11:41 a.m. | Updated
The hedge fund magnate David Einhorn has long been known as a fervent fan of Apple. But he is making an unusually public stand to oppose a move by the company: a lawsuit.
His hedge fund, Greenlight Capital, sued Apple on Thursday in an effort to block a move that would eliminate preferred shares. In a letter to fellow stockholders, Mr. Einhorn said the move to amend the company’s charter would unnecessarily limit the technology giant’s ability to create value for shareholders and called on them for support.
“This is an unprecedented action to curtail the company’s options,” he wrote in the letter. “We are not aware of any other company that has ever voluntarily taken this step.”
The stated goal of the legal action is technical, based on an accusation that Apple is violating securities rules by bundling several shareholder initiatives in one proposal. But underneath it lies deeper dissatisfaction with the company.
Activists have taken on increasingly bigger targets in recent years, including the likes of Hess and Procter & Gamble. But no one has dared to take on the onetime darling of the hedge fund community.
The opposition by Mr. Einhorn is the latest sign of investor anger with a company whose stock price in recent years had been almost unearthly in its gains. That growth attracted Greenlight, which now holds 1.3 million shares – a stake of more than $590 million – and a wide array of hedge funds that hitched their investment performance to Apple’s rising star.
Over the last several months, however, shares in Apple have tumbled, leaving many with a sour taste in their mouths. In a letter to Greenlight investors last month, Mr. Einhorn joked that some of his fund’s stumbles were because “our apple was bruised.”
On Thursday, however, he took a more adversarial tone.
Mr. Einhorn praised Apple as “a phenomenal company filled with talented people creating iconic products that consumers around the world love.” But he expressed deep dissatisfaction over how Apple was managing its finances, complaining that the company’s enormous $137 billion cash hoard was shortchanging shareholders.
It appears that the move by Apple to eliminate preferred shares in its charter is the final straw. Mr. Einhorn said he had called upon the company to issue existing shareholders a perpetual preferred stock that would pay out a dividend. In one suggested outcome, the company would initially distribute $50 billion carrying a 4 percent annual dividend, and then issue more over time.
Mr. Einhorn said he had raised the issue with Apple executives several times, only to be rejected.
As Apple’s share price has fallen – it is down more than 26 percent over the last six months – Mr. Einhorn has said shareholders are owed more.
“The recent, severe underperformance of Apple’s shares, which are down approximately 35 percent from their peak valuation, underscores the need for the company to apply the same level of creativity used to develop revolutionary technology for its consumers to unlock the value of its strong balance sheet for its shareholders,” he wrote in the letter.
On CNBC, Mr. Einhorn likened Apple, whose near-collapse in 1997 profoundly scarred the company, to his his grandmother, who survived the Great Depression. Both have adopted tendencies to amass far more cash than they need, instead of putting it to more productive investments.
Apple is like “someone who’s gone through traumas,” the hedge fund magnate said. “They sometimes feel they can never have cash.”
Mr. Einhorn also protested that Apple was tying the preferred stock proposal to two other initiatives he supported: allowing for simple majority voting for directors and establishing a par value for common stock.
Shares in Apple were up slightly in early morning trading on Thursday, at $457.57. That remains well below its 52-week high of $705.07.
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DealBook: Einhorn Sues Apple Over Plan to Discard Preferred Stock
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DealBook: Einhorn Sues Apple Over Plan to Discard Preferred Stock
