What Will the Apple Stock Debate Do?
Apple (NASDAQ:AAPL) has said it may announce an increase in its dividend price after an influential investor picked up a public fight with the company. The hedge fund Greenlight Capital filed a lawsuit against the iPhone maker on Thursday and announced its intention to get shareholders to vote out a proposal that, it says, will end the practice of preferred stock at the company.
Apple reacted by announcing it was in “active discussions” about returning more cash to shareholders and that it would consider Greenlight’s proposal. The company had first announced a dividend and stock buybacks program last year, setting aside $45 billion for it.
However, since then it has continued growing its already healthy cash reserves, and with $137 billion in the bank at the end of December, it’s no wonder that shareholders want a bigger share of the pie.
But despite Apple’s statement, Greenlight is not expected to back off before the company’s annual shareholder meeting scheduled for February 27. It is at the meeting that the preferred stock debate will come up. Apple has enlisted the help of the California Public Employees’ Retirement System, another of its big investor groups, to get what it calls Proposal #2 passed.
CalPERS has been a longtime critic of Apple’s corporate governance practices, but does support this proposal.
According to Greenhorn manager David Einhorn, the elimination of preferred stock would put an additional black mark on Apple’s capital allocation strategy. However, according to Apple, the proposal is designed to have shareholders give their approval before preferred stock is issued rather than eliminating the option altogether.
But shareholders clearly want more for their money, and several other institutional investors came out in support of Einhorn on Thursday. “The combination of Apple’s low (and shrinking) price to earnings multiple and $137 billion (and growing) hoard of cash on the balance sheet supports Greenlight’s contention that Apple has an obligation to examine all options to create and unlock additional value,” Einhorn said.
It will be interesting to see how the debate shapes up, but in any case, the possibility of a dividend boost and Apple’s admission of an ongoing discussion regarding it has encouraged the company’s investors, with the stock gaining 3 percent on Thursday and closing Friday up 1.44%:
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