Apple 'Einhorned' As Greenlight Sues

Feb 7 2013 | 12:58pm ET

David Einhorn isn't shy about calling a company out—even, apparently, when that company is one of his favorites and a major part of his portfolio.

Greenlight today sued Apple Inc. in an attempt to block the company's plan to do away with preferred shares. The proposal, one of three on Apple's proxy this year—Einhorn backs the other two—would render null Einhorn's bid to get it to issue such shares to investors.

"This is an unprecedented action to curtail the company's options," Einhorn wrote. "We are not aware of any other company that has ever voluntarily taken this step."

Greenlight's now $590 million stake in Apple has both buoyed its returns in recent years, as Apple's shares climbed to dizzying heights, and blunted them in recent months, which have seen the company's stock price drop by 35%. Einhorn still thinks Apple is "a phenomenal company filled with talented people creating iconic products that consumers around the world love," but he wants the company to deploy some of its huge $137 billion cash reserve to boost its stock price.

In particular, Einhorn has called upon Apple to issue a perpetual preferred stock to shareholders that would pay a 4% annual dividend. The company has rejected that demand.

Einhorn wrote in a letter to investors that the company was scarred by its near-collapse in 1997 like his grandmother was scarred by the Great Depression. The experience left Apple with the conviction that it can never have enough cash, Einhorn said.

But, he added, "the recent, severe underperformance of Apple's shares, which are down approximately 35% from their peak valuation, underscores the need for the company to apply the same level of creativity used to develop revolutionary technology for its consumers to unlock the value of its strong balance sheet for shareholders."

"We understand that many of our fellow shareholders share our frustration with Apple's capital allocation policies," he continued. "Apple has $145 million per share of cash on its balance sheet. As a shareholder, this is your money."

Einhorn's lawsuit doesn't challenge Apple's right to bar preferred shares; instead, the complaint targets the company's decision to bundle that proposal with two others—simple-majority voting for directors and setting a par value for common stock—that are more widely-supported, including by Einhorn.


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