Prodded By Activist Hedge Fund, Apple Evaluates Plan To Return Cash To Shareholders Through Preferred Stock Issue

Apple said this afternoon it is evaluating the possibility of issuing preferred stock as part of its ongoing effort to return $45 billion to its shareholders which was initiated in March of last year.

The evaluation is apparently in response to Greenlight Capital, a hedge fund led by David Einhorn that currently holds some 1.3 million shares of Apple stock. Greenlight has been very publicly pushing Apple to give more of its cash back to shareholders.

In particular, Greenlight is opposing Apple’s proposed plan to amend its corporate charter in a way that would eliminate the option of issuing preferred stock.

In an interview with CNBC today, Einhorn said that preferred stock should indeed be issued by Apple, and he blasted the company for hoarding its cash with a “depression-era mentality.” In a separate interview with Bloomberg, he compared Apple’s attitude toward cash to that of his grandmother, saying, “It is kind of like my grandma Roz. She wanted to hoard money. She would not leave me a message on my answering machine because she did not want to be charged for a phone call. It is really hard to convince somebody with that mindset to change what they’re doing.”

Apple has been having a rough go of late when it comes to the stock market. The company ended the trading day with a price of $468.25 per share, down 12 percent from the start of the year and down nearly 25 percent from its trading price six months ago.

Here is the Apple release in full:

CUPERTINO, Calif.–(BUSINESS WIRE)–By early last year, Apple’s cash balance had built to a point beyond what we needed to run our business and maintain flexibility to take advantage of strategic opportunities, so we announced a plan to return $45 billion to shareholders over three years. As of next week we will have executed $10 billion of that plan.

We find ourselves in the fortunate position of continuing to generate large amounts of cash, including $23 billion in cash flow from operations in the last quarter alone.

Apple’s management team and Board of Directors have been in active discussions about returning additional cash to shareholders. As part of our review, we will thoroughly evaluate Greenlight Capital’s current proposal to issue some form of preferred stock. We welcome Greenlight’s views and the views of all of our shareholders.

As a part of our efforts to further enhance corporate governance and serve our shareholders’ best interests, Proposal #2 in our proxy includes some recommended changes to our articles of incorporation. These changes were recommended independently of Greenlight’s proposal and would not preclude Apple from adopting their concept. Contrary to Greenlight’s statements, adoption of Proposal #2 would not prevent the issuance of preferred stock. Currently, Apple’s articles of incorporation provide for the issuance of “blank check” preferred stock by the Board of Directors without shareholder approval. If Proposal #2 is adopted, our shareholders would have the right to approve the issuance of preferred stock. As such, Proposal #2 has the support of many of our shareholders.

We remain committed to having an ongoing dialogue with our shareholders to get perspectives around return of capital and driving shareholder value.