Hedge fund manager sues Apple for having too much cash
reuters.com
reuters.com
But it annoys me that this is what companies deal with when they go public. Everyone thinks they're a manager now because they own some shares.
Are you not happy with the amount of money Apple is making? Are you not happy with their level of innovation? Their products? Then divest yourself of their shares.
We hire management teams to run companies. Let them do their job. I know, I know, again - technically as a shareholder you have a right to have a voice and yadda yadda yadda but lawsuits like this are exactly what public CEOs talk about when they say that they dread running public companies and can't take a long-term view because shareholders only care about quarter-by-quarter performance.
Annoying.
So the interesting question is: why was Apple able to do this, when other major corporations can't seem to shake their Wall Street shackles? I would guess that it had a lot to do with an early chain of big hits. The iPod, followed by the massively successful generations of subsequent iPods and iTunes, gave Jobs a large degree of immunity to criticism (and he still got quite a bit of criticism!). The iPhone had its pre-launch naysayers, in finance and in the press, but Apple's share price didn't take any real damage as a result. And so on with other product launches, up until recently.
Prove the analysts hugely wrong for years on end, and eventually their critiques won't hurt you. But getting to that point in the first place is the tricky part.
I agree, but the chain of hits started with the iMac, which quickly became the bestselling personal computer ever.
Also, Jobs had already demonstrated his ability to make tough decisions: when he became interim CEO at Apple, he appointed an entirely new board of directors, chose new VPs, slashed many product lines (Performa, Newton, Network Server, QuickTake, LaserWriter, etc etc), and he wouldn't take more than $1 in salary.
Edit: or if there's no fool, the company could buy back shares, but at that point you should seriously consider just paying a dividend.
Dividends are only one way to get value out of cash reserves in a company. I'd argue that if the company knows what the hell it's doing, handing away the fuel that helps it to execute on its strategy (cash) is the worst thing to do.
If they can't invest it in a way that covers their cost of capital, it is their duty to pay it out, not to sit on it.
it is their duty to pay it out
How so? Did they commit to giving out dividends as a part of your purchase of their stock? Are they siphoning the cash out of the company to avoid giving shareholders value?
Sitting on cash has been an Apple strategy for a very long time, even before Jobs came back. How have they deceived shareholders by continuing with it?
When you have multiple shareholders, the concept is the same, it's just harder to hold management's feet to the fire.
This is different than "sitting on cash" as a strategic decision. It is wise to do so - there might be investment opportunities or hard times down the road. But we are talking about excess cash - cash beyond the level that is reasonable to sit on for strategic purposes. To sit on excess cash (which is admittedly a judgement call) is to hold your shareholders' money hostage in an unprofitable manner. Given how much cash Apple has, I don't think it's unreasonable for shareholders to grumble a bit.
Having cash reserves sor which you have no immediate plans is itself a strategy that may have extra benefits, like it or not.
That's $2B more, or about %25 more of the total than last year. If you just look at the expenditures on production (Eg: buying the equipment used to make their products) it seems to have grown ~%33 in the past year.)
It could easily be the case that Apple spends %10-%20 of its cash each year on these efforts, as it needs to scale its business at double digit rates.
Having 10X your annual CapEx spending in the bank doesn't seem exactly irresponsible. Quite the opposite.
You seem to be operating without a deep understanding of how the economics of companies and stocks work. Each dollar in cash adds a dollar to the value of the stock, assuming no multiple. So, someone paying an additional dollar for that stock is not overpaying, and thus is not considered a "fool".
Companies are valued by people like Buffett on their return on cash, or return on equity, and other such measures. Do the analysis for Apple and see what those figures are and then compare them to other companies like Microsoft, Amazon and Google.
I think you'll find Apple is being well managed financially, and the value delivered to investors by these current strategies is quite good, as represented by these standard metrics (that require more research than the average journalist or investor will likely do, but that value and growth investors regularly do.)
Thus you invocation of the "greater fool" theory is not supported, and I challenge would be completely undermined if you calculated these metrics.
If Einhorn had a fucking clue about how to run Apple he should start a tech company, since he doesn't he should shut the fuck up.
His share price bullshit is a fucking distraction while the biggest turfwar in tech history unfolds, exactly how does a $32 increase in share price benefit Apple? The $100 billion in the bank means they don't need additional capital. That it is underperforming means their management is focused on building a pile of cash, not managing a pile of cash.
However, with a pile of cash like that, imagine if Apple decided to create an iBank, now that would be a way to leverage huge returns from that pile of cash while simultaneously disrupting a massive industry weighing our economy down.
I think it's fine for a company to have a nice amount of cash ready in case of some big setbacks. Especially since Apple seems willing to take huge gambles these days to enter new markets (iPod, iPhone, iPad and soon the Apple-designed TV I'm sure). And I think Apple needs these gambles to succeed, because eventually competitors will eat away profits at the lower ends of the "older" markets, slowly taking a bigger piece of the pie.
I don't think most stock holders are that much interested in the company or it's products but would rather make a quick buck. The interests are different. And spending money on stockholders would mean having less money to spend on the company. I don't see what Apple could gain, except perhaps some goodwill from stockholders.
I truly believe the Apple designed-TV will come either this year or next year and I also think this TV will revolutionise the market. I can imagine Siri being used instead of a remote control, for example (Steve Jobs had said he had gripes with the remote control). Once Apple enters this market, I think there's a very good chance Apple's stock prices will rise like crazy again. Stockholders will be able to sell the stock with huge gains.
And I agree that Wall Street is overly concerned about quarterly earnings. But that's the way the game is played. In 1980, Apple went to Morgan Stanley to get help selling its soul to Wall Street (for a cool $100 million). Today, 33 years later, Wall Street still owns it (65% of Apple's shares are held by funds and institutional investors). That was the deal.
If a majority of shareholders wanted this proposal, or some other proposal, they could get it in the proxy statement and then get it passed.
What's happening here is a lawsuit to try and do an endrun around the process by which the shareholders exercise their rights.
Hell, shareholders vote for the members of the board of directors.... shareholders could choose to nominate and vote for board members that support the idea if they wanted.
In this case, you have to distinguish between "I think Apple should be managed differently" and "hoarding cash amounts to a breach of fiduciary duty." The former is about general corporate strategy, and that is governed by majority consent of the shareholders. The latter is a right specific to each shareholder, and so cannot be waived by majority consent.
Why is the process structured this way? For obvious reasons. Say you're buying a 25% stake in Apple, but back in the 1970's before it was Apple (remember, the rules of the arrangement as decided prospectively, before anyone knows how things will turn out, not retrospectively, after everyone knows the company will be a hit). You might be willing to leave general corporate strategy to a majority vote. However, if you think the company's actions actually amount to misuse of your capital investment, you want to be able to sue, not just submit your grievance to the majority vote.
The only reason he sues is that he doesn't own enough stock to get enough votes.
"while Apple for now uses Braeburn primarily in its capacity to find legal tax loophole all around the world and avoid paying taxes, there is no denying that with a cash balance that in a two years may be well over $200 billion, applying even a modest amount of leverage would make AAPL the best capitalized bank, mutual fund or asset manager in the world."
"...it is not an investment advisor: it merely manages an ungodly amount of cash for AAPL's millions of shareholders. There is also no SEC filing 13-F filing on Braeburn's holdings. As such, not confied by the limitations of being a "long-only", it is in its full right to hold any assets it feels like, up to and including CDS on housing, puts on Samsung, or Constant Maturity Swaps that pay if the 10 Year collapses. It just doesn't have to report any of them.
Nobody knows: and that's the beauty of Braeburn. It is the world's largest hedge fund that is not really a hedge fund, nobody has heard of, and nobody knows just what assets it holds. Which is precisely what Apple wants."
http://www.zerohedge.com/news/2012-09-30/presenting-worlds-b...
They're related, but the actual point of the law suit is at the bottom of the article:
Greenlight said it is opposed to the proposal, No. 2 on Apple's proxy, which the firm said would remove the company's ability to issue preferred stock from its charter.
He isn't suing to force Apple to release cash. He's suing so that Apple doesn't change the rules that would make it harder to get preferred shares out to shareholders.
It's more correct to say that he's suing so that one avenue for divesting cash doesn't get removed from the table.
That's simply not the case.
I realised Apple had a lot of cache, but that really does seem to be getting to ridiculous proportions, effectively 1/3 of the value of the shares is a pile of cash which it seems Apple continues to sit on, doing nothing useful with, or having no good plans for (of course, who knows what is going on behind closed doors).
The fact they have 100 billions in cash and not willing to jeopardize their culture and focus is a proof of their dedication to do what's best for the company.
If the owners of Apple think they can do a better job with that giant pile of money, then they are quite within their rights to ask to be given at least some of it. They can still leave Apple with a bigger reserve than any other tech company around.
Wall Street wants all companies beholden to the quarterly cycle - and if that company has to kill it's future to make the quarter, then so be it - all the better for those who make money on both sides of the trade.
That's bad for the company and bad for customers.... all so the hedge fund manager can make an extra bonus by killing jobs and US competitiveness.
IIRC, Apple wanted "retina displays", there weren't any producers for want of enough capital to build the production facilities, so Apple wrote a check for well over a billion dollars to have the factory built, and built to a level where production was as cheap as if it had been running for many years, approaching commodity prices. Result? First product line to feature such high resolution, and at a price competitors couldn't come close to matching.
Likewise other technologies and supply chain issues.
You can't move that fast, stay that far ahead, with costs that low, without the ability to fork over VERY large amounts of money on a moment's notice.
Retaining cash without returning it to the shareholders is a violation of its fiduciary obligations to its shareholders. The fact that it could use the cash to fund R&D, etc., is irrelevant since Apple is clearly not doing so.
That being said, that is not why the hedge fund manager is suing Apple. He's suing to prevent Apple from eliminating preferred shares, which provide enhanced dividend and liquidation preferences.
I suppose I can see the point of view of Apple has a lot of money not doing a lot, why not pay it back to investors, but I thought that was what the share dividend program was for? I may be missing something, financial and stock market knowledge isn't my cup of tea.
Don't you usually issue shares when you lack the capital to fund projects/research etc?
Apple has more cash than they need, and Tim Cook admitted this when their cash balance was under $100 billion when he announced the dividend and buyback.
Imagine if people sued Apple to try and make them license their OS to others![1]
This is the worst kind of back seat driving.
[1] I do think that Apple licensing iOS to companies like HTC, Samsung, etc. with a strict quality control program would make good business sense, but despite being long Apple, I realize it's not my place and there are probably many factors that I'm not aware of. The problem of not being able to meet demand, and needing to compete at the lower end of the price spectrum would be solved by my proposal, but Apple likely has other plans to solve this problem. At the end of the day, it's up to the Management Team and the Board to address these issues, not minority shareholders!