On Thursday, February 7, the Wall Street Journal reported that hedge fund manager David Einhorn has filed suit against Apple Inc. over a plan by the company to make it more difficult to issue preferred shares that pay a dividend. This is something that Einhorn has urged the company to do to return more of its cash resources to investors.
Einhorn, who operates Greenlight Capital Inc., has been urging the board of Apple to exercise its authority to issue such shares. Thus far, they have not done so.
Next month, Apple will ask its shareholders to vote on a proposal that would require approval of shareholders in order to issue the stock, according to the WSJ. It has been noted that Apple’s board does possess the right to issue preferred stock.
Having filed the lawsuit in federal court in Manhattan, Einhorn argues that the very formulation of Apple’s proxy statement violates Securities and Exchange Commission rules that allow shareholders to vote on “each matter” in the proposals, according to the report in the WSJ. The suit seeks an injunction from the court against Apple’s proxy vote and Einhorn says he made two requests last week for the company to halt the vote or to “unbundle” the proposal at issue. His requests were rejected by the company.
On Thursday, Apple said in a statement that its management team “has been in active discussions about returning additional cash to shareholders.” Saying it will evaluate Greenlight’s proposal to issue preferred stock, Apple emphasized that by adopting its own proposal, it would not thereby prevent the issuance of the security.
According to the WSJ report, Einhorn is asking Apple to create a “perpetual preferred stock” using operating cash flow. Often viewed as preferred shares, high-yielding securities are considered less volatile than common shares and typically pay generous income similar to high-yield bonds. Einhorn has suggested that the preferred stock could yield a 4% dividend rate.
Apple has been attracting scrutiny from its investors regarding its fast-growing cash reserves as the company generates formidable profits from its computers and mobile devices. The company’s recent creation is a dividend and stock buyback program, although some investors believe Apple should be more forthcoming with its cash to its shareholders —which was approximated at $137.1 billion, including short and long-term securities.
“Greenlight is hopeful that when Apple and its advisers review the idea afresh, it will see the merits and act to unlock value for all shareholders,” the hedge fund said Thursday.
Einhorn’s firm has been an investor since 2010 and owns 1.3 million Apple shares. On Thursday, he said on CNBC that Apple has a problem with hoarding and acts like a person with a depression-era mentality that “can never have enough cash” according to the Wall Street Journal.
When asked about Greenlight’s position on Apple, Mr. Einhorn said they were “long,” adding “we own more Apple stock now than we ever have before.”