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Greenlight Capital’s David Einhorn Sues Apple Over $137B Cash Hoard

Apple Headquarters at Infinite Loop, Cupertino, California | Wikipedia

Apple Headquarters at Infinite Loop, Cupertino, California | Wikipedia

Greenlight Capital issued a press release last Thursday, encouraging investors to vote against the “Proposal 2” in Apple’s proxy. In relation to this, a shareholder meeting is set to take place on February 27.

When the proposal passes, it would eliminate the preferred stock from Apple’s charter. However, Greenlight Capital’s hedge fund manager David Einhorn believes that the company could better allocate its capital by distributing preferred stock. Plus, the iPhone maker could also tap 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. 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.

Larger Apple Share for Shareholders

In addition to Einhorn’s push, Greenlight Capital sued Apple, arguing that shareholders deserve a larger share from its $137 billion and increasing cash hoard. He also pointed out that the Cupertino-based company is having a “cash problem,” which he believes could be addressed by providing perpetual preferred stock with a 4-percent yield.

Since the launch of iPhone 5 last year, the company’s stock has seen a steady decline. Due to this, investors have raised concern over Apple’s slowing growth and the increasing competition from rivals like Samsung.

Last March 2012, though, the iPhone maker announced that they would spend $45 billion over three years in a dividend payout and share repurchase program. When asked why the company doesn’t step up and buy back more stock than it originally planned, Apple’s Chief Financial Officer Peter Oppenheimer replied:

Combined with out 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. We do consider increasing these programs and we’ll do what we think is in the best interest of our shareholders.

However, Einhorn and Greenlight Capital believe that the company is not acting fast enough. In a filing with the US Securities and Exchange Commission, they pointed out that they are “dissatisfied with Apple’s capital allocation strategy.” Einhorn also spoke with CNBC, saying that Apple shares are “utterly misvalued” at current levels.

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