Friday, February 8, 2013

The $137 Billion Question

$AAPL Apple cash $137 billion
There's a question for Cook and his board
Arising from Apple's cash horde:
At exactly what height
Of liquidity might
Alternatives best be explored?

Said Einhorn: "I'm finding absurd
All the dividend plans that I've heard.
If shareholder value
Is your rationale, you'll
Agree that my way is preferred."

That awkward moment when the social worker explains that your neglected $137 billion cash account would find a more nurturing environment in another home. This is the situation finally confronted by CEO Tim Cook and the board of Apple, in the lawsuit by activist shareholder Greenlight Capital and its manager, David Einhorn. At some point along the way to becoming the world's most valuable company (a distinction it has since relinquished to ExxonMobil), $AAPL appears to have transformed from a growth stock into a value stock.  Though the company's growth has slowed, and its products are no longer the most technologically advanced, Apple's dominant position has made it a cash cow (see graphic above).

Mr. Cook and the board have acknowledged the situation in a $45 billion share buyback program, but Mr. Einhorn and other investors assert that this measure is no longer sufficient.  Mr. Einhorn, whose investment vehicles own about $610 million worth of $AAPL, argues that the company should distribute a "perpetual preferred" stock that could pay a dividend yield of 4%. The shares would return cash to shareholders by paying a bigger yield than Apple's regular shares, which currently carry a 2.3% dividend yield. Some have debated whether Greenlight's proposal is needlessly complicated. A current Apple proxy measure appears to deny the green light to the perpetual preferred stock proposal, as it would require a shareholder vote before any such issuance. In a statement, Mr. Cook said that the proxy measure would not preclude Mr. Einhorn's preferred solution, thus disputing the basis of the lawsuit.

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