David Einhorn has long been known as a fervent fan of Apple Inc. But the hedge fund magnate is making an unusually public stand to oppose a move by the maker of the iPad: a lawsuit.
His hedge fund, Greenlight Capital, said on Thursday that it was suing Apple in an effort to block a move that would eliminate preferred shares. In a letter to fellow stockholders, Mr. Einhorn said that 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.â€
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 dissatisfaction with a company whose stock price in recent years had been almost unearthly in its gains. That growth had drawn not only Greenlight, which now holds 1.3 million shares â€" a more than $590 million stake â€" but a virtual army of hedge funds hitching their investment performance to Apple’s rising star.
But over the last several months, shares in Apple have tumbled, leaving many with a sour taste in shareholders’ mouths. In a letter to Greenlight investors last month, Mr. Einhorn joked that some of his fund’s stumbles were because “our ap! ple was bruised.â€
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 manages its finances, complaining that the company’s enormous $137 billion cash hoard is shortchanging shareholders.
It appears that the move by Apple to eliminate preferred shares in its charter is the final straw. Mr. Einhorn noted that he has called upon the company to issue to existing shareholders a perpetual preferred stock that would pay out a dividend. In one scenario, the company would initially distribute $50 billion carrying a 4 percent annual dividend, and then issue more over time.
Mr. Einhorn added that he has raised the issue with Apple executives several times, only to be rejected.
As Apple’s share price has fallen â€" it is down more than 26 percent over the last six months â€" the hedgefund manager said that shareholders are owed more.
“The recent, severe under-performance 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.
Mr. Einhorn also protested that Apple was tying the preferred stock proposal to two other initiatives that he does support: allowing for simple majority voting for directors and establishing a par value for common stock.
