Investors finally figure out how to get cash out of Apple: lawsuits

February 7, 2013
February 7, 2013

Apple investors have long complained about the iPhone maker hoarding gazillions of dollars in cash, but it was hard to find enough vulnerabilities to pressure Apple about it—until now.

Hedge fund guru David Einhorn of Greenlight Capital went after Apple today, filing a lawsuit to block a shareholder proposal that he says would get rid of Apple’s ability to issue preferred shares. The company disputes that claim.

Preferred shares pay a small, fixed, regular dividend, irrespective of how much profit a company makes (though it can suspend payments if it’s going through a rough patch.) Owners of common stock get dividends only when the company chooses to pay them. Last year, Apple yielded somewhat to shareholder pressure by promising a quarterly dividend payment for the next three years, the first regular dividend since 1995; but it is still earning money faster than it pays it out, so its cash pile continues to grow.

During an appearance on CNBC, Einhorn compared Apple to his grandmother after the Great Depression, who accumulated more cash than she needed, instead of putting that money to work. Einhorn argued that Apple should use its cash stash to return money to investors by issuing preferred stock.

Somewhat surprisingly for a company that tends to ignore critics, Apple responded to one of its most famous shareholders by saying it is evaluating Greenlight’s comments. The market reacted favorably to Apple’s statement, sending the stock up by about 2.65% to around $468 per share. Since last September, when Apple stock traded at around $700, it has taken a more than 35% hit, as it faces stiffer competition from Samsung in the market for smartphones and tablets.

Before the share price drop, investors had long complained about Apple’s treasure trove of cash; but given its stellar stock performance, shareholders felt they really couldn’t complain. “I wanted money from them but it’s hard to yell at them when they seem like they are doing everything else right,” one Apple shareholder told Quartz.

Now investors finally see a chance to get some green from Apple. “We hope Einhorn doesn’t let this go,” the investor said. “Apple needs to show us the money.”

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