David Einhorn-led legal action wants to unlock more of Apple’s cash reserves
Apple CEO Tim Cook has dismissed a lawsuit led by hedge fund manager David Einhorn that aims to improve returns for shareholders as a “silly sideshow”, but has admitted the company is considering discussing a proposal to give them a better return on their investment.
Last March, Apple committed to paying out $45 billion in dividends and share buybacks, but still has cash reserves of $137 billion. It has already paid out $10 billion and is expected to repeat this in 2013.
Apple has defended its cash reserves, claiming that it is sitting on them so it is ready to make an acquisition as and when the opportunity arises.
Apple shareholder lawsuit
Einhorn has accused the iPhone manufacturer of exhibiting ‘depression-era’ mentality by hoarding cash with no real purpose. He and his company Greenlight Capital are seeking an injunction to block a planned shareholder vote over a proposed change to its Apple’s corporate charter that would prevent it from issuing unlimited preferred shares without asking shareholders first.
Preferred shares guarantee a regular flat return indefinitely that is paid in preference to ordinary stock, something that would make ordinary shares more sensitive to Apple’s profitability. Einhorn says that the decision to bundle the vote with other organisational changes is illegal.
Cook has said that he was unable to fathom why Apple was being sued over a proposed action that would benefit its shareholders and lamented the waste of shareholders’ money on the legal action. He added that he was confident that shareholders would back Apple’s proposals. Einhorn has responded by saying that Cook could end the dispute by complying with existing law and letting shareholders have a separate vote on the question of preference shares.
Apple’s share price has been hit by fears that the mobile phone market is saturating and that it has run out of investment opportunities. It currently dominates the tablet market and is the second largest producer of smartphones in the world, but it has faced increased competition in both spheres from the likes of Samsung and Amazon.
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