Einhorn sues Apple, marks biggest investor challenge in years

Thu Feb 7, 2013 5:54pm EST
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By Jennifer Ablan and Poornima Gupta

NEW YORK/SAN FRANCISCO (Reuters) - Apple Inc on Thursday confronted its first major challenge from an activist shareholder in years as hedge fund manager David Einhorn's Greenlight Capital filed suit against the company and demanded that it dole out a bigger piece of its $137 billion cash pile to investors.

The unusual move comes as the world's largest technology company grapples with a tumbling share price, mounting competition in the smartphone and tablet markets, and concerns about its ability to produce new breakthrough products.

Einhorn, a well-known short-seller, said in an interview with CNBC that Apple had a "Depression-era" mentality that led it to hoard cash and invest only in the safest, lowest-yielding securities.

Apple nearly went broke in the 1990s before Steve Jobs returned and engineered a sensational turnaround, with products such as the iPhone and iPad that became must-haves for consumers around the world. The company's near-death experience has led Apple to be exceptionally conservative with its cash.

Last March, just months after Jobs' death, Apple responded to a barrage of investor criticism over its large cash hoard by initiating a quarterly cash dividend and a share buyback that would pay out $45 billion over three years. At the time, Apple was sitting on $98 billion in cash.

Einhorn's lawsuit targets a proposal by Apple to eliminate preferred stock from its charter. He urged Apple shareholders to vote against the plan at the company's annual meeting on February 27, and put forward a proposal of his own for the company to issue preferred stock with a perpetual 4 percent dividend.

Apple shares, which had fallen 35 percent from the record high hit in mid-September through Wednesday, ended 3 percent higher at $468.22.

Einhorn, often cited as one of the most committed Apple bulls, remains long on its shares. But the fund manager, whose Greenlight had a sub-par year in large part because of Apple's late-2012 stock swoon, said the company needs to fix its "cash problem".   Continued...

David Einhorn, president of Greenlight Capital, speaks during the Sohn Investment Conference in New York, May 16, 2012. REUTERS/Eduardo Munoz