Apple has long had a reputation amongst its investors for hoarding cash. In fact, the company has 137 billion in cash reserves. Some believe that Apple’s reluctance to distribute cash to their investors is a by product of the fact that they almost went bankrupt in the past. For Apple supporters, it is just one part of why the company continues to be hugely successful. However, for one former supporter, Apple’s cash hoarding has been cause for action.
Hedge fund operator David Einhorn hopes to be able to change the way that Apple can distribute stock and force Apple to give more cash to shareholders. Einhorn’s plan called for $50 billion in preferred stock, valued at $1 a share, to be issued to holders of existing shares of Apple stock. Each of the shares issued by Apple would then pay an annual dividend of four percent forever.
Apple has fought back against Einhorns plan. The company has decided to remove the board’s power to issue preferred shares. This removal of power is an item on Apple’s proxy statement that would be voted on at the annual meeting. The unusual move to give away power is Apple’s attempt to maintain their cash reserve.
Einhorn is attempting to block Apple from making that move. He has filed a lawsuit in order to prevent Apple’s board from being able to give away its own power to issue preferred stock. This legal challenge is part of a unique attempt in what is likely an uphill battle to get Apple to allocate more of their cash to investors.
Whether or not the legal challenge is successful, the action taken by Einhorn has certainly cast a light on how Apple chooses to maintain such a huge cash reserve. It has brought forth the issue into the arena of public discussion. What do you think Apple should do? Do you think that they are right to maintain such a huge cash reserve? Do you think Einhorn is right to take legal action? These are questions that at this point, look as though they will be determined in court.
[Image via dawn]