Does Apple’s Buyback Plan Meet Einhorn’s Standards?
Though numerous investors were quite pleased with Tuesday’s report card from Apple (NASDAQ:AAPL), one investor was particularly enthused: David Einhorn, founder and president of Greenlight Capital, who earlier this year brought a lawsuit against Apple over the way it was handling its cash pile.
“We applaud Apple’s decision to borrow money and return excess capital to shareholders, an idea that was off the table only months ago,” Einhorn said. “This positive development represents a more shareholder friendly capital allocation policy and demonstrates the conviction of Apple’s management and board in the company’s future.”
The company revealed that it was increasing its stock buyback program five times over (the $60 billion share buyback program is the largest stock repurchase in history), and upping its dividend by 15 percent. The company would also be taking on debt in its shareholder interests.
Though expressing his pleasure for Apple’s new shareholder goals, it varies slightly from what Einhorn had originally set out to achieve. His original plan involved issuing a preferred share, which carries a $0.50 quarterly dividend, for every outstanding common stock of Apple.
The release of preferred stock would be a creative way for the company to return equity to shareholders while maintaining its financial flexibility, Einhorn explained at his initial presentation. He also emphasized that he was open and receptive to other solutions, including simpler alternatives, much like what Apple pledged to its shareholders this week.
The company, however, was not pleased with Einhorn’s proposal. When it carried on with its plan of eliminating the board’s ability to issue preferred stock at will, Einhorn brought the company to court where a Manhattan-based judge sided with the hedge fund — more specifically, that the company improperly bundled its preferred-share initiative with other shareholder proposals.