By Scott Martin and Matt Krantz, USA TODAY
SAN FRANCISCO -- Apple came under siege today by an influential
institutional investor seeking to unlock its massive $137 billion cash
war chest's dividend potential, in growing signs of such unrest and
shareholder angst with the company's poor stock market performance of
late.
Billionaire hedge fund manager David Einhorn of Greenlight
Capital is agitating for investor action and has filed a lawsuit in
plans to oppose a proposal concerning its cash pile, scheduled to come
up for a shareholder vote on Feb. 27.
In a sternly worded
letter, well-known short-seller Einhorn is calling on shareholders to
vote down the proposal on Apple's proxy that would make it more
difficult for the company to issue preferred stock. Issuing preferred
stock (shares of stock that often carry a large dividend yield) is a
popular way for many cash-rich companies to return money to
shareholders.
"Apple should unlock shareholder value through the
distribution of perpetual preferred stock," Einhorn said in a Securities
and Exchange Commission filing.
Activist shareholder action and
growing scrutiny of its business underline an increasing status change
of Apple as a value stock, vs. a growth one in the eyes of investors.
"It's
very odd that Apple is just sitting on all this cash when it's clear
that its growth has slowed down," says Richard Sloan, an accounting
professor at the University of California, Berkeley. "Value investors
are thinking more about distributing free cash flow."
Shares of
Apple, once the momentum stock darling of Wall Street, as investors
thought it could do no wrong, have been crashing amid questions about
the company's stalling innovation and growth. Apple stock has shaved off
more than a third of its value from its more than $700-a-share high in a
few months.
"Part of the reason the stock has performed so poorly
is growth has slowed and investors have hit the eject button," says
Bernstein Research analyst Toni Sacconaghi.
Dividend activism is
likely to stick Apple CEO Tim Cook in the hot seat next week at an
expected appearance at a Morgan Stanley investor conference.
Apple
issued a statement saying management and the board "have been in active
discussions about returning additional cash to shareholders," and it
will "thoroughly evaluate Greenlight Capital's current proposal to
issue some form of preferred stock."
Shares of Apple closed up 3%, at $468.22, following the statement.
"I
think the stock moved in optimism that Apple is examining this issue --
they are clearly serious about examining the return of cash, and
that's good," says Sacconaghi.
Greenlight has also filed a lawsuit
in the U.S. Federal District Court for the Southern District of New
York, seeking to have Apple unbundle the various components of the
proposal so that shareholders can vote on each individual provision "as
mandated by SEC rules," according to the hedge fund's SEC statement.
Einhorn's Greenlight holds 1.3 million shares of Apple.
On Apple's
side, CalPERS, or the California Public Employees' Retirement System,
issued a statement saying Apple's proposal deserves full support.
Einhorn
is best-known for publicly criticizing the business practices at Lehman
Bros. in 2007 before the stock collapsed. Einhorn bet against the
stock, and the company filed for bankruptcy protection in 2008.
At
an investment conference in May 2012, Einhorn described a plan in
which preferred stock could be used to return hundreds of millions of
dollars of cash to shareholders.
Einhorn suggests Apple could
issue preferred stock paying a 4% dividend and allow the company to
unlock $30 billion in value to shareholders. He also suggests that
investors might be willing to pay a higher premium for the shares if the
company were to issue preferred stock.
Investors have been
increasingly impatient for Apple to stop hoarding its massive cash pile.
A vast majority of it is invested in low-yielding investments,
including Treasuries. Investors are eager to get that cash back so they
can invest it and get a better return. Apple announced its first
dividend and buybacks last year after increased investor pressures.