Activist investor proposes unconventional plan to boost Apple’s stock

Greenlight Capital hedge fund manager David Einhorn has a plan for Apple(s AAPL): to increase shareholder value and pump up the downward-drifting stock, why not issue a quarterly dividend of 50 cents — in perpetuity? Based on the conference call he hosted Thursday, Einhorn seems to believe that one of the most conservative companies in tech would get on board with this very unconventional plan to distribute preferred stock shared that he’s dubbed “iPrefs.”

Einhorn is framing the proposal as a way for Apple to avoid having to find other ways of distributing its $137 billion in cash it already has. He said his plan would mean Apple would spend about $1.9 billion per year issuing iPrefs. At the same time, he is trying to defeat a proposal Apple has put before shareholders, that would, among other things, allow Apple to issue “blank check” preferred stock. Last week, Apple CEO Tim Cook called the preferred stock idea “creative” but dismissed Einhorn’s lawsuit to get Proposal No. 2 removed “a silly sideshow.” Apple has promised to consider his ideas.

Here are some observations from Apple followers and finance experts about Einhorn’s strategy:

  • The Guardian notes that Einhorn’s plan is meant to reward investors and coax them into boosting the stock: “Einhorn is taking a mathematical route. He believes shareholders will reward Apple for giving them cash by pushing up the price of the stock. ‘Apple wants to keep its cake, and its shareholders can eat it too,’ he said.”
  • Fortune said he didn’t make a good case for the plan’s ability to boost the stock value: “Einhorn himself acknowledged that Apple’s common stock would go down when the iPrefs are issued and that a $50 iPref was also likely to lose value as soon as hit the market — undermining all his subsequent calculations for how much of Apple’s intrinsic value his scheme would unlock.”
  • Bloomberg quotes investors who aren’t super thrilled with the dual strategy of the iPrefs plan and lobbying against Apple’s shareholder proposal No. 2.: Rich Clayton of CtW Investment Group calls Einhorn’s campaign against Apple “in no way necessary” and says Apple’s proposal “is being hijacked.”
  • Bespoke Investor Group, via WSJ, says Apple’s cash hoard isn’t that big of a deal anyway: “While you might think this is high, back in the early 2000s, Apple’s cash as a percentage of market cap was above 50% for years. And during the financial crisis, Apple’s cash got as high as 37%. Just something to be aware of as you hear all these calls for Apple to do something with its loot.”

As of the close of business Thursday, Apple’s cash was roughly 33 percent of its total market capitalization.

Einhorn said Thursday he would be meeting with Cook and other Apple representatives soon. The shareholders get to vote on the plan on Feb. 27.