Einhorn: From Apple Advocate to Agitator

i.9IclzWRcK0.jpgOwning about 1.3 million Apple shares worth $600 million at current values, and predicting that the company’s market value would hit $1 trillion in the future, star hedge fund manager David Einhorn was counted as THE Apple advocate in Wall Street.

So the news of Einhorn’s lawsuit filed against Apple came out of the blue yesterday, shocking the tech world. But how did he end up switching his role from Apple advocate to agitator? Turns out, his move didn’t come out of nowhere, and it has good arguments behind it. Reuters tells the full story.

In an interview with the news agency, Einhorn told he had for months been imploring Peter Oppenheimer, Apple CFO, to have the company issue dividend-paying preferred shares to reward investors and juice the stock price.

In private conversations with Oppenheimer, Einhorn said Apple could initially distribute $50 billion of perpetual preferred stock with a 4 percent annual cash dividend paid quarterly at preferential tax rates.

But, according to Einhorn, Oppenheimer and his advisers calculated the dividend to be 8 percent, which they deemed too high.

“We said, that’s crazy. That’s crazy. We think 4 percent. If we’re wrong, maybe it’s 4.5 percent or 4-1/4 percent – it is not 8 percent. So, we kind of agreed to disagree. We kind of sat on it for a few months,” Einhorn said.

So when he received Apple’s January 7 annual proxy statement with a proposal that could make it more difficult for the company to issue preferred stock, he felt blindsided.

As a reply, Greenlight Capital Inc., owned by Einhorn, sued Apple in US District Court New York, claiming that its Proxy Proposal 2 would “restrict the board’s ability to unlock the value on Apple’s balance sheet”.

Apple replied immediately by issuing a statement saying it will evaluate Greenlight’s recommendation and denied Einhorn’s claims. But Einhorn went even beyond: It took the matter to Tim Cook, Apple’s CEO, who – he says – was more receptive than Oppenheimer, and the two parties are in talks. But the lawsuit remains. As Einhorn said: “The lawsuit is just to get the proxy sorted out.”