The first major challenge to Apple post Steve Jobs era was fired off by David Einhorn of Greenlight Capital when the hedge fund manager filed suit against the tech firm for a bigger slice of its US$137 billion retained cash earnings to its investors.
This is a surprising move amidst the current issues the world’s most valuable company is facing, such as falling share prices, increased competition in its niche smartphone and tablet markets and doubt as to the company’s ability to create new innovations on its product line.
For his part, Einhorn, who is a well-known industry short seller of interests and shares, intimated in an interview with CNBC that Apple’s current management has a “Depression-era mentality”, leading it to hoard cash and invest in safe securities with low yields.
This is but a response to Apple’s history, as it went broke back in the 1990s before the return of Steve Jobs. With Jobs at the helm again, the company went into its now historical run with the launch of market standard products such as the iPhone and the iPad. This meteoric rise from ruin is what has guided the company in its very conservative activities with its earnings.
Now after the demise of Jobs, Apple has come under fire from its investors because of this large cash hoarding with a quarterly cash dividend and a share buy back option that would cost US$45 billion in the next three years while having US$98 billion in money available.
The lawsuit is targeting Apple’s moves to eliminate the preferred stock shares from its coffers. Einhorn urged fellow shareholders to vote against this proposal from the Apple board on its annual meeting to be held on February 27. In its stead, Einhorn proposed that the company issue preferred stock that has a perpetual four percent dividend return. Many investors have supported this move, though just in principle.
The share stock prices of Apple in the market has tumbling as of late, with a fall of 35% to US$468.22. Einhorn continued to criticize the company’s ‘cash problem’ and adding, “It has the sort of a mentality of a depression. In other words, people who have gone through traumas and Apple has gone through a couple of traumas in its history, they sometimes feel they can never have enough cash.”
In another interview, this time with Reuters, Einhorn said, “When I discussed this with Tim Cook and actually, the conversation has been going on for the last couple of weeks, he said that he wasn’t familiar with my previous conversations with Peter Oppenheimer and whoever Peter Oppenheimer’s advisers were. I was surprised by that.”
For its part, Apple has called Einhorn’s lawsuit over its shareholder proposal was ‘misguided’. In an official communiqué, Apple said, “Contrary to Greenlight’s statements, adoption of Proposal #2 would not prevent the issuance of preferred stock. Currently, Apple’s Article of Incorporation provide for the issuance of a ‘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.”