Apple Inc. (AAPL:US), the world’s most valuable technology company, was urged by David Einhorn’s Greenlight Capital Inc. to return more of its $137.1 billion in cash to shareholders.
Greenlight, an Apple investor, asked fellow holders to vote against a proposal -- outlined in the company’s annual proxy (AAPL:US) statement -- that would eliminate preferred stock. Greenlight sued to block the measure, asking a federal court in Manhattan to bar Apple from certifying votes cast in its favor.
Einhorn said that Apple’s cash hoard equates to about $145 per share, and he joins other investors in saying that the company is hanging on to too much of it. Apple said last month that it’s considering an increase in share buybacks and the quarterly dividend. The company reinstated dividends last year and announced a $10 billion repurchase program.
“Apple must examine all of its options to unlock the growing value of its balance sheet for all shareholders,” Greenlight President Einhorn said in a statement. He said his firm holds more than 1.3 million Apple shares.
Apple rose less than 1 percent to $457.55 at 11:22 a.m. in New York. Through yesterday, the stock had declined (AAPL:US) 35 percent since reaching a record on Sept. 19.
Einhorn said he’s been in discussions with Apple’s management, encouraging the company to distribute a high- yielding preferred stock that wouldn’t cost shareholders.
He said that preferred shares would be a way to reward investors without putting the company at risk or forcing it to incur taxes on cash brought to the U.S. from overseas.
“Several hundred dollars per share would be unlocked if Apple were to follow through on this suggestion,” Einhorn said in an interview on Bloomberg Television. “It doesn’t put the company at risk. It’s not financial leverage in the sense that debt’s considered to be.”
A company bears more responsibility to pay dividends on preferred stock, potentially benefiting shareholders, said Michael Scanlon, a senior equity analyst at Boston-based John Hancock Asset Management, who said he’s confident that Apple will boost its dividend and increase buybacks.
“I would like more of the cash returned to me,” said Scanlon, whose team oversees $3.5 billion. “If there is something that would expedite it, that would be great.”
Preferred shares could benefit Apple because they don’t dilute management’s ownership of the company.
In its discussions, Greenlight suggested a preferred share distribution, with dividends funded by a small percentage of cash flow, Einhorn said in the statement. He said Apple rejected the idea in September 2012.
Steve Dowling, a spokesman for Cupertino, California-based Apple, didn’t immediately return a call seeking comment.
Greenlight, in its lawsuit, said Apple improperly combined the measure on preferred shares with two other proposals, forcing shareholders to vote to accept or reject all three at once. Greenlight claims the action violates “unbundling rules” issued by the U.S. Securities and Exchange Commission.
Keith Goddard, president of Tulsa, Oklahoma-based Capital Advisors Inc., said he plans to vote against the proposal and that he too would like Apple to return more cash to shareholders.
“I’m in agreement with the concept that Apple has way too much cash,” said Goddard, whose firm holds 22,925 Apple shares. “As shareholders, our interests are not being served by having 25 percent of the company’s value sitting on the sidelines.”
Lawrence Haverty, a portfolio manager at Gamco Investors Inc., said last month that Apple had left itself vulnerable to lawsuits.
“Someone is going to sue them for excessive accumulation of cash,” Haverty said in a late January interview on Bloomberg Radio’s “Surveillance” with Tom Keene.
Gamco holds Apple stock, according to data (AAPL:US) compiled by Bloomberg.
The case is Greenlight Capital LP v. Apple Inc., 13-cv-900, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Peter Burrows in San Francisco at email@example.com; Bob Van Voris in New York at firstname.lastname@example.org; Leslie Picker in New York at email@example.com
To contact the editor responsible for this story: Tom Giles at firstname.lastname@example.org