Activist shareholder David Einhorn thinks that Apple should offer a new product – iPrefs.
He wants Apple to offer Apple investors preferred shares, or iPrefs as he has decided to call them.
He thinks that they are a better way to reward shareholders than stock buybacks or dividend hikes.
Einhorn made a presentation to shareholders yesterday in which he explained his proposals using 50 pages of graphs and spreadsheets,
according to Fortune. He suggested that while many technology companies hoard cash so that they can make acquisitions, some “view their self-importance by the size of bank accounts.” It would appear that he is suggesting that this is the case with Apple who has $137 billion in the bank, or “war vault,” as Einhorn described it.
He said that “Apple’s attitude toward managing its cash has been the one element that has been non-innovative,”
“While Apple wants to keep its cake, shareholders want to eat it, too,” he said.
“When it’s their money, they don’t need so much rainy day cash,” he said.
He pointed to “shareholder friendly” companies including IBM and Texas Instruments who offer large dividends and stock buybacks.
Einhorn thinks his iPrefs (preferred shares) solution is a good idea because it wouldn’t hurt Apple’s operations.
What are preferred shares?
Einhorn then spent an hour explaining preferred shares to those on the conference call – undercutting his argument that iPrefs are simpler than they seem,
“It was clear in the Q&A with shareholders that some of his listeners still didn’t get it,” writes that site.
Preferred shares typically lack voting rights but place preferred shareholders ahead of common shareholders. Forbes explains that Einhorn is suggesting a $50 preferred stock that would yield 4%. He says Apple could afford the payouts as it has the cash in the bank to fund this. However, this pile of cash would remain untouched, according to Einhorn so it would still be available for acquisitions.
“If it wanted to do acquisitions it could do acquisitions. If it wanted to leave it overseas it can do that,” he said.
He thinks that the iPrefs would make Apple stock attractive to yield-hungry investors because it would provide a consistent income.
However, according to Fortune, Einhorn acknowledged that Apple’s common stock would go down when the iPrefs are issued and that the $50 iPrefs would probably lose value as soon as it hit the market.
It’s win-win for Apple
Einhorn told All Thing’s D that it’s a “win-win” situation for Apple, if the company heeds his advice.
Einhorn told Kara Swisher: “What we are offering is a win-win for everyone. We have a solution that allows shareholders to see that value and Apple to keep that cash.”
It should be noted that the money Apple has in the bank as a percentage of its market cap isn’t as good as it has been over the years. In an article entitled ‘Apple’s cash isn’t as big a deal as you think’, The Wall Street Journal
notes that Bespoke Investment Group has suggested that maybe Apple doesn’t have as much money to spare as thought.
“Investors should really be looking at Apple’s cash as a percentage of its overall market cap…With Apple’s stock declining from $700 down to the mid-$400s over the last few months, its market cap has fallen by nearly $250 billion. This has pushed Apple’s cash as a percentage of market cap up to 33%.”
“Back in the early 2000s, Apple’s cash as a percentage of market cap was above 50% for years,” it continues.
“During the financial crisis, Apple’s cash got as high as 37%,” notes Bespoke Investment Group.
Fortune notes that the investors they heard from after the call seem to like the fact that someone with clout and the ear of Apple management was putting pressure on the company to spread some of Apple’s enormous wealth.
Apple closed at $446.06 yesterday, slightly down from $448.85 the day before.
Greenlight Capital’s Einhorn is a
fund manager who has taken Apple through the courts to stop it from allowing shareholders to vote on a measure that he believes could see Apple eliminate preferred stock from its charter. He controls more than a million AAPL shares. He has been urging Apple shareholders to oppose the Apple proposal as he believes it could impede Apple’s ability to unlock shareholder value
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