Published February 07, 2013
Relenting to pressure from investor David Einhorn, Apple (AAPL) said late Thursday it will thoroughly evaluate a proposal from the hedge fund titan to unlock shareholder value by issuing preferred stock.
The announcement, which came after Einhorn's Greenlight Capital sued the iPhone maker and urged shareholders to vote down an upcoming amendment, sent Apple's shares jumping to close up nearly 3%.
In a statement, Apple said it is actively exploring ways to return additional cash to shareholders and it will "thoroughly evaluate" Greenlight's proposals. Apple said its execs "welcome" the hedge fund's "views and the views of all of our shareholders."
Disappointed with the $137 billion stockpile of cash stuck on Apple’s balance sheet, Einhorn, whose Greenlight Capital owns more than 1.3 million Apple shares, has been pushing since May 2012 for the company to “unlock several hundred billion dollars of shareholder value” by distributing to shareholders a perpetual, high-yielding preferred stock.
In a letter released Thursday morning, Einhorn urged investors to vote down Proposal #2 at the February 27 annual shareholder meeting, saying the amendment would eliminate preferred stock.
However, Apple said adoption of this proposal would not preclude the company from adopting the Greenlight concept of issuing preferred stock.
The Einhorn push underscores disappointment with Apple's recent tumble, which has sent its stock down 35% since topping out at all-time highs of $705 in September.
“The recent, severe under-performance of Apple’s shares,” Einhorn wrote in a letter to shareholders, “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 its shareholders.”
Einhorn said he has had talks with Apple about distributing preferred stock, which would initially be funded by a “relatively small percentage” of operating cash flow, but the company rejected the idea in September.
Greenlight said after the hedge fund informed Apple of its intention to vote against the proxy proposal on Wednesday, Apple said it would reconsider the idea. However, Apple has not withdrawn the proxy provision.
Greenlight estimated Apple is holding about $145 per share of cash on its balance sheet. “As a shareholder, this is your money,” said Einhorn.
Apple noted that it recently decided to return $45 billion to shareholders over three years and has already executed $10 billion of that plan.
"Apple’s management team and Board of Directors have been in active discussions about returning additional cash to shareholders," Apple said.
Meanwhile, Greenlight said it believes Apple’s proposal violates the Securities and Exchange Commission’s “unbundling” rule because it ties together votes on three separate matters into one proposal.
Greenlight said it has initiated legal action in the U.S. Federal District Court for the Southern District of New York to force Apple to unbundle the components.
Shares of Cupertino, Calif.-based Apple jumped 2.97% to close at $468.22 on Thursday.