Thursday was a big day for anyone interested in Apple's shares. There was some AAPL action after billionaire hedge fund manager David Einhorn of Greenlight Capital issued a press release stating that his company had filed a lawsuit against Apple, targeting a proposal by Apple to eliminate preferred stock from its charter.
In reaction Apple issued a statement saying that Apple has been in "active discussions about returning additional cash to shareholders," and that the company would "thoroughly evaluate Greenlight Capital's current proposal".
Einhorn's suit is being descried as the biggest investor challenge in years.
Goldman Sachs believes that this example of shareholder activism highlights Apple's significant capabilities for increased capital allocation, writes Valuewalk.
What does Greenlight want?
Einhorn, who controls more than a million AAPL shares, is demanding that the company gives more of its $137 billion cash pile to investors. He isn't the only one, last week we wrote that Gamco Investors portfolio manager Larry Haverty (who owns Apple shares) has suggested that Apple investors may sue the company if it continues to refrain from returning more cash to shareholders.
Einhorn's company, Greenlight Capital - an AAPL shareholder since 2010 - issued a statement in which it urges Apple shareholders to oppose an Apple proposal that could impede Apple's ability to unlock shareholder value.
Greenlight alleges that Apple is trying to eliminate preferred stock from Apple's charter as part of "Proposal 2". Apple shareholders will be able to vote on this proposal at the annual shareholder meeting on 27 February. Einhorn is urging shareholders to vote against the proposal.
The statement revealed that Greenlight and Apple have been in discussions since May 2012 about ways to unlock value for shareholders, but Apple rejected Greenlight's idea outright in September 2012.
Einhorn wants Apple to issue a new class of preferred stock that will pay a 4% dividend in perpetuity. This special dividend will go beyond the $2.65 a share Apple is already paying, in the form of a so-called "perpetual preferred stock."
He believes that by issuing this stock, Apple would immediately create hundreds of billions of dollars of new wealth for Apple shareholders, by "unlocking" the value of the cash on Apple's balance sheet.
Greenlight's statement explains: "Assuming Apple retains its price to earnings multiple of 10x and the preferred stock yields 4%, our calculations show that every $50 billion of perpetual preferred stock that Apple distributes would unlock about $30 billion, or $32 per share in value. Greenlight believes that Apple has the capacity to ultimately distribute several hundred billion dollars of preferred, which would unlock hundreds of dollars of value per share".
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