Apple Inc Chief Executive Tim Cook said the board is carefully
considering David Einhorn's proposal for the company to issue preferred
stock and return more cash to investors, but he called a lawsuit brought
by the star hedge fund manager against Apple a "silly sideshow."
aside Einhorn's assertion that Apple is clinging to a "Depression-era"
mentality, Cook said on Tuesday the company's board is in "very active
discussions" on how to dole out more of its $137 billion hoard of cash
and marketable securities.
Einhorn and his Greenlight Capital are
suing Apple as part of a wider effort to get the iPhone maker to share
more of its cash pile, one of the largest among technology companies.
They are challenging "Proposal 2" in Apple's proxy statement, which
would abolish a system for issuing preferred stock at its discretion.
wants Apple to issue perpetual preferred shares that pay dividends to
existing shareholders, which he argued would be superior to dividends or
Cook gave Einhorn credit for a novel idea, but the
usually unflappable chief executive turned slightly impatient when
discussing the lawsuit. He was also dismissive of Einhorn's media and
legal blitz - which included the lawsuit as well as multiple television
and media interviews.
Einhorn seeks an injunction to block a
February 27 shareholders' vote on Proposal 2, in what amounts to the
biggest challenge to Apple from an activist investor in years.
is a waste of shareholder money and a distraction, and not a seminal
issue for Apple. That said, I support Prop 2. I am personally going to
vote for it," Cook told a packed hall at Goldman Sachs' annual
technology industry conference in San Francisco.
The conflict over
Prop 2 "is a silly sideshow," added Cook, who on Tuesday traded in his
usual casual jeans attire for slacks and a dark suit jacket, in a nod to
Wall Street. Cook said he thought it "bizarre that we would find
ourselves being sued for doing something good for shareholders."
clash with Apple centers on a proposed change to its charter that would
eliminate the company's ability to issue "blank check" preferred stock
at its discretion. Apple, which said the change would not preclude
future issuance of preferred shares, is recommending shareholders vote
in favor at its annual meeting on February 27.
The lawsuit, filed
in the U.S. district court in Manhattan, objects to the bundling of the
charter change with two other corporate governance-related proposals in
The hedge fund manager, a well-known short-seller
and Apple gadget fan, counters that striking the preferred-share
mechanism from the charter would make it more difficult to issue such
securities down the road.
"If Apple thinks the lawsuit is a waste
of resources, it could simply end the matter by complying with existing
law and filing a new proxy that unbundles the proposed changes to the
charter, so that shareholders can express their views on each matter
separately," a Greenlight Capital spokesman said in an emailed
statement, responding to Cook's comments.
On Tuesday, influential
advisory firm Glass Lewis recommended shareholders vote in favor of
Proposal 2, joining ISS and the California Public Employees Retirement
System - the top U.S. pension fund - in voicing support for the measure.
Apple and Greenlight appear for oral arguments in U.S. district court in Manhattan on February 19.
however were disappointed that Cook - who rarely makes lengthy
public-speaking engagements - did not provide a "more substantial" view
on returning cash.
Apple's share price has tumbled in recent
months from a high of just over $700 last September. They finished 2.5
percent lower at $467.90 on Tuesday.
"The only thing that would
substantially move the stock would be him saying they were returning
cash to shareholders or hinting at a new product," said a manager from a
mid-size Dallas hedge fund that owns Apple shares.
"There was a small chance of that happening."
stock is a mainstay of many fund managers' portfolios, with research
firm eVestment estimating that 75 percent of U.S. large-cap growth
managers had invested more than 5 percent of their portfolios in Apple
as of the end of the third quarter of 2012.
But that also
increases the pressure on Apple to give away a bigger portion of its
cash hoard, which is rising as the share price declines and its outlook
Last March, Apple announced a quarterly cash
dividend and a share buyback that would pay out $45 billion over three
years. At the time, it was sitting on $98 billion in cash. It has so far
returned $10 billion of that, but investors want more.
own view is that its cash pile is a strategic cushion, offering it more
flexibility if a need ever arises, such as a major acquisition. Cook
said the company had pondered more than one large acquisition in the
past, but none passed its internal test.
The company could well do one in the future if the technology fits, he said.
"We have the management talent and depth to do it," he said. "We don't feel the pressure to go out and acquire revenue."
Free wheeling discussion
introduced by Goldman Sachs CEO Lloyd Blankfein at the outset, offered
other views on topics from screen sizes and the future of the personal
computer to Apple's commitment to "great products."
He disputed a popular view that the smartphone market in developed markets may be saturated.
a longer-term basis, all phones will be smartphones and there's a lot
more people in the world than 1.4 billion, and people love to upgrade
their phones very regularly," he said.
The company is also trying
to appeal to cost-conscious customers. Apple has moved to make the
iPhone more affordable without introducing a specific cheaper phone, by
cutting prices of older models.
"We didn't have enough supply of iPhone 4 after we cut the price," he said. "It surprised us, the level of demand for it."
chief executive, who departed for Washington, D.C after the conference
to join U.S. first lady Michelle Obama at the President's State of the
Union address later on Tuesday, otherwise stuck pretty much to his
regular script - with a sprinkling of lighter, more personal moments.
grew animated when praising Apple employees or talking about the
company's efforts to improve labor conditions across its sprawling
supply chain, and touted the Apple store concept for its uplifting
Cook said that when he is down, he just visits an Apple retail store. "It's like Prozac. It's a feeling like no other."
© Thomson Reuters 2013