“Star hedge fund manager David Einhorn has a new product that he wants Apple Inc. to offer: the iPref,” Jennifer Ablan and Poornima Gupta report for Reuters.
“In an unusual hour-long public conference call on Thursday, Einhorn, who has filed a lawsuit against Apple as part of an effort to get the iPhone and iPad maker to distribute more of its $137 billion cash pile, detailed the merits of distributing perpetual preferred stock to reward investors and boost a share price that he says is undervalued,” Ablan and Gupta report. “‘This is not complicated, it’s merely unfamiliar,’ Einhorn said about his perpetual preferred stock idea. ‘Here’s the product that Apple doesn’t yet know it needs,’ he said, a riff on the mantra of Apple co-founder Steve Jobs that consumers don’t know what they want.”
Ablan and Gupta report, “Einhorn said Apple should use $47 billion in cash to issue preferred stock with a quarterly dividend of 50 cents in perpetuity. The stock would be in high demand, he said, because “savers across the country” are in desperate need of yield. ‘It has a base value of $50 and pays a dividend of $2 per year,’ he said. ‘Apple can redeem them for face value, but shareholders should not anticipate getting the face value. They should expect to receive 50 cents per quarter, every quarter, forever.'”
Read more in the full article here.
MacDailyNews Take: Forever is an awfully long time.
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Greenlight’s Einhorn outlines his plan for Apple to return more cash to shareholders – February 21, 2013
Einhorn’s Greenlight Capital: Every Apple shareholder should get preferred shares ‘for free’ – February 21, 2013
Hedge fund manager Einhorn takes Apple campaign to shareholders via conference call – February 21, 2013
Einhorn’s lawsuit against Apple hangs on ‘irreparable harm’ – February 20, 2013
Greenlight makes case to stop Apple preferred-stock vote – February 19, 2013
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Apple with $137 billion in cash considers preferred stock – February 8, 2013
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iPrefer that this guy STFU and invest elsewhere if he doesn’t like the Apple is doing things.
COTD
Help? Why would the stock need any help?
+1 for Ace
preferred stock never unlocked the value of anything. this asshat merely wants Apple to piddle money into his pocket instead of investing it in product development & retail expansion. Milking profits now is a bad move, especially with the competition only heating up.
That being said, Einhorn does have a point: Apple should be using its cash, not sitting on it. It’s understandable that investors would get impatient when managers aren’t rolling out new products or even signaling any new initatives. Sh!t or get off the pot, Cook!!!
Bullshit. Having that cash pile is a huge asset that Apple has that its competition does not have. It allows them to do things they could not do minus that cash pile and its existence is entirely mandatory to play in the high risk high stakes high rewards categories that Apple plays in. It is already being out to work.
Being put to work doing what? At what rate of return?
If you can’t answer that, then it’s almost certainly underperforming what Apple earns from its operations and therefore more capital should re-injected back into the business. Cook wouldn’t have this problem unless professional investors weren’t fed up with him sitting on way too much unused cash. The only area where one can disagree with Einhorn is that most Apple investors don’t share his opinion that Apple’s cash pile should be given to Eihorn and his ilk at preferred rates.
Actually, with the interest rates on liquid assets being so low right now (check the T Bill), the “opportunity lost” of Apple’s cash is similarly very low. Given also that there’s no EASY investments where a substantially higher yield – – with minimal downside risk – – and the decision on what to do with the resource becomes far less obvious. Or perhaps you would prefer them to go buy some money-loser company?
In any case, what Einhorn says he wants isn’t some unknown new product: they’re called ANNUITIES and he can go buy them from any number of Life Insurance Companies … Met Life, Prudential, etc. Oh, and and $2 per $50? That’s a 4% rate of return: if Einhorn (or anyone else) can show me where today I can lock in a *no-risk* 4% guaranteed return, I’ll drop $100K into it before lunchtime today. Such investments simply do not exist today.
-hh
Apple’s gross margin on sales has been about 40% for several years.
So you want Apple to expand its business and continue earning 40% with its capital investments with some real risk, or you want to stop the growth and instead take a 4% guaranteed payout?
I’ll vote for company growth, thanks.
BTW, here’s a little life insurance industry update (education) on the 4% rule … for Einhorn to read (!):
http://www.lifehappens.org/is-the-4-rule-broken/
And a key statement:
“With today’s low interest rate environment, the 4% rule is no longer a safe bet. A study by Texas Tech professor and Research magazine contributor Michael Finke shows that, because interest rates are about 4% lower than their historical average, the anticipated failure rate for the 4% rule has gone from 6% to a 57%, meaning that if the 4% assumption is used, your chance of running out of money before life expectancy is 57% of the time.”
Translation: there’s a 57% probability that a 4% dividend rate will not be sustainable for 25 years (approx) … which falls centuries short of the “FOREVER” that Einhorn claimed.
-hh
As soon as you assign a 4% yield to an equity the value of the equity is calculated (ROI) on that yield, ie., whats the value of a $10,000 Corporate Bond yielding 4%? Answer: $10,000. Now what if Treasury Notes or Bonds from other sources yield 5%. Your $10,000 Corporate Bond written with a 4% yield is now only worth $8,000.
This is the lamest idea in all of investing.
AAPL isn’t down because investors aren’t getting 4% on their investment, AAPL is down because Apple’s actual performance hasn’t met the public’s outsized expectations for 3 quarters. This isn’t Apple’s fault, its the fault of investors not listening to/reading management’s conference calls since April 2012. Had they done so expectations wouldn’t have been so high, and Apple’s performance would have seemed much better.
Einhorn, and others like him are self-aggrandizing assholes.
Here’s what it sounds like to me:
He wants Apple to issue preferred shares to all AAPL stockholders at a guaranteed minimum value of $50 a share at no cost to the current shareholders.
This locks up $47 billion of Apple cash that it can’t use for anything other than backing the stock (in case someone wants to sell it back to Apple for cash).
With a stock horde of 1.3 million shares that’s a minimum of $65 million immediate “value” given to Einhorn’s fund — at no cost.
Einhorn sells the new stock at $50 a share (or trades it at — he hopes — a higher value) and nets an immediate $65 million profit for his fund (and a nice, huge profit for himself, personally).
The preferred stocks trade independently of the common stock and large funds get more control over it by buying it up as they can tell their funds (hedge or otherwise) that there’s no real downside. There’s a guaranteed minimum. The preferred stock (controlled by the big guys) floats higher and the big guys make out.
Big investors start moving around huge chunks of the new stock and drive the price of the common stock down. (Einhorn even admits that it could drive the price of common stock down to $350 or less a share.)
Apple, Inc.’s official profit goes down because of the guaranteed return on these preferred stocks. And Wall Street beats up the common stock accordingly. The common stock goes down even further, because the preferred stock is considered to be unassailable because it has a minimum guarantee.
Big investors and hedge fund managers make out like crazy all guaranteed a minimum value of $50 a share for this preferred stock. There’s really nothing but upside for them personally.
Little investors (think people that have a few hundred shares of AAPL, or less) get screwed.
Any way you look at it, the big institutional investors and fund managers make out. Apple, Inc. gets nothing — other than locking up $47 billion in cash that can’t be used for other things. And the little investor with common stock gets screwed as the common stock falls.
No, you have the basic details wrong. Once the preferred shares are issued, they’re issued. Owners can sell them on the secondary market, but Apple doesn’t have to buy back anything or use any cash to back them up. In fact a strength of the plan is that they can use the cash for whatever they want. Apple’s only obligation is to pay the dividend out of earnings. Wall Street can keep beating up AAPL common, but given the already low p/e ratio, the odds are more it going up, as in the case of Texas Instrument or IBM, both considered shareholder friendly and given a much higher p/e.
Why do you think little investors will get screwed? They can keep the preferred or sell it at their will, at favorable tax rates if kept a year. The danger of the plan would rather be if interest rates went up much higher (possible, but not likely in the near future) or if one hold LEAP call options, which not many smaller investor do.
Shadow is correct: Apple would be obligated to pay dividends, which ties up cash that is better used elsewhere. And it’s not likely that large fund managers would be selling much preferred stock on the secondary markets. Small investors would be priced out immediately. This is just a ploy to extract cash from Apple’s overseas pile.
Apparently people forget what a stock market used to be. Its intent was not supposed to be used so that traders can enrich themselves by extorting companies. The stock market was for entrepreneurs to “crowd source” capital to put new ideas into production. Brokers facilitated the transactions, that is all. Now setting up 2-tier stock systems, leveraged buyouts, and complex derivatives is just the tip of the iceberg of Wall Street gambling & chicanery intended to extract money from small investors and companies alike — with impunity and at no risk to traders whatsoever. Wall Street traders are not “capitalists”. They are the dealers at the biggest gambling hall on the planet, and they seldom if ever lose. Why any successful company would bend to the demands of Wall Street is beyond me.
Apple: concentrate on product excellence and customer service. Ignore Einhorn and other Wall Street cronies. Customers and investors will applaud steady company value appreciation much more than any growth-limiting dividend you could dole out.
Beware of Robber Barons.
+1 for Shadow guy above. Couldn’t have said it better.
Let the shareholders vote on iPrefs…as Apple has suggested. Einhorn STFU.
What a snake oil salesman.
If Apple feels it doesn’t need all its cash, they should be buying up stock at these prices at an accelerated rate, without announcing it ahead of time.
I don’t think Apple will do this.
I don’t think apple will do this . Please don’t use this to push down Apple if Apple declines doing so as AAPL hasnt risen for expecting this .
And what happens. When interest rates go up. The value of the preferred goes down.
Terrible idea
Since when do hedge funds tell great public companies what to do?
Einhorn needs to shut up.
Everyone should try to find some dirt on him and his group and shut them down.
Hedge funds need to be broken up and made illegal.
Guy just wants Apple to unlock its cash into his pockets.
I’m curious if anyone here would feel a mite uneasy when Apple accrues $200 billion in cash that doesn’t even keep up with inflation? $250 billion (maybe by 2015?) $300 billion? Is there *any* upward limit to the the pile of cash you think Apple must have to be safe? My own limit of $100 billon as passed long ago and I see nothing wrong in Apple returning money to shareholders.
It’s not a binary choice. Apple can use its horde of money for better things.
It has no incentive whatsoever to increase its dividends, since the value creation of its operation already attracts growth-oriented investors. If it was out of ideas and needed funding, then it would shift gears and become a blue chip value stock, doling out regular dividends like Microsoft does.
… and Apple certainly has no reason to reward a Wall Street trader with privileged stock whatsoever.
I personally think Apple has more headroom for growth and needs the cash to do so. Investors don’t need the cash, they can liquidate their stock at any time if then need income.
What if Apple is planning to buy Verizon to control content delivery? That would take more than Apple’s current cash hoard as they need not only the purchase price but they need to gain expertise in maintaining a cellular network and a wired network.
What if Apple is planning to buy a content provider?
Einhorn doesn’t know what Apple is planning to do, but he sure is trying to make people think that Apple has no plans and that Apple is pissing their cash away.
See Shadow’s post above. Einhorn is a used car salesman.
‘Returning’ NO, Hand-out is the word you are looking for.
The investors return comes in the form of stock gains and the dividend Apple is issuing. This greedy bastard wants a free handout that would limit the future agility and purchasing power of Apple. If he wants his money, sell the stock.
I personally hope they accrue as much as they need to buy whatever they want. Hopefully Time Warner or Disney…
There is no upper limit. Period.
The critical thing is what Apple does with this cash other than giving it as a handout to greedy institutional investment groups. I’ve been clamoring for a long time that Apple should use a significant fraction of it to fix its supply chain. Having high end, BTO iMacs still with 4 week shipping wait times (and up to 6 week shipping wait times in some areas of Europe) over four months after they are announced is truly asinine. If it took $10 Billion to fix that, then so be it. Why are Mac sales down? It’s not because there’s little demand. Cook needs to crack the whip and get his production guys to buy 100 new stir welding machines (or 500 if that’s what it takes) and get this problem fixed. Apple does not need to use that money to make Einhorn richer.
Apple can buy technologies they don’t have, but need. Supposedly Apple buys 6+ companies a year. That takes cash. Apple hires some of the best talent on the planet. Where do you think those signing bonuses come from? CASH. And the best people are only getting more expensive every day.
Hell, here’s a crazy idea… Apple could do Google Earth and Google Maps one huge step better. Apple could get into the truly real time satellite business and do truly real time (almost live) updates on maps, weather, traffic and such. There are many ways Apple could monetize that as a live asset because there are always people who want to know “what is” right now. Once you download the high rez image of your neighborhood you don’t need to download a new one for many, many months. There’s very little reason to keep coming back every hour or even every week. But if you want to see how a storm or traffic or construction is evolving in your area *right now* then that’s a whole new aspect. And Apple could deliver it directly to your iPhone or iPad or Mac in truly real-time. If Apple did this it would be as big a shift as the iPhone was for phones; as big a shift as the iPad was for tablets. AND this takes CASH. Such systems are not cheap.
As others have said here, people outside of Apple have very little clue as to what Apple might intend for its cash. As long as Apple is still growing, it has no obligation to tell you or anyone else (beyond what is required by the SEC, FTC, etc.).
Apple’s cash is NOT the stockholder’s money. Apple has no obligation to “return” that cash to the stockholders. Apple can’t “return” what never belonged to the stockholders in the first place.
At least Einhorn has stopped (as far as I know) saying that the AAPL holders “own” Apple, Inc. and he’s stopped (as far as I know) saying that the cash belongs to the AAPL holders. Neither are true. Einhorn’s still screwed up and delusional on many things, but he’s at least stopped saying that particular pair of pieces of BS.
You and the rest that think Apple owes them something need to reassess. I’ve been an AAPL holder since before the dark days. I remember when any one of the top ten richest people on the planet could have bought 100% of AAPL stock for cash out of their pocket and taken Apple private — owning Apple Computer, Inc. lock, stock and barrel. I remember when AAPL was trading at less than 33% over book value — and some prominent Wall Street analysts were claiming it would go BELOW book value and consequently Apple Computer, Inc. (as it was called back then) would be taken over. Apple didn’t panic and do stupid things to appease Wall Street then. It shouldn’t do stupid things to appease Wall Street now.
I don’t think Apple owes me *anything* other than putting out the best products possible and making the company — LONG TERM — the most viable company it can be. Apple, Inc. owes NO ONE anything more than that.
The Manipulator: Apple’s new wearable computers may also feature a specially designed butt plug code named either the ihorn or the ianalyse.
The Manipulator: Update, Apple’s new wearable computers may also feature a specially designed butt plug code named the ianaleyes AND a cock cage code named the ihorn.
I’m very sick of hearing this guys name.
I will vote my shares against anything that clown ever proposes.
-jcr
New pole, who thinks Einhorn should go f-himself.
I vote yes.
Apple should focus on products and investments in product development and supply chain. Period. All this shareholder B S. All greedy and only interested in money. Its wrong to focus on shareholder value. Did we learn anything from this crisis?
None of us know what plans Apple have for their cash. However, Apple have not shown any desire to return meaningful chunks of their hoard to investors so one should assume that they do have plans to spend it, at some point, in a meaningful way. We do know, from past experience, that Apple is an extraordinary innovator and its inventions achieve extraordinary success. I can see at least three “projects” which Apple might entertain, and which would consume large amounts of cash: content, network, supply chain.
Content: as others have mentioned here, content is key to success in the connected TV market – indeed others are already generating content to drive subscriber business. Apple has been attempting to negotiate content access with existing providers – eventually, if they cannot persuade providers to loosen their bundling restrictions, Apple will need to generate their own.
Network: google is already rolling out fibre networks in “pilot” locations. Existing copper and wireless networks are inadequate for consumer access to high definition video, and the video standard is moving beyond existing hdtv. In australia the government is rolling out fibre to the wall across the nation to ensure that consumers, via network resellers, have competitively priced access to high bandwidth network connections. In the US, and elsewhere, this access will be controlled by a patchwork of private companies, some of whom may be apple’s competitors.
Supply chain: outsourcing production carries risk. At some point Apple may decide that this risk outweighs the economic advantage offered by outsourcing and may want to take control of assembly (in the US) or core technologies (displays, casings, processor fabrication etc).
And, always, we should expect something from left field – surprises are part of Apple’s DNA.
Apple know what they are doing. No-one else has a clue!