David Einhorn, founder of the hedge fund Greenlight Capital, filed a suit against Apple (AAPL) for not doing enough to unlock shareholder value. In the complaint, Greenlight objects specifically to a proposal that would prevent Apple from issuing preferred shares, arguing that the company "must examine all of it's options to unlock the growing value of its balance sheet for all shareholders."
In a prepared statement Greenlight noted Apple's "low and shrinking" price to earnings multiple and $137 billion cash hoard as ammunition in this fight to force Apple to keep all its options open. Immediately following the release, Einhorn made the rounds on financial television, telling CNBC that Apple has a "cash problem."
Michael Santoli, Yahoo! Finance's senior columnist, agrees that too much cash is a problem (albeit a high class one), but questions whether this suit does much to address it. Einhorn is trying to push Apple into distributing $50 billion of perpetual preferred stock with a 4% annual dividend. Santoli says this is "very contrived, very convoluted but does get at that root problem, 'what should Apple be doing with the cash?'"
From the outside, Einhorn's financial engineering strategy is an odd way to push shares sustainably higher. While the company may be loathe to be perceived as anything other than a growth stock by increasing dividends, having one class of common stock puts all shareholders on the same footing --a stance generally favored in these days of transparency.
It's unlikely Apple would perform some financial alchemy by slicing its shares into different pieces. Santoli suggests the Street has been discounting Apple shares by "hypothetically running Apple's business though Samsung's margins."
Commodity products have thin margins, making Apple's low P/E misleading. Like it or not, iPhones have lost their tech lead and at least half a dozen companies are closing the gap on tablets. Unless Apple can start delivering something fresh to the market, all the financial re-jiggering in the world won't restore the stock to its former glory.
- Investment & Company Information
- David Einhorn
- Greenlight Capital