Apple Faces the Biggest Investor Challenge, as It Is Sued By Einhorn

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Apple, Inc. is one of the most dominant companies in the technology market. Whether for smartphones or for tablet computers, Apple has huge market shares being the second largest technology company of the world, measured by its revenues. Apple is also the third largest mobile phone maker of the world and is said to be one of the most admired companies in the United States. The products of the company are highly coveted and valued by people worldwide. However, the company is constantly being challenged.

A suit was filed against the company by Hedge Fund Manager, David Einhorn’s Greenlight Capital and the company was asked to give out a bigger piece of its $137 billion cash reserve to investors. This unusual event occurred just when the company was grappling with the dilemma of a tumbling share price, increasing competition in the smartphone and tablet market and mounting concerns about the company’s ability to deliver innovative products.

David Einhorn is a well-known Apple gadget fan and is also a short-seller. In his interview, the investor said that the company tends to have a ‘Depression era’ mentality. Therefore, it has the habit of hoarding cash and making investments in the lowest-yielding and safest securities. In the 1990s, Apple, Inc. nearly went broke and the sensational turnaround of the company was only engineered by Steve Jobs. Steve Jobs introduced innovative products, such as the iPad and the iPhone that became must-haves for consumers all over the globe. Thus, Apple became extremely conservative with cash because of its near-death experience.

Just months after Job’s death last March, the company was on the receiving end of a barrage of investor criticism for hoarding a substantial sum of cash of around $98 billion. The company responded by giving a quarterly share dividend and a share buyback that gave away around $45 billion of the cash. A proposal is being targeted by the lawsuit that was filed by Eihorn in the US District Court in Manhattan. The proposal is regarding the elimination of its charter ‘blank check’ preferred stock. The discretion of issuing preferred stock is with the board, but its shareholders are being asked to cast their vote that would need shareholder approval.

Apple shareholders were urged by Einhorn to turn down this proposal and instead he put forward his own proposal regarding the issuance of preferred stock. It has been expected by analysts that the stockholder pressure would increase on Apple as its stock price is declining and the outlook looks murkier. Since the record high the stock reached in September, it has fallen about 35%. Einhorn is one of the most committed bulls for Apple, but his Greenlight did not have a good year because of the stock swoon of Apple in late 2012. He says that the company needs to address its ‘cash problem’.

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