It’s not often that a company’s biggest problem is having too much cash. Yet that’s the position Apple finds itself in today, as hedge-fund manager David Einhorn files a lawsuit against the Cupertino colossus to keep it from implementing a provision that would amend its charter to disallow it from distributing money to shareholders in the form of dividend-paying preferred stock.
Got all that?
Here’s the short version: Basically, because of the insane number of iPhones and iPads it has sold, Apple has spent the last few years building up the world’s largest corporate cash pile. It’s effing huge. $137 billion, to be specific. That’s a good thing, except that shareholders generally want to get some of that cash back, in the form of a stock dividend. Or they want the company to use it to develop crazy new products. Or do something.
Apple, though, has resisted spending its cash for a long time, and recently it proposed amending its charter to prohibit one method of breaking its piggy bank: introducing a special kind of preferred stock that would pay a steady dividend. One shareholder, David Einhorn of Greenlight Capital, who famously shorted Lehman Brothers during the financial crisis, doesn’t like that plan. He is suing Apple to stop it from changing its charter (well, actually, he’s suing to prevent a vote that combines several shareholder proposals and could, if passed, stop it from changing its charter, but who’s counting?) and wants it to introduce preferred stock immediately. He thinks that Apple has “more cash than it needs,” that it’s being overly cautious in spending it, and that Apple will ultimately fare better if it starts giving out preferred stock.
He explained his plan on Bloomberg TV this afternoon:
“It is kind of like my grandma Roz. She wanted to hoard money. She would not leave me a message on my answering machine because she did not want to be charged for a phone call. It is really hard to convince somebody with that mindset to change what they’re doing. We have come up with what we think is a win-win situation for Apple where Apple gets to keep its war chest, they get to keep the money, they get to have it for bad times, for growth, for acquisitions.”
There’s a kind-of-interesting back-and-forth between Einhorn and Business Insider editor Henry Blodget about the details of Einhorn’s plan, and basically, it amounts to a theory that Apple can give money back to shareholders through some basic capital reorganization without affecting its price-earnings multiple or ruining its growth.
And while normally, a company with a $440 billion market value might be tempted to ignore one hedge-fund manager making loud noises, Einhorn isn’t just any investor. This afternoon, Apple responded with a diplomatic statement, saying it would “thoroughly evaluate Greenlight Capital’s current proposal to issue some form of preferred stock” and was in “active discussions about returning additional cash to shareholders.”
