Closely-followed hedge fund manager David Einhorn, the CEO of Greenlight Capital who is taking aim at Apple over its massive $137 billion cash hoard, just wrapped up a conference call with Apple shareholders.
Greenlight has been?urging Apple investors to vote “No” on Apple’s Proposal 2 in its proxy?later this month?that will eliminate the company’s ability to issue preferred stock.
Einhorn is also battling the tech giant in Federal District Court in Manhattan.
Essentially, Greenlight says Apple is attempting to bundle three reforms, two of which he would normally support, into one provision and Einhorn thinks that violates the SEC’s proxy rules. ?The New York Times’ Michael de La Merced reported?that the federal judge is leaning in Einhorn’s favor after a hearing on Tuesday.
Apple’s CEO Tim Cook called Einhorn’s lawsuit a “silly sideshow” during the Goldman Sachs Tech Conference in San Francisco earlier this month.
Greenlight owned 1,582,006 shares in Apple (275,000 of those are call options) at the end of Q4, according to a 13F filing with the SEC.?
We’ve included all the highlights below.
2:00 PM | The call is about begin.
2:03 PM | In the meantime, here’s the cover slide for Einhorn’s presentation…
2:08 PM | And now we’re beginning!
The purpose is to discuss Apple’s allocation strategy and Greenlight’s proposal to unlock shareholder value.
He’s only taking questions about Apple.
2:09 PM | Einhorn is taking the line.
He’s giving some prepared remarks. ?He’ll take questions afterwards.?
2:10 PM | Einhorn says the size of Apple’s “rainy day fund” reveals a flaw in its capital allocation strategy.
2:12 PM | Why tech companies have so much cash on their balance sheets….
He’s talking about how tech companies have a theme of cash hoarding. ?”He says companies view their self importance by the size of their bank accoutns.”
He says if Wall St. can’t be counted on the key to survival is “rainy day funds.”
2:13 PM | He says tech companies have conventional wisdom that there’s no value in buyback or dividends.
2:16 PM | He says sitting on the cash unused is analogous to having an inventory problem.
2:17 PM | He says that while cash hoarding is prevalent in the tech industry, it’s not everywhere.
He says IBM and Texas Instruments are examples. He says they’re seen as “shareholder friendly.”
2:19 PM | He’s talking about Dell, which he used to be a bigger shareholder in.
He says their attitude to capital allocation was so unappealing they sold the stock.
2:21 PM | He says cash distributors can be great growth businesses.
2:22 PM | He’s going over Apple’s cash war chest.
It’s more like a vault, he says.
Apple can unlock value by deploying the cash productively or returning cash to shareholders, he says.
There are 4 conventional ways for distributing cash to shareholders, he explains:
* One time dividend
* One time large share repurchase. He estimates they could unlock $89 per share.
* Large on going share repurchases (he estimates Apple could buy back 6% of its shares each year). He estimates this plan can unlock $79 per share.
* Doubling the dividend?
2:33 PM | He says Apple’s attitude toward managing cash is not innovative.
“We have a solution for unlocking value that allows it to have its cake and eat it too.”?
2:34 PM | He says the new product Apple needs is ‘iPrefs.’
A.K.A. a share of perpetual preffered stock.
2:37 PM | Here’s his ‘new product’ for Apple ? iPrefs (perpetual preferred stock)
2:39 PM | Now he’s talking about the Fed’s zero interest rate policy. He says iPrefs would be a ‘very high quality investment.’
2:40 PM | He’s going to go over some math now.
He says it could get complicated.
2:45 PM | He says iPrefs would allow Apple to still keep its $137 billion cash hoard.
He says iPrefs don’t interfere with using the cash hoard.
He says iPrefs are a form of equity, not debt. He says there would be no balance sheet risk.
2:50 PM | Einhorn: ‘We want Apple to keep its cake and the shareholders get to it it too.’
2:52 PM | He’s going over the proxy.
He says he was surprised to see Prop 2.
2:52 PM | He says Cook called the idea ‘creative.’
He says he looks forward to meeting with Cook and his team shortly.
2:53 PM | He’s addressing Apple bundling three aspects into one proposal…
2:55 PM | Now it’s time for 15 minutes of Q&A…