Einhorn to Apple: Show Me the Money

Hedge fund manager David Einhorn believes he has found “the product Apple doesn’t know it needs.”

In a conference call Thursday afternoon, Einhorn unveiled what he believes will unlock value for Apple (NASDAQ:AAPL) shareholders. He called it iPrefs, a perpetual preferred stock that he is urging Apple to consider.

A perpetual preferred share is a share that pays dividends forever. Einhorn, the founder of Greenlight Capital, suggested Apple could begin by offering one iPref share with each share of common stock. Each iPref would trade at a face value of $50, with a quarterly dividend of 50 cents.

At the heart of the issue is Apple’s stockpile of cash, according to Einhorn. “War chest? More like a war vault,” he said.

Einhorn explained that one-third of Apple’s value is comprised of $137 billion in cash. He put forward the perpetual preferred stock, rather than what he referred to as “traditional methods,” to illustrate how Apple can return some of its cash to investors.

He spent some time during the call explaining why traditional methods, such as increasing Apple’s dividend or implementing a stock repurchase program, are not sufficient.

Einhorn is lobbying Apple to return some of that value to shareholders, stressing during his conference call that his iPrefs plan would allow the tech giant to “hold onto cash to pursue its existing business strategy.”

“While Apple wants to keep its cake, shareholders want to eat it, too,” he said.

He also said Apple would not have to repatriate its cash and pay U.S. taxes, adding that U.S. companies are sitting on overseas cash as they wait for a tax holiday on repatriation. Apple can delay repatriating cash until tax laws change, Einhorn added.

“I guess what’s earned in Ireland, stays in Ireland,” he joked.

Apple CEO Tim Cook has said the company will consider Einhorn’s request to issue preferred shares. Einhorn noted during the call that he has “no reason to doubt Tim Cook at his word.”

The tug-of-war over shareholders between Einhorn and Apple began when the hedge fund activist filed a lawsuit claiming that the company improperly bundled three issues together into one proxy matter, which will be up for a vote at Apple’s shareholder meeting. Such bundling is a violation of regulatory rules.

Einhorn, who supports two of the issues, is primarily concerned with the second proposal that would eliminate Apple’s ability to issue preferred stock without a shareholder vote.

Earlier this week, a federal court judge gave an indication that Einhorn has a compelling case.