Einhorn sues Apple, marks biggest investor challenge in years

Thu Feb 7, 2013 10:42pm 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 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 and Apple gadget fan, said in an interview with CNBC that the company harbored 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 filed in U.S. District Court in Manhattan targets a proposal by Apple to eliminate from its charter "blank check" preferred stock. The board now has discretion to issue preferred stock but is asking shareholders at its annual meeting on February 27 to vote on a proposal that would first require shareholder approval.

Einhorn urged Apple shareholders to vote against the plan, and put forward his own proposal for an issuance of preferred stock - which he deems superior to dividends or share buybacks - with a perpetual 4 percent dividend.

Analysts have expected stockholder pressure to increase as Apple's share price declines and its outlook grows murkier. Stock in the company that once seemingly could do no wrong has fallen 35 percent since its September record high through Wednesday. It ended Thursday 3 percent higher at $468.22.   Continued...

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