http://www.businessweek.com/news/2013-02-27/apple-shareholders-approve-board-amid-calls-to-pay-cash

Bloomberg News

Apple’s ‘Very Active’ Cash Talks Won’t Assuage Investors

February 27, 2013

Apple Inc. CEO Tim Cook

Apple Inc. Chief Executive Officer Tim Cook is being urged to return some of the $137.1 billion on Apple’s balance sheet to investors in the form of increased dividends, stock buybacks or new class of preferred shares. Photographer: David Paul Morris/Bloomberg

Apple Inc. (AAPL:US) Chief Executive Officer Tim Cook, saying he’s in “very, very active” talks about what to do with the company’s growing cash pile, did little to assuage investors seeking more clarity on his plans.

Apple shares slipped after Cook ended the company’s annual shareholder meeting without giving any additional insight on what he’ll do with $137.1 billion in cash and investments. Shareholders re-elected the board, approved Ernst & Young LLP as accountant and passed a non-binding measure on executive pay.

Cook is under growing pressure to use higher dividends, stock buybacks or a new class of preferred shares to compensate investors after Apple’s stock tumbled by more than a third from a September peak. The calls grew louder amid signs of slowing sales and profit growth and increasingly acute competition from Samsung Electronics Co. (005930) and Google Inc. (GOOG:US)

“The stock isn’t going to do much until the investment community gets more granularity or clarity about how they are thinking about returning capital to shareholders,” Ted Bridges, a shareholder and president of Omaha, Nebraska-based Bridges Investment Management Inc., said in an interview at the meeting.

Cook, dressed in dark button-up shirt and seated on a stool in the company’s auditorium, said he and other executives are “focused on the long term” and aren’t happy with the falling stock price.

Apple fell 1 percent to $444.57 at the close in New York, leaving the shares down 37 percent from a record in September.

Proxy Proposal

After taking over as CEO in 2011 from co-founder Steve Jobs, Cook has proved more sensitive to shareholders’ concerns than his predecessor. While Jobs long dismissed investors’ cash demands, Cook reinstated the company’s quarterly dividend and unveiled a $10 billion stock buyback program last year.

Investors defeated another measure, offered by a shareholder, that would have required executives to hold more company stock, to ensure that their interests are better aligned with those of investors. Apple had said its existing structure, which includes salary, bonus and shares that vest over time, is enough to keep management focused over the long haul.

Asked by one shareholder about the growth of smartphones running Google’s Android operating system, Cook said that while Apple pays close attention to rivals, it’s focused on long-term growth. The company is exploring new product categories to enter, he said, without providing details.

“We have some great stuff coming,” Cook said.

Cash Position

A proposal that would have required Apple to get shareholder approval before issuing preferred shares was scrapped before the meeting. Greenlight Capital Inc. founder David Einhorn, who advocates a bigger payout, sued Apple as part of a push to get the company to create a new class of dividend- paying preferred stock. A judge sided with Einhorn in a ruling last week.

The proposal had received 98 percent approval before it was shelved, said Anne Simpson, director of good governance at the California Public Employees’ Retirement System, which backed the measure. Apple said it would consider the proposal again at a later date.

“A message was sent and it’s one of emphatic support for shareholder rights,” Simpson said in a statement.

Cook, who at the meeting repeated his description of Greenlight’s lawsuit as “silly,” has defended Apple’s policies, saying that it’s handling cash responsibly to invest in operations, while acknowledging the company has money to spare. The board is exploring different options, including boosting dividends and buybacks and issuing preferred shares.

Value Stock

“We were disappointed that Apple did not offer a proposal to return to shareholders some of the $137 billion in cash reserves it is holding,” Thomas DiNapoli, the New York state comptroller, said in a statement. He’s the trustee for the $152.9 billion New York State Common Retirement Fund, which owns about 3 million Apple shares.

Apple should follow the example of International Business Machines Corp., which has consistently returned more than 100 percent of its free cash flow to investors each year, primarily through stock buybacks, said Toni Sacconaghi, an analyst with Sanford Bernstein & Co.

Sacconaghi said Apple can return 50 percent to 70 percent of its free cash flow to shareholders each year, to attract “value investors” who are concerned about the company’s slowing growth.

New Headquarters

Cook updated shareholders on the progress of Apple’s future headquarters, a project that Jobs worked on before his death in 2011. The spaceship-like headquarters with a circular design, set on 176 acres in Cupertino, is taking longer to build than expected, with plans to move in by 2016, Cook said.

Jobs “put a lot of love and attention” into designing the building, Cook said.

At the meeting, investors voted to re-elect the company’s slate of directors. It includes Cook; Chairman Art Levinson; former Avon Products Inc. (AVP:US) CEO Andrea Jung; former U.S. Vice President Al Gore; J. Crew Group Inc. CEO Mickey Drexler; former Intuit Inc. (INTU:US) CEO Bill Campbell; former Northrop Grumman Corp. (NOC:US) CEO Ron Sugar; and Walt Disney Co. (DIS:US) CEO Bob Iger.

Some investors joined the meeting with ideas other than Apple’s stock price or use of cash. One woman asked that Apple put more bathrooms in its retail stores, while another suggested the company create an “iBike computer.” Another investor said Gore shouldn’t be on the board because he sold his Current TV network to Al Jazeera, the cable channel funded in part by oil- rich Qatar.

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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