Apple asked to do more with their cash

Yesterday Apple was in the news again. Actually Apple is in the news most days but this was quite an interesting turn of events. David Einhorn, the famous hedge fund manager who started Greenlight Capital, publicly requested Apple shareholders to vote against a proposal which would eliminate the company's ability to issue a preferred stock that pays a dividend.


He has proposed a solution for shareholders to extract cash and value using pref shares. Basically Apple issue pref shares to existing share holders, say $50 billion worth with a 4% dividend yield. According to their calculations this would value the pref share at $32 per share. The Apple share price would drop less than $32 because Einhorn believes the cash portion of Apple is not valued correctly. This could create 7% more value for Apple shareholders which when you look at Apple's size and scale could create billions of dollars of value.


When asked why Apple doesn't just pay out a special dividend or buy back shares, Einhorn said his proposed structure would create immediate value without requiring Apple to pay out a big lump sum immediately. They can keep the cash for whatever they want, only have having to yield out 4% on the pref shares annually.


You must bear in mind that Einhorn is a hedge fund manager so he probably has a geared position in the stock. A 7% gain will be a lot more for his fund. He is definitely talking his own book and looking for instant gratification. But it is interesting to see how shareholders can rally up the troops and try and push a company for more value. The $137 billion is miles more than the company needs to run its business.

Apple do come back with a response. It is nicely summed up here by Business Insider Apple Issue Statement on its Massive Cash Pile. I know that Steve Jobs will be rolling in his grave as management ''waste their time'' caring about shareholders and not focusing on what is important, innovation. And as a shareholder myself I agree. Company's these days are way too pressured to keep investors happy on a quarterly basis. And this is one of the main reason's Dell are delisting. Businesses are successful because they focus on the long term picture. Somehow Jeff Bezos of Amazon has managed to convince investors to be patient.


I have a feeling we will look back at this era of instant gratification and realise that patience was your biggest asset. Ever since I entered this industry it is a lesson that is re-learnt every day.