
Hedge fund manager sues Apple for having too much cash - 6thSigma
http://www.reuters.com/article/2013/02/07/us-apple-greenlight-idUSBRE9160MI20130207
======
nlh
This kind of stuff deeply annoys me. Yes, I understand Apple's fiduciary
responsibility and I understand that technically, Einhorn may have a point.

But it annoys me that this is what companies deal with when they go public.
Everyone thinks they're a manager now because they own some shares.

Are you not happy with the amount of money Apple is making? Are you not happy
with their level of innovation? Their products? Then divest yourself of their
shares.

We hire management teams to run companies. Let them do their job. I know, I
know, again - technically as a shareholder you have a right to have a voice
and yadda yadda yadda but lawsuits like this are exactly what public CEOs talk
about when they say that they dread running public companies and can't take a
long-term view because shareholders only care about quarter-by-quarter
performance.

Annoying.

~~~
logn
I find it annoying when companies who don't have a need to invest all profits
into themselves and have little chance of being acquired don't pay dividends.
Otherwise what's the point of owning a stock? To resell it at a higher price?
That's fine I guess but you're offering no value or investment opportunity to
long-term investors. Profiting in this case ultimately requires a fool willing
to overpay.

Edit: or if there's no fool, the company could buy back shares, but at that
point you should seriously consider just paying a dividend.

~~~
crusso
If you don't agree with the financial management of a company, then don't
invest in it.

Dividends are only one way to get value out of cash reserves in a company. I'd
argue that if the company knows what the hell it's doing, handing away the
fuel that helps it to execute on its strategy (cash) is the worst thing to do.

~~~
damoncali
It's implicit that they think Apple does not know how to reinvest that cash
_in a way that will provide a return that is commensurate with the risk of
Apple stock._ I don't think that is a stretch, given how much they have. If my
cash is sitting in a bank account at Apple my investment is exposed to Apple's
risk, I'm going to be upset about it.

If they can't invest it in a way that covers their cost of capital, it is
their duty to pay it out, not to sit on it.

~~~
crusso
I just don't get it. If you think that Apple exposes you to too much risk then
don't invest in them.

 _it is their duty to pay it out_

How so? Did they commit to giving out dividends as a part of your purchase of
their stock? Are they siphoning the cash out of the company to avoid giving
shareholders value?

Sitting on cash has been an Apple strategy for a very long time, even before
Jobs came back. How have they deceived shareholders by continuing with it?

~~~
damoncali
Not investing the money at a risk-adjusted profitable return is the same thing
as taking money from shareholders. Think about it this way. If there was one
owner in the company, and the CEO just couldn't figure out a way to invest the
company's cash at a profitable rate (again, risk-adjusted), what would the
owner do? He'd take it out of the company and invest it elsewhere or just buy
something - because he owns the company and it's his money.

When you have multiple shareholders, the concept is the same, it's just harder
to hold management's feet to the fire.

This is different than "sitting on cash" as a strategic decision. It is wise
to do so - there might be investment opportunities or hard times down the
road. But we are talking about _excess_ cash - cash beyond the level that is
reasonable to sit on for strategic purposes. To sit on excess cash (which is
admittedly a judgement call) is to hold your shareholders' money hostage in an
unprofitable manner. Given how much cash Apple has, I don't think it's
unreasonable for shareholders to grumble a bit.

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digitalengineer
Sounds crazy, but here's where I think he got the idea:

"while Apple for now uses Braeburn primarily in its capacity to find legal tax
loophole all around the world and avoid paying taxes, there is no denying that
with a cash balance that in a two years may be well over $200 billion,
applying even a modest amount of leverage would make AAPL the best capitalized
bank, mutual fund or asset manager in the world."

"...it is not an investment advisor: it merely manages an ungodly amount of
cash for AAPL's millions of shareholders. There is also no SEC filing 13-F
filing on Braeburn's holdings. As such, not confied by the limitations of
being a "long-only", it is in its full right to hold any assets it feels like,
up to and including CDS on housing, puts on Samsung, or Constant Maturity
Swaps that pay if the 10 Year collapses. It just doesn't have to report any of
them.

Nobody knows: and that's the beauty of Braeburn. It is the world's largest
hedge fund that is not really a hedge fund, nobody has heard of, and nobody
knows just what assets it holds. Which is precisely what Apple wants."

[http://www.zerohedge.com/news/2012-09-30/presenting-
worlds-b...](http://www.zerohedge.com/news/2012-09-30/presenting-worlds-
biggest-hedge-fund-you-have-never-heard)

~~~
angersock
I submitted that and it was instakilled by the submissions system--is there a
filter on submissions or something like this?

~~~
sp332
It wasn't on this blacklist <https://news.ycombinator.com/item?id=499044> but
then, that list is a few years old...

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crusso
This headline is wrong and very misleading. Even the source article headline
breaks out the two items - "Greenlight's Einhorn sues Apple, seeks bigger
payout"

They're related, but the actual point of the law suit is at the bottom of the
article:

 _Greenlight said it is opposed to the proposal, No. 2 on Apple's proxy, which
the firm said would remove the company's ability to issue preferred stock from
its charter._

He isn't suing to force Apple to release cash. He's suing so that Apple
doesn't change the rules that would make it harder to get preferred shares out
to shareholders.

It's more correct to say that he's suing so that one avenue for divesting cash
doesn't get removed from the table.

~~~
6thSigma
The intended effect of the lawsuit is to oppose proposal 2 on the proxy, but
the cause is that they have too much cash.

~~~
crusso
The headline strongly implies that if the law suit is won then Apple will be
forced to hand out cash to shareholders.

That's simply not the case.

------
CJefferson
One interesting quote from the article. Apple shares are currently worth
$458.70. Apple has cash reserves which are equivalent to $145/share.

I realised Apple had a lot of cache, but that really does seem to be getting
to ridiculous proportions, effectively 1/3 of the value of the shares is a
pile of cash which it seems Apple continues to sit on, doing nothing useful
with, or having no good plans for (of course, who knows what is going on
behind closed doors).

~~~
r00fus
All I have to say is - fuck Wall St. Apple's cash generates power and leverage
that's simply not quantiyable in quarterly statements. Apple has already
instituted dividends as well as a one-time payout to their investors. And
having around $100B means that if they lay down $20B for some super strategic
shift, it doesn't require debt to be serviced.

Wall Street wants all companies beholden to the quarterly cycle - and if that
company has to kill it's future to make the quarter, then so be it - all the
better for those who make money on both sides of the trade.

That's bad for the company and bad for customers.... all so the hedge fund
manager can make an extra bonus by killing jobs and US competitiveness.

~~~
hef19898
That's why wall street doesn't like it. Apples has the benfit of being public
without relying on wall street for its financial future. I guess hedgefonds
and banks are less than happy with having little to no influendce on the most
valuable company in the world. So every now and then someone tries to sue his
way in. Business as usual I guess...

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gamblor956
One of the obligations Apple voluntarily accepted when it chose to go public,
and which it continues to voluntarily accept as long as it remains public, is
the fiduciary obligation to its shareholders.

Retaining cash without returning it to the shareholders is a violation of its
fiduciary obligations to its shareholders. The fact that it _could_ use the
cash to fund R&D, etc., is irrelevant since Apple is clearly _not_ doing so.

That being said, that is not why the hedge fund manager is suing Apple. He's
suing to prevent Apple from eliminating preferred shares, which provide
enhanced dividend and liquidation preferences.

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6thSigma
I wonder if Apple is looking into acquiring a big player or two. With $137b in
cash, they can buy both Facebook and Twitter at current valuations and still
have $50b left over.

~~~
wglb
Or how about the hedge fund that is suing them?

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nicholassmith
So by suing Apple he's hoping they divest themselves of some cash by paying
lawyers to go to court?

I suppose I can see the point of view of Apple has a lot of money not doing a
lot, why not pay it back to investors, but I thought that was what the share
dividend program was for? I may be missing something, financial and stock
market knowledge isn't my cup of tea.

~~~
Afforess
Not quite. Public companies have a fiduciary responsibility to earn their
shareholders money. This Hedge Fund manager is claiming that Apple's large
cash reserves are contrary to their fiduciary responsibility, and they need to
only keep enough reserves so that normal business can continue, the rest being
returned to investors.

~~~
nicholassmith
Ah that makes much sense. Although, how does someone define what reserves a
company should keep for business to continue? Especially in the tech world
where they might need to drop a billion dollars on an acquiring another
company.

~~~
CJefferson
True, but Apple now has enough money to buy Facebook, and Twitter, and still
have $50bn left over. I'm not sure how much is "enough reserves", but it seems
reasonable to me to expect Apple to justify it.

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bpolania
From how I see it they're suing Apple for not reducing investors risk: if they
have a lot of money now why don't give away some of it a make investors feel
less afraid of future losses, specially when there's the sensation that the
Apple's iPhone business may have already peaked.

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matdrewin
I always wondered what Apple had to gain by being a public company with so
much money on hand.

Don't you usually issue shares when you lack the capital to fund
projects/research etc?

~~~
tedunangst
Apple issued its shares a long time ago, when it needed capital to fund
projects/research etc.

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cremnob
This is a great move by Einhorn and turns up the pressure on Apple to return
cash to shareholders. I don't have a preference about the preferred shares,
I'd prefer they get rid of it just from a corporate governance standpoint and
to keep the capital structure simpler. They should significantly increase the
buybacks and raise the dividends, and they should issue debt in the US to
avoid paying taxes on overseas cash (and work on lobbying for a holiday) to
pay for it.

Apple has more cash than they need, and Tim Cook admitted this when their cash
balance was under $100 billion when he announced the dividend and buyback.

------
nirvana
Debate the magic of Steve Jobs if you want, but I don't think anyone can deny
that one of Apple's strengths is in avoiding conventional wisdom and finding a
more profitable path.

Imagine if people sued Apple to try and make them license their OS to
others![1]

This is the worst kind of back seat driving.

[1] I do think that Apple licensing iOS to companies like HTC, Samsung, etc.
with a strict quality control program would make good business sense, but
despite being long Apple, I realize it's not my place and there are probably
many factors that I'm not aware of. The problem of not being able to meet
demand, and needing to compete at the lower end of the price spectrum would be
solved by my proposal, _but_ Apple likely has other plans to solve this
problem. At the end of the day, it's up to the Management Team and the Board
to address these issues, not minority shareholders!

