Apple’s Cash Position and What is Behind the Einhorn Maneuver

 

Issuer:


Apple Computer

RE: David Einhorn’s Lawsuit and Letter to Apple Shareholders 
Conclusion The Cash Position at Apple Behind the Hedge Fund’s Moves on Apple’s Upcoming Annual Meeting of Shareholders

Apple’s upcoming annual meeting is scheduled for February 27, 2013, where among other things, Apple will ask its shareholders to approve changes to its articles of incorporation to (“Proposal 2”):

  • eliminate certain language relating to the term of office of directors in order to facilitate the adoption of majority voting for the election of directors
  • eliminate “blank check” preferred stock
  • establish a par value for the Company’s common stock of $0.00001 per share

Greenlight Capital, Inc., David Einhorn’s hedge fund, disapproves.  Einhorn would like Apple to issue preferred stock with a dividend to unlock shareholder value while Apple is taking steps to remove preferred stock from its capital structure altogether.  As a result, Einhorn recommends that shareholders oppose Proposal 2.

Meanwhile, Greenlight has filed a lawsuit claiming that the changes to the articles in Proposal 2 should be unbundled and voted on separately.

What is behind this?  Well, what is behind almost every move in the market?  Cash.  Only in Apple’s case, there is lots and lots of cash.  Some say Apple has more cash than it could possibly use to the shareholders’ benefit.

Apple’s cash position is indeed impressive, consisting of (as of December 29, 2012):

Cash and cash equivalents $16.1 billion
Short-term marketable securities $23.7 billion
Long-term marketable securities $97.3 billion
    Total $137.1 billion

Apple had also paid cash dividends in the last quarter of $2.5 billion and repurchased $2.0 billion of shares of common stock.

Comparatively speaking, let’s see how Apple’s position looks compared to other companies often mentioned in the same breath.*

Company

Cash**

Total Assets**

Ratio of Cash to Total Assets

Apple

$137.1

$196.1

69.9%

Microsoft

$68.3

$128.7

53.1%

Cisco

$45.0

$92.6

48.6%

Oracle

$33.7

$79.7

42.3%

Intel

$10.5

$74.4

14.1%

____________________

*Financial numbers as of the latest date for which financial statements are filed with the SEC.
**Dollars in billions. Includes cash and cash equivalents and marketable securities/investments, depending on how the company reported its figures.

The table above seems to show that as the company’s cash hoard grows, its ability to use that excess cash productively falls.  Apple, with over twice as much cash as the nearest company on our list, seems to have reached a point of diminishing reserves with respect to its cash, so sayeth the activist investors.

How about returning cash to its shareholders?  Let’s take a look:

Company

Distributions (Dividends and Stock   Repurchases)*

Ratio of Distributions to Cash

Dividend Yield Per Share**

Earnings per share (diluted)***

Apple

$4.4

3.2%

2.3%

$13.81

Microsoft

$3.6

5.3%

3.3%

$0.76

Cisco

$0.9

2.0%

2.7%

$0.39

Oracle

$6.7

2.0%

0.7%

$0.53

Intel

$7.3

69.5%

4.2%

$0.58

____________________

*Aggregate dividend in the last reported fiscal quarter. Dollars in billions.
**Dividend yields and earnings per share are based on the date of this writing as reported by Yahoo! Finance.
***For the three month period from the most recent financial statements filed with the SEC.

Apple does fall into the middle of the pack in terms of returning cash to shareholders through dividends and stock repurchases as a percentage of its, however, the sheer volume of its cash and earnings per share demonstrate that Apple could implement a far greater distribution program to get cash back into the hands of its investors.   Einhorn and others claim that the market does not give Apple for its cash position or its ability to deploy such large amounts of cash productively.  Now battle lines are being drawn.

Links:
Greenlight Capital Letter to Apple Shareholders
Apple Form 10-Q
Microsoft Form 10-Q
Cisco Form 10-Q
Oracle Form 10-Q
Intel Form 10-Q

This entry was posted in Activist Investor, Apple, David Einhorn, Hedge Fund and tagged , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

3 Responses to Apple’s Cash Position and What is Behind the Einhorn Maneuver

  1. Pingback: New PRO Report on Apple Goes Behind the Numbers On Its Cash Position and Why It Is Drawing the Attention, and Lawsuits, of Activist Shareholders | Underdisclosed.com

  2. Pingback: Apple Responds to Greenlight, Einhorn: We’ll Take It Under Advisement, After the Shareholders Meeting | Underdisclosed.com

  3. I just like the invaluable information you give you in the article content.I’ll bookmark your blog website and investigate yet again right here frequently.I’m particularly certainly I’ll know considerably of latest things most suitable right here! Decent luck to the following!