Greenlight Sues Apple Over Hoarding Cash
It’s well known that Apple has a lot of cash on its books…a lot. So much, in fact, that David Einhorn’s Greenlight Capital is suing Apple over its stockpile of cash.
Greenlight, an Apple investor, said in a television interview on CNBC that while he admires the company, it has a “cash problem” that it needs to fix.
Apple has so much cash on its books ($137 billion to be exact) that it could buy any one of the top five largest companies in the S&P 500 including Visa, Cisco, Qualcomm, Intel and eBay. Einhorn isn’t the first investor to take issue with Apple’s billions in cash. Many investors have persistently called on the company to be more proactive in using its massive cash and capital hoard
Greenlight filed suit in federal court in New York to force Apple to modify a proposal in its proxy, which Greenlight believes does not conform to regulatory rules. Specifically, Greenlight asked fellow holders to vote against a proposal that would allow Apple to eliminate preferred stock.
Einhorn said in an interview on CNBC that Apple should “reward shareholders without dipping into its current massive cash hoard” by distributing high-yielding preferred stock to its shareholders.” He suggested that the move would be better for Apple than increasing its dividend or buyback because it wouldn’t have to touch its cash hoard immediately.
Einhorn said that shareholders should, or at least would be satisfied to, receive preferred stock with a 4-percent yield.
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 started paying a quarterly dividend last year of $2.65 per share. However, many investors feel the dividend is paltry considering the amount of cash Apple has on hand.
Update: Apple has responded to the lawsuit and the markets like what Apple has to say as the stock ended up almost 3% on the day. You can read an excerpt from Apple’s response below.
Apple’s management team and Board of Directors have been in active discussions about returning additional cash to shareholders. As part of our review, we will thoroughly evaluate Greenlight Capital’s current proposal to issue some form of preferred stock. We welcome Greenlight’s views and the views of all of our shareholders.
As a part of our efforts to further enhance corporate governance and serve our shareholders’ best interests, Proposal #2 in our proxy includes some recommended changes to our articles of incorporation. These changes were recommended independently of Greenlight’s proposal and would not preclude Apple from adopting their concept. Contrary to Greenlight’s statements, adoption of Proposal #2 would not prevent the issuance of preferred stock. Currently, Apple’s articles of incorporation provide for the issuance of “blank check” preferred stock by the Board of Directors without shareholder approval. If Proposal #2 is adopted, our shareholders would have the right to approve the issuance of preferred stock. As such, Proposal #2 has the support of many of our shareholders.