David Einhorn of Greenlight Capital is going after the iconic tech company Apple Inc. (NASDAQ:AAPL) and pressuring them to do something with their huge cash pile, now at $137 billion and growing.
He said “They’ve done so well that they’ve ended up with a stockpile of cash that exceeds the market capitalization of all but 17 companies in the S&P 500.”
He proposes that Apple Inc. (NASDAQ:AAPL) use about $47 billion of the cash and create a new class of preferred stock, called “iPref, which would be priced at $50 per share and pay a $0.50 quarterly dividend. Apple pays $2.65 per share every three months on its common stock right now. Mr. Einhorn filed a lawsuit, and a federal judge ruled in his favor late on Feb. 22 which could clear the way for a shareholder vote on preferred shares.
Apple Inc. (NASDAQ:AAPL) CEO Tim Cook has called all the talk about the excess cash a “sideshow” and is a distraction for the company. Things could get interesting at the Apple annual shareholders meeting on Feb. 27.
Mr. Einhorn stated that Apple Inc. (NASDAQ:AAPL) should follow the lead of other companies which routinely return cash to shareholders.
One such company is International Business Machines Corp. (NYSE:IBM) . IBM has spent about $100 billion over the last decade or so on stock buybacks, reducing the number of outstanding shares by 1/3 and it has grown its dividend by over 400%. The result has been a 6-fold increase in EPS and a tripling of the stock price in spite of relatively flat revenue growth.
IBM Total Return Price data by YCharts
Another company that has made effective use of its cash position is McDonald’s Corporation (NYSE:MCD). The maker of Happy Meals and Big Macs now has 20% less shares and EPS has grown by 7 times over the past ten years. The company has nearly doubled its dividend and the total stock price return has been over 400%. McDonald’s revenue, although slowing down slightly over the last year or so, has increased at a brisk 5.3% compounded annual rate since 2003.
MCD Shares Outstanding data by YCharts
The conglomerate United Technologies Corporation (NYSE:UTX). has only reduced the number of shares by 2.3%, but it has increased its dividend at a healthy 14.8% average annual rate since 2003. This has lead to EPS growing by 150% and the stock price increasing by 280%. The company, a member of the Dow Industrials since the 1930’s, has announced it plans to increase the pace of stock buybacks this year after taking a break in 2012 in order to fund its acquisition of the former Goodrich, which was undertaken in a bid to capitalize on projected growth in the aerospace market over the rest of the decade.