david einhorn

David Einhorn is not known to be an activist investor. Furthermore, very few investors (especially Einhorn) go activist on extremely large companies, especially one with a market cap of over $400 billion. However, the founder of Greenlight Capital has just done that.

The famous hedge fund manager who made most of his money from betting on good and cheap companies and shorting bad ones, is going activist on Apple Inc. (NASDAQ: AAPL). As we first reported, David Einhorn took the slide in Apple shares as an opportunity to buy more shares during the fourth quarter of 2012. Einhorn is still bullish on the large tech firm, but is urging shareholders to vote against changes to eliminate Apple preferred stock.

In a press release issued this morning, Einhorn calls Apple Inc. (NASDAQ: AAPL) a ‘phenomenal company’, but expresses his frustration with the firm’s capital allocation strategy. He believes that eliminating the preferred shares would hinder Apple’s ability to unlock shareholder value. Einhorn also mentions that he has discussed with management the possibility of creating a perpetual preferred stock.

Einhorn’s statement can be found below:

“We believe Apple must examine all of its options to unlock the growing value of its balance sheet for all shareholders,” said David Einhorn, President of Greenlight.  “Over the past several months, we have had an ongoing dialogue with Apple regarding one option to do so, namely the creation of a new security, a perpetual preferred stock that would be distributed at no cost to Apple’s existing shareholders, and would provide an attractive, sustainable dividend while preserving Apple’s financial resources to pursue its business strategy.”

 

NEW YORK – February 7, 2013 – Greenlight Capital, Inc. (“Greenlight”), a value oriented, research-driven investment management firm, today announced that it is urging fellow shareholders of Apple Inc. (Nasdaq: AAPL) (“Apple” or the “Company”) to oppose the Company’s attempt to amend its corporate charter.  Greenlight is voting AGAINST Proposal 2 in Apple’s proxy, which would eliminate preferred stock from Apple’s charter and thus restrict the Board’s ability to unlock the value on Apple’s balance sheet.  Greenlight is asking all shareholders to also vote AGAINST Proposal 2 at the upcoming Annual Meeting of Shareholders to be held on February 27, 2013.

 

A shareholder since 2010, Greenlight believes Apple is a phenomenal company filled with talented people creating iconic products that consumers around the world love.  However, like many other shareholders, Greenlight is dissatisfied with Apple’s capital allocation strategy.  Greenlight believes that the amendment to Apple’s charter in Proposal 2 unnecessarily limits the Board’s flexibility to distribute preferred stock as a means of unlocking shareholder value.  As such, Proposal 2 does not merit shareholder support.

 

“We believe Apple must examine all of its options to unlock the growing value of its balance sheet for all shareholders,” said David Einhorn, President of Greenlight.  “Over the past several months, we have had an ongoing dialogue with Apple regarding one option to do so, namely the creation of a new security, a perpetual preferred stock that would be distributed at no cost to Apple’s existing shareholders, and would provide an attractive, sustainable dividend while preserving Apple’s financial resources to pursue its business strategy.”

 

Greenlight first described the concept at a May 2012 investment conference, where Mr. Einhorn demonstrated that Apple could unlock several hundred billion dollars of shareholder value by distributing, to existing shareholders, a perpetual preferred stock.   Since May, Greenlight has had discussions with Apple on this value creation idea, but Apple rejected it outright in September 2012.

 

Greenlight believes that Apple’s proposal to eliminate preferred stock from its charter is an unprecedented action to curtail the Board’s options.  Greenlight is not aware of any other company that has ever taken this step voluntarily.  Greenlight remains convinced that the issuance of perpetual preferred stock is a viable option for improving Apple’s unsatisfactory capital allocation policy.

 

Yesterday, in response to Greenlight notifying Apple that it intended to contest Proposal 2, management offered to re-evaluate Greenlight’s idea, but refused to withdraw the charter amendment to eliminate preferred stock.  Greenlight is hopeful that when Apple and its advisers review the idea afresh, it will see the merits and act to unlock value for all shareholders.

 

Nonetheless, Greenlight believes that eliminating preferred stock from the Company’s charter hinders Apple’s ability to implement value creating options.   Mr. Einhorn continued, “Apple should unlock shareholder value through the distribution of perpetual preferred stock.  We ask shareholders to vote against Proposal 2, thereby expressing to Apple and its Board their support for unlocking value and significantly improving Apple’s current capital allocation policy.”

 

Proposal 2 actually contains three distinct corporate governance proposals that Greenlight believes need to be unbundled and voted on separately as required by Securities and Exchange Commission rules.  Yesterday, the Company informed Greenlight that Apple would not unbundle the proposals.  Accordingly, Greenlight today initiated a legal action in the U.S. Federal District Court for the Southern District of New York seeking to have the Company conform Proposal 2 to the SEC rules.