A few weeks ago, we mentioned the growing discontent from some Apple investors, and the lurking potential for legal action. Well, last Thursday one of Cupertino's high-profile investors did just that, and launched a lawsuit against Apple in Federal District Court in Manhattan. A few days ago, Tim Cook responded like a parent answering a child who won't stop asking for a pony. Nobody likes to get swept into a high-profile lawsuit, do they?
David Einhorn is a rockstar hedge-fund manager whose company, Greenlight Capital, has been a huge supporter of Apple for years. Greenlight holds 1.3 million shares of Apple stock, worth over $609 million, and Einhorn staunchly believes Apple is "phenomenal" and a great investment; he just doesn't like the way Apple is hoarding cash. According to a financial blog at the New York Times, he is willing to go a few rounds with the Apple legal department to get his point across.
Einhorn compares Apple to a survivor of the Great Depression, likening the company's near-collapse in 1997 to the stock-market crash of 1927. Like his grandmother who wouldn't leave voicemails for fear of wasting cell-phone minutes, Einhorn thinks Apple has a "cash problem" — the kind of problem that wins you a spot on that Hoarders show. He would like to see the Apple open up the checkbook a little more loosely, and reward the people who have been investing in the company.
What if the next iPhone isn't great? That would be depressing.
When Apple recently announced a plan to eliminate a type of stock that can be used to easily pay out to investors, and then rolled that proposal in with a few other very likable proposals for investors to vote on, Einhorn decided it was time to go to court. He wants the ideas broken up into separate proposals for voting, and he is calling on his fellow investors to vote against the elimination of the "so-called blank check preferred stock." Einhorn even offers an alternative plan, one that he has been pitching since last May and describes in glowing 2005 terms as a "win-win."
Tim Cook, speaking as the keynote speaker at the Goldman Sachs Internet and Technology Conference this past Tuesday, covered a wide range of Apple topics, but according to Reuters minced no words when describing how he felt about Einhorn's suit.
Referring to the lawsuit as a "silly sideshow," Cook went on to state that the legal action was "a waste of shareholder money and a distraction, and not a seminal issue for Apple." Cook mentioned that Einhorn's proposal from last spring was interesting, but also reinforced that Apple's board was already in "very active discussions" to hand investors a bigger chunk of its $137 billion hoard of cash.
Apparently feeling somewhat of a victim, since the company he leads has been the darling of wall street tech stocks for years until very recently, Cook commented that he found it very "bizarre that we would find ourselves being sued for doing something good for shareholders."
Poor Apple. It must have seemed odd to David Einhorn that Tim Cook even mentioned his proposal, since Einhorn claims he has been pitiching it up and down Cupertino's corporate ranks since last May. Apparently he felt like he was getting nowhere, and — maybe suspecting that Cupertino's preferred method of settling conflicts is to go to court — perhaps Einhorn felt he had no other option. Or perhaps this is a beautifullly crafted and publicized public attack on a company designed to manipulate stock prices, the sort of thing Einhorn has done many times in the past to build up a cult following of Wall Streeters.
Either way, perhaps Apple is realizing it does sting a little when you are dragged into court by one-time friends who suspect you are trying to rip them off.
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