Apple shares surge following company response to Einhorn

Apple has issued a public statement in response to David Einhorn’s lawsuit filed earlier today:

By early last year, Apple’s cash balance had built to a point beyond what we needed to run our business and maintain flexibility to take advantage of strategic opportunities, so we announced a plan to return $45 billion to shareholders over three years. As of next week we will have executed $10 billion of that plan.

We find ourselves in the fortunate position of continuing to generate large amounts of cash, including $23 billion in cash flow from operations in the last quarter alone.

Apple’s management team and Board of Directors have been in active discussions about returning additional cash to shareholders. As part of our review, we will thoroughly evaluate Greenlight Capital’s current proposal to issue some form of preferred stock. We welcome Greenlight’s views and the views of all of our shareholders.

As a part of our efforts to further enhance corporate governance and serve our shareholders’ best interests, Proposal #2 in our proxy includes some recommended changes to our articles of incorporation. These changes were recommended independently of Greenlight’s proposal and would not preclude Apple from adopting their concept. Contrary to Greenlight’s statements, adoption of Proposal #2 would not prevent the issuance of preferred stock. Currently, Apple’s articles of incorporation provide for the issuance of “blank check” preferred stock by the Board of Directors without shareholder approval. If Proposal #2 is adopted, our shareholders would have the right to approve the issuance of preferred stock. As such, Proposal #2 has the support of many of our shareholders.

We remain committed to having an ongoing dialogue with our shareholders to get perspectives around return of capital and driving shareholder value.

Source: Apple Inc.

“Apple Inc. shares spiked after the company issued a response to David Einhorn‘s plea for the company to lose the Depression-era mindset and unload that $137 billion cash hoard, preferably through the issuance of high-yielding preferred stock,” Paul Vigna reports for The Wall Street Journal.

“Apple shares finished up 3% at $468.22,” Vigna reports. “At least one analyst doesn’t think Einhorn’s idea would serve the best interests of shareholders. ‘If you are looking to boost the stock for long-term shareholders, it’s not a good idea,’ said Trip Chowdhry of Global Equities Research this afternoon on Digits… Chowdhry would prefer the company look to buybacks, which offer essentially the same benefits, but without the specter of double-taxation.”

Vigna reports, “Apple ‘is outsourcing all of its manufacturing to a country which is not really friendly, called China,’ Chowdhry said. If Apple were for some reason forced to build factories here in the U.S., that ‘mountain of money’ would suddenly be dearly needed.”

Full article here.

Related articles:
Greenlight’s Einhorn sues Apple over plan to eliminate preferred stock, wants more cash distributed – February 7, 2013
Greenlight Capital urges Apple shareholders to vote ‘No’ on proposal 2 that would impede Apple’s ability to unlock shareholder value – February 7, 2013
Greenlight’s Einhorn sues Apple, ‘dissatisfied with capital allocation strategy’ – February 7, 2013
Greenlight’s Einhorn: Apple ‘the best big growth company’; Fed stimulus ‘counterproductive’ – July 10, 2012
David Einhorn says Apple isn’t a below-average company, it’s just priced like one – May 30, 2012

48 Comments

  1. I’ve been reading a lot of comments from non aapl owning apple fans that Apple should ignore shareholders: ” fuk the shareholders, apple doesn’t need them… ” etc etc.

    what they don’t understand and what I’ve pointed out before is that : Apple is OWNED by Shareholders. They own every patent, every cent of cash, all the property like retail stores etc. They control the company. Ultimately apple acts in the best interest of shareholders.

    Shareholders vote for the Board who hire the CEO.
    In the end shareholders can fire Tim Cook and anybody else they wanted to including Ive , Mansfield, Sewell etc.

    Shareholders are so powerful they can push Steve Jobs aside.

    I’m not saying what the can do or will do are always GOOD IDEAS, I’m just pointing out to clueless apple fans that they have the POWER.

    telling Apple to “ignore the fuking shareholders” is exactly the wrong thing, if apple management lives in that ‘ignore tham DELUSION” enough of the big money boys get pissed off and (as I said a few weeks ago and which has now happened) and they will ACT.

      1. does not matter if I’m a shareholder or not.

        Do you dispute what I’ve said?

        (in addition to my post I’ll like to say: not all shareholders always hold the same views: majority wins the vote. But funds control more than 70% of aapl. Long term investors seem to be happy with apple as they have gained over the last few years but they also know ex cash Apples P.e is about half the S&P average, lower even than some non growth utilities…
        ALSO, apple fans telling Eihorn to ‘shut up’ and sell his stock etc. If Einhorn does that and his pals do that : aapl will Fall further, and the rest of the big boys will get pissed of rise up…

        just watch.
        (note how fast Apple came out with a response vs Apple usual tardy press releases. Apple management knows where the power lies… )

        by the way Einhorn was ALSO the Dude who said “Microsoft should Fire Ballmer” so he isn’t a total dumbo.

        Plus look how the stock spiked when apple responded (investors want to know that at least Apple is LISTENING to shareholder concerns).

    1. On paper, you are absolutely right. In practice, that power is pretty difficult to wield for a number of reasons:
      1) It is the executive team that creates the wealth for the shareholders. Unless the majority of shareholders are in the mood to commit financial suicide – and I can almost guarantee that’s not the case – the executive team like the one running Apple can pretty much tell the shareholders: “Fire us if you dare.” Cook, Ive etc could easily walk into another company or set up one of their own and start creating wealth elsewhere. The Apple shareholders, on the other hand, can pretty much be guaranteed to watch their “power” fade rapidly if they ever fired Apple’s winning team.
      2) The other reason shareholders’ “power” is nothing more than a paper tiger in many cases is that it is diffused all over the place. Unless you have a majority owner, it is impossible for tens of thousands of shareholders to come together and force the hand of a company’s executive team, especially if it is a team of the calibre of Apple’s team.

      So shareholders have every right to beat their chest loudly – but in practice, that’s about as much as they can do.

      It’s like the Queen of England really. She’s officially the head of the country and can, in theory, fire the government of the day – but in practice, she’d be committing political hara-kiri to do that.

      1. As an Apple shareholder, I used to get proxy papers every year, where I had an option to sign my vote away to Steve. There are thousands of AAPL shareholders who hold a few hundred to few thousand shares, and who can’t be bothered to attend annual shareholder meetings, where they would be able to vote on various proposals. Most of those people sign that proxy, giving Steve (or whoever does it today; presumably, Tim) the right to vote on behalf of each of them. This way, Steve gets to vote for a fairly large percentage of the shares.

      2. “So shareholders have every right to beat their chest loudly – but in practice, that’s about as much as they can do.”

        eh?:
        go study HP…

        shareholders have changed the CEO numerous times -Fiorina, Hurd, Apotheker (in spite of Steve Jobs defending one of them) Current CEO was a member of the Board who instigated the board to fire the last CEO.

        Shareholders are Complacent if a company makes money, they get pissed off if they lose money or if it’s frozen there.

        1. “Shareholders OWN Apple”. Absolutely not. Utter Rubbish. Pure BS.

          Shareholders, each of them, own A FRACTION OF THE WHOLE. No stockholder can go into Apple and demand to see what they “own”. It does not work that way. No stockholder can demand Apple do anything. The most you get to do is vote on charter changes, who’s on the board, and a few other legal odds and ends. That’s about it (barring any overt actions by a board member or officer to hurt the company).

          The board and officers have a legal, fiduciary responsibility to make Apple the best company they can and, in turn, make the overall financial value (not worth!) of the company as good as they can. That’s as far as it goes. The board members and officers can even financially hurt the company in the short term if they can soundly justify that it helps the company in the long run — and such an action is 100% legal.

          The board members and officers do NOT have a responsibility to make stockholders rich in the short term. If you think that is the case, sue Apple for not using its horde of cash to make you, personally, rich. See how fast that gets thrown out of court.

          1. ““Shareholders OWN Apple”. Absolutely not. Utter Rubbish. Pure BS. Shareholders, each of them, own A FRACTION OF THE WHOLE.”

            seriously what the fuk are you talking about?

            did I say “ONE INDIVIDUAL shareholder” , it’s a PLURAL I used “shareholders” as in a group.

            Shareholders of apple OWN apple.
            Shareholders as a GROUP (and funds like Einhorn own 70% of apple stock) can force changes. (this point is very clear in my post)

            (I won’t even bother answering the rest of your post because you have understood hardly anything I’ve said)

    2. Since Apple is 69% owned by institutions, who already know about the board of directors and the CEO, etc., I conclude that these professional money managers are not firing the board and the CEO because they know a little more about the issues at hand than you do.

      1. what are you talking about? look at my post.

        I’m only saying they have the POTENTIAL to act.

        let the stock sit at 400+, billions more added to cash pile without more being done to enchance shareholder value, let the P.E shrink more and IGNORE shareholders (like many arguing with me here) for a period of time more and see what happens…

        of course apple isn’t following the advice of those arguing with me to ignore the shareholders:

        already Apple’s LIGHTNING FAST response to Einhorn (compared to their tardy responses to most other issues) show they are concerned.

    3. No, most of us understand the things your point out. They are obvious to the casual observer.

      That doesn’t mean their “give me my money” demands help either them, nor Apple, in the long term. My point has always been that Apple doing it the way their management team wants to do it has added huge amounts of value in the past few years.

      Thinking that people can’t say “fuck the shareholders” while knowing the very basics of what shares are is CLUELESS.

      So fuck you.

      1. @CMFJ

        obviously apple management doesn’t agree with you i.e
        “fuk the shareholders”)

        Note how LIGHTNING FAST they reacted to Einhorn
        they want to head off shareholder issues quickly. they are CONCERNED with shareholder thinking.

        contrast this to the tardy or no reaction of apple to other stuff.

        ALSO I’ve not attacked apple but just pointed out what power shareholders have which people miss out.

        Your “fuck you” with my reasoned post, just reinforces my point that you guys are not very adult. Go play “angry birds’ or something until you can debate like a grown up…

    4. I personally have never read anything suggesting:

      fuk the shareholders, apple doesn’t need them

      Any references would be welcome to support your assertion.

      I certainly am of the FSCK -U Wall Street contingent, specifically because manipulators and analcysts have screwed Apple over to the DETRIMENT of stockholders. I’d think all stockholders would be up in arms about the ‘Apple Bear’ bullshit that has been bogusly perpetrated on Wall Street. The stockholder is a victim of this abuse of capitalism as well as those working for the company Apple, obviously.

      So please define your terms carefully.

      Therefore, speaking for the benefit of EVERYONE involved with Apple: Stick to the Apple spirit of creativity and brilliant company management. Pay attention to the self-destructive lunatics of Wall Street AT YOUR PERIL.

      1. an example:

        His Shadow posted:
        “And again, who give a shit about the stock? It’s just another thing to fold, spindle and mutilate …. ”

        Read more at http://macdailynews.com/2013/01/25/is-apple-the-new-microsoft/#cztTlvQcMyqPSSR2.99
        Read more at http://macdailynews.com/2013/01/25/is-apple-the-new-microsoft/#cztTlvQcMyqPSSR2.99

        that’s from an article that you posted on yourself.
        I’ve also read the ‘fuk shareholder ‘ comment but it’s impossible to search that through MDN.

        its weird that in many of the other responses to my post is so hostile.
        i’m not anti apple or anti apple management. I’m just pointing out that stock holders have power and it’s not a good idea for apple management to ignore them (which from their fast response to einhorn shows they are not). No where did I say apple shouldn’t focus first on innovation etc

        Note the first significant thing Cook did (different from Jobs idea for years) was to declare a dividend to shareholders. Cook knows he doesn’t have the iconic status and immunity like Jobs.

        1. Jobs as founder of Apple got no respect the first time around, look at how that turned out for Apple, the present CEO has done a great job when compared to his inferior CEO peers in the the tech world.

          1. I agree with you.
            I like Cook.
            I think he’s way better than his tech peer CEOs (like Ballmer)
            and just as importantly the Stars like Ive seem to like him (if an azzhat is made CEO, stars like Ive might quit) .

            The reason I posted is that I hope Apple pays a bit of attention to shareholders (like just do a bit of P.R like today) — staying almost silent, ignoring the fact that the stock fellg 40% from 700 bucks is silly — because if (big) shareholders are pissed off they can do weird things , re: your comment about Jobs ousting.

            Shareholders need to be reassured that their money is wisely invested in apple, that apple understands their concerns and they are mapping the best strategy forward and even if management touched on this briefly during the financial report shareholders might need reassurance over and over again (thats the simple truth about public companies).

            1. how come you guys don’t READ my posts (all of them complete)?

              it’s NOT ME .. dudes , i’m saying those big boys who hold 70% of apple stock like Einhorn have POWER (how many times have I to repeat this?).

              I’m saying if apple management doesn’t ease the concerns of the the big holders , as I can tell apple has hardly addressed the monumental drop in appl (40% is a lot dudes), and if the big boys get cheesed off enough they will act.

              (apple’s fast reaction to Einhorn – as I’ve stated TWICE – and Cooks giving dividends as opposed to Jobs no dividend stance shows Cook and current apple management know shareholders have power. They are waking up now that aapl 40% drop is not something to be trifled with)

              Einhorn wouldn’t have tried a lawsuit a while back because he would have known he wouldn’t have been able to sway the rest of the big holders if aapl was still up at 700.

              If big shareholders get cheesed, i.e if the stock stays at 400 for a LONG time or the P.E gets further compressed, yeah stockholders MIGHT act and replace Cook. (ONE MORE TIME i’m NOT – en o – T – saying it’s IMMINENT , I’m saying it’s possible.

              (and note I’ve already stated I like Cook )

              but shareholders act on their own interests (big funds don’t LOVE apple like fanboys, they LOVE MONEY) and might not be rational:
              Shareholders replaced JOBS for petes sake.
              they replaced the CEOs of Palm, Nokia, HP (serveral times) and the Founders of Rim! (and thats just from the TECH companies!).

              Millionaires like Einhorn who run billion dollar funds are big boys who have played big hands before and they are not intimidated by apple management
              —-
              personally as a small bean (Im no hedge fund guy) what I would like apple to do with the share drop is to at least do some P.R. . (that will help sooth the shareholders) Letting news outlets distort apple earnings, samsung make fun of them with no response etc is not good. Apple should keep touting as often as possible how much it’s making in profits etc, it’s profit share in smartphones etc to the financial press. Shoot, apple’s got 120 billion bucks in the bank, it can’t do some more P.R? (I’m not asking Ive etc to waste their precious time on this ) samsung spends 4 times more on marketing. Bezos does endless P.R. if aapl was valued like amazon each share would be worth tens of thousands $. I believe though from the latest news items that apple IS doing more P.R. and apple’s quick response to Einhorn to clarify matters is a good thing.

            2. Dude, you keep circling around the same, obvious but pointless and rather irrelevant (in this case) statement: That shareholders have the power to do what they want, since collectively, they own the company.

              What the rest of us are telling you is that REAL power lies with the executive team when a company is making tons of money – as Apple is, and as HP wasn’t.

              Yours is pure theory – shareholders COULD do this, that and the other if they are pissed off enough. What we are telling you is, they WON’T in this case – and you can take that to the bank.

              As for Apple’s response to Einhorn, it wasn’t because the Apple executive team were shaking in their boots with fear. It was to stop Einhorn’s FUD in its tracks. Apple is under attack from all sides, and the last thing they want is to have to fight an “internal” battle with shareholders.

              So yes, you are right, as you would be if you said an accident COULD happen every time you take the car out. In reality, accidents (HP) DON’T happen most of the time you take your car out and drive carefully and smartly (Apple).

      1. @mcdruid

        shares aren’t ‘direct’ ownership like you own a car.

        for example if you own 10% of the stock of a company you can’t go and exchange it for 10% of apple’s assests (like cash, property etc) but can only sell them at share market value.

        on the other hand if a company is dissolved the shareholder gets a cut of the assests of the company (after minus liabilities).

        Shares also are a special form of ownership for example you can only lose the amount in the share and not be liable for any extra like debts of the company etc.

        EFFECTIVELY though it changes nothing I have posted above:
        shareholders no matter how you parse it are the closest thing to owners of a company and they can like I pointed out through various means influence the management or even remove them (via electing the board, special motions etc).

  2. Notice how many time the statement says #2. I think they were subtly saying that they think Einhorn is a bag of poo. At least they didnt say Finkle is Einhorn…….

    1. +1

      Apple’s neglect of the Mac platform is bizarre.
      No imac ads for years.
      No generic mac ads since the mac PC guy ads which ended in 2009 (if you don’t count the aborted Olympic ads)
      New mac mini but no ads.
      Win 8 Vista getting bad press but apple has ZERO marketing to capitalize on it. (golden opportunity wasted)

      (I meet many potential switchers who say they want to switch but don’t want an imac as they have monitors. They have NO CLUE Mac Mini EXISTS as apple does not advertise it… !]

      Apple gave tens of millions $ in shares to the guy who oversaw OSX Mt. Lion and promoted him to SVP but Apple does NOT advertise OSX vs Windows at all! Not since the Mac PC guy ads.

      spend money on OS development, spend tens of millions in manufacturing ramp up (new laser cutting, fusion bonding etc) but do not market the products!

      Mac still only has 5% world market share, there’s plenty of growth potential and billions on the ground but apple doesn’t seem interested in picking it up.

      If they had sold a few more macs, apple would easily have hit analysts estimates the last two quarters and perhaps the slide from 700 wouldn’t have happened…

      1. Hard to not agree with what you are saying here. Stagnant iLife and iWork, geriatric MacPro, ageing Aperture and no advertising of note. Apple gives the impression of not really focussing on the Mac platform these days. Sure I know FCPX has matured some and iTunes has been refreshed, but this isn’t enough to support the halo effect of the mobile business.

      2. Gotta give you a +1 on that.
        Apple has so many great things the general public is not aware of. The Mac vs. PC ads were golden. Need to bring that back and some ads showing off the software. PC’s are at a very weak point, now is the time to strike with the best ammo they have.

  3. Tell the hedge fund B*&^%$#s to stick to raping the economy in private. I’m in favor of suing all of them as taxpayers for a return of all the tax loopholes they obscenely enjoy such as the Interest Carry provisions and other ways they avoid all taxes that we have to make up for the greed. I’m not very excited about buying yachts for MBA a**H****s.

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