Activist Investor Sues Apple for More Cash

U.S. activist investor and hedge fund manager, David Einhorn, is suing Apple in a New York federal court demanding that the company stop hoarding cash and pay out a bigger piece of its $137 billion cash pile to investors.

Speaking to CNBC on Thursday, Einhorn accused Apple of habouring a depression-era mentality, which gave it a tendency to hoard cash and invest only in the safest, lowest-yeilding securities. 

U.S. activist investor and hedge fund manager, David Einhorn, is suing Apple in a New York federal court demanding that the company stop hoarding cash and pay out a bigger piece of its $137 billion cash pile to investors.

Speaking to CNBC on Thursday, Einhorn accused Apple of habouring a depression-era mentality, which gave it a tendency to hoard cash and invest only in the safest, lowest-yeilding securities. 

The unusual move comes as Apple’s cash pile grew to $137 billion from $98 billion last March, even as the world’s largest technology company grapples with a tumbling share price and mounting competition in the smartphone and tablet markets it once dominated. Apple shares are now 35 percent below the record high they reached in September 2012.

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Einhorn, who manages Greenlight Capital, told CNBC:

[quote] It has sort of a mentality of a depression. In other words, people who have gone through traumas … and Apple has gone through a couple of traumas in its history, they sometimes feel like they can never have enough. [/quote]

Apple nearly went broke in the 1990s before the late Steve Jobs engineered a sensational turnaround. The company’s near-death experience has led Apple to be exceptionally conservative with its cash, which yielded only 1.02 percent in weighted-interest for the 2012 fiscal year.

On Thursday, Greenlight announced it has taken legal action against Apple over proposed changes to its corporate charter that would prohibit the company from issuing new high-yielding preferred stock without shareholder approval. Greenlight alleges that Apple is not complying with U.S. Securities and Exchange Commission rules requiring separate votes for distinct and unrelated amendments to the charter.

Einhorn, a prominent short-seller who made his fortune predicting the collapse of Lehman Brothers, urged Apple shareholders to vote against the plan, and put forward his own proposal for an issuance of preferred stock – which he deems superior to dividends or share buybacks – with a perpetual 4 percent dividend.

Last year, Apple began paying a dividend for the first time since 1995 and has said it will buy back $10 billion worth of stock over three years. 

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According to a report by Reuters, Einhorn had been for months “imploring Apple’s chief financial officer, Peter Oppenheimer, to have the company issue dividend-paying preferred shares to reward investors and juice the stock price.”

Einhorn then approached Apple’s chief executive, Tim Cook, after failing to interest Oppenheimer in the matter. “The lawsuit is to get the proxy [proposal] sorted out,” he said.

Einhorn has long been an advocate for Apple stock and holds around 1.3 million shares, or a 0.12 percent stake in Apple, worth about $600 million at current values. 

Apple on Thursday said it remains “committed to having an ongoing dialogue with our shareholders to get perspectives around return of capital and driving shareholder value.” 

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In Pictures:American Companies Sitting Atop A Pile Of Cash