 to vote on a proposal that would first require shareholder approval.
Einhorn urged Apple shareholders to vote against the plan, and put forward his own proposal for an issuance of preferred stock – which he deems superior to dividends or share buybacks – with a perpetual four per cent dividend.
Analysts have expected stockholder pressure to increase as Apple’s share price declines and its outlook grows murkier. Stock has fallen 35 per cent since its September record high.
Einhorn, often cited as one of the most committed Apple bulls, remains long on its shares. But the fund manager, whose Greenlight had a sub-par year in large part because of Apple’s late-2012 stock swoon, said the company needs to fix its “cash problem”.
“It has sort of a mentality of a depression. In other words, people who have gone through traumas... and Apple has gone through a couple of traumas in its history, they sometimes feel like they can never have enough cash,” Einhorn said on CNBC.
Some investors, who have long railed against what they saw as Apple’s ultra-conservative attitude towards its cash, rallied around the principle of returning cash to shareholders.
In an interview with Reuters, Einhorn said he had gone to Apple CEO Tim Cook in recent weeks after the company’s chief financial officer, Peter Oppenheimer, brushed off his entreaties in September. Cook, who is rarely known to engage investors in exclusive conversations, was unaware of the earlier conversations with Oppenheimer, according to Einhorn. (Reuters)