Einhorn’s Dream: An Everlasting AAPL Payout

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Einhorn wants his Everlasting Gobstopper Apple stockHedge fund investor David Einhorn took his case to the public on Thursday in hopes of gaining more support for his lawsuit pushing Apple to issue preferred stock without requiring shareholder approval. Part of what he's hoping to gain is a stock that pays US$0.50 a share every quarter forever.

The perpetually paying preferred stock, now being called iPref by Mr. Einhorn, is a product he thinks Apple needs, but just doesn't realize yet, according to Reuters.

"This is not complicated, it's merely unfamiliar," he said. "Here's the product that Apple doesn't yet know it needs."

Mr. Einhorn and his hedge fund company Greenlight Capital filed a lawsuit against Apple hoping to block a shareholder vote scheduled for February 27 to add a stipulation requiring shareholder approval before issuing preferred stock. The lawsuit is also a push to get Apple to give back more money to shareholders.

Apple CEO Tim Cook isn't against the idea of preferred stock, but feels shareholders should have a say instead of letting executives issue the stock without accountability.

"We decided to eliminate the ability to issue blank check shares ourselves. We could still do it, but would have to go to shareholders for approval," Mr. Cook said. "So frankly, this seems bizarre to me that we're being sued over something that's good for shareholders."

Mr. Einhorn said Apple could set aside $47 billion of its $137 billion cash reserve to issue preferred stock with a perpetual $0.50 quarterly payout, and that the special stock would be in high demand with investors.

Judge Richard Sullivan, who is overseeing the lawsuit, said he sees a high likelihood of success for Mr. Einhorn's case, although there isn't evidence to show "irreparable harm," which a key point in the case.

Mr. Einhorn and Greenlight Capital have a very vested interest in seeing Apple offer a more lucrative payout option since they hold 1.3 million shares in the company.

Apple has been fighting the case, which is no surprise since the company doesn't like being told what to do.

Comments

zewazir

I cannot fathom what legal legs this lawsuit is built on.  Seems to me the situation is simple.  If Apple does not bring the returns Einhorn thinks he should be getting from his investments, then he needs to go somewhere else to invest.  If enough investors make the same decision, Apple will, undoubtedly, respond by making their stock more attractive to investors.

Simultaneously, issuing preferred stock will have a significant effect on common stock holders.  As such, it is only right that they have a say whether and how preferred stock is issued.  Maybe a majority of stock holders are satisfied with the way things are.  Maybe not.  But it seems to me Tim Cook is correct in putting the decision in their hands.

It sure as heck should not be up to one investor pushing the issue via the courts system.

aardman

On one hand there’s Tim Cook and Apple management who have shown willingness to sacrifice short term profits in favor of pursuing a long term vision, on the other there’s a hedge fund investor trying to make up for losses sustained from being a johnny-come-lately herd investor and getting burned by recent AAPL vicissitudes.  Call me naive, but I’m putting my faith on the long term guys.

geoduck

He wants Apple to pay .50/share forever.
In 15 years Apple is in trouble, has no cash reserve, is losing money, but still has this obligation to pay Einhorn his pound of flesh.
This is the stock market, no some insured investment. You want perpetual payout, put your money in the bank and get 1% per year forever. You want to invest in stocks then nothing is guaranteed.
The suit is driven by greed, not what’s best for Apple or the stockholders.

Lee Dronick

“Judge Richard Sullivan, who is overseeing the lawsuit, said he sees a high likelihood of success for Mr. Einhorn’s case, although there isn’t evidence to show “irreparable harm,” which a key point in the case.”

Is he the Judge who will make the final decision?

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Keith

The part of the lawsuit that the judge commented on probably being successful is the bundling of the vote on three unrelated proposals into one proxy vote, not on forcing a preferred stock issuance.

Lee Dronick

“The part of the lawsuit that the judge commented on probably being successful is the bundling of the vote on three unrelated proposals into one proxy vote, not on forcing a preferred stock issuance.”

Yes, probably

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