Apple Inc said on Thursday it is weighing ways to give shareholders more of its huge cash stockpile, after hedge fund Greenlight Capital Inc filed a suit in an effort to press it in that direction.
Greenlight sued the maker of the iPhone and the iPad to block a shareholder vote that includes a management-backed proposal to make it impossible for the Apple board to issue preferred stock without shareholder approval.
Greenlight said in a letter to shareholders that it wants Apple to issue “perpetual preferred stock” to distribute a bounty from the US$137 billion in cash it is holding.
Apple responded by saying it has been “in active discussions about returning additional cash to shareholders,” a statement that helped drive up its stock late in trade for a 3 percent gain.
“As part of our review, we will thoroughly evaluate Greenlight Capital’s current proposal to issue some form of preferred stock,” Apple said. “We welcome Greenlight’s views and the views of all our shareholders.”
Greenlight’s suit alleged that Apple violated US securities policies by “bundling” the proposal on preferred stock with two other shareholder-friendly measures.
Doing so forces shareholders to accept or reject all three measures together, rather than separately, which Greenlight says violates a US Securities and Exchange Commission rule.
Greenlight founder David Einhorn wrote in a letter to Apple shareholders that his company “is dissatisfied with Apple’s capital allocation strategy.”
“The combination of Apple’s low (and shrinking) price-to-earnings multiple and US$137 billion (and growing) hoard of cash on the balance sheet supports Greenlight’s contention that Apple has an obligation to examine all options to create and unlock additional value,” Einhorn said.
Greenlight is seeking to build support for his proposal that Apple issue a “perpetual preferred stock” that could carry, in Einhorn’s suggestion, a 4 percent dividend, allowing shareholders to better share in its idle cash pile.
Such a “more shareholder-friendly capital allocation policy,” Einhorn said in the letter, “would unlock hundreds of dollars of value per share.”
Einhorn told Bloomberg television that he went public with his campaign after a “nice conversation” with Apple chief executive officer Tim Cook on Wednesday.
“It’ll be very interesting to see if the shareholders can unite on a message to see how the board reacts to that,” Einhorn said.
Apple’s statement characterizes its proposal on preferred stock as a shareholder-friendly measure. Current policy allows Apple’s board of directors to issue preferred stock without shareholder approval.
Greenlight says that Apple’s stance exemplifies the company’s resistance to returning value to shareholders.