6 ms·

Hedge fund manager sues Apple for having too much cash

35 points by 6thSigma 14y ago

nicholassmith 14y ago
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 14y ago
  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 14y ago
    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 14y ago
      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.
  - Marazan 14y ago
    Companies don't have any responsibility to the shareholders. Directors of the company do. However that responsibility does not extend to making money for the shareholders. In the UK and the US directors have a huge amount of latitude in running the company and it basically resolves down to making "good faith" decisions for the betterment of the company.
digitalengineer 14y ago
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-biggest-hedge-fund-you-have-never-heard http://www.zerohedge.com/news/2012-09-30/presenting-worlds-b...
- tedunangst 14y ago
  I doubt Einhorn gets any ideas from zerohedge.
- angersock 14y ago
  I submitted that and it was instakilled by the submissions system--is there a filter on submissions or something like this?
  - sp332 14y ago
    It wasn't on this blacklist https://news.ycombinator.com/item?id=499044 https://news.ycombinator.com/item?id=499044 but then, that list is a few years old...
- cremnob 14y ago
  There isn't a chance in hell that they hold anything but cash and extremely liquid investments like US debt.
6thSigma 14y ago
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 14y ago
  Or how about the hedge fund that is suing them?
nlh 14y ago
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.
- jonnathanson 14y ago
  Indeed, Apple's massive success story over the last 15 years probably had a lot to do with ignoring Wall Street outright. This is easier said than done, as most CEOs feel enslaved by the quarterly reporting cycle. Apple made long-term bets instead of short-term optimizations on paper. So the interesting question is: why was Apple able to do this, when other major corporations can't seem to shake their Wall Street shackles? I would guess that it had a lot to do with an early chain of big hits. The iPod, followed by the massively successful generations of subsequent iPods and iTunes, gave Jobs a large degree of immunity to criticism (and he still got quite a bit of criticism!). The iPhone had its pre-launch naysayers, in finance and in the press, but Apple's share price didn't take any real damage as a result. And so on with other product launches, up until recently. Prove the analysts hugely wrong for years on end, and eventually their critiques won't hurt you. But getting to that point in the first place is the tricky part.
  - Samuel_Michon 14y ago
    "Why was Apple able to [ignore Wall Street outright], when other major corporations can't seem to shake their Wall Street shackles? I would guess that it had a lot to do with an early chain of big hits. The iPod, followed by the massively successful generations of subsequent iPods and iTunes" I agree, but the chain of hits started with the iMac, which quickly became the bestselling personal computer ever. Also, Jobs had already demonstrated his ability to make tough decisions: when he became interim CEO at Apple, he appointed an entirely new board of directors, chose new VPs, slashed many product lines (Performa, Newton, Network Server, QuickTake, LaserWriter, etc etc), and he wouldn't take more than $1 in salary.
deleted 14y ago
[deleted]
CJefferson 14y ago
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).
- pothibo 14y ago
  You are assuming that spending money is always a better solution than not spending it. I think you are misled. The fact they have 100 billions in cash and not willing to jeopardize their culture and focus is a proof of their dedication to do what's best for the company.
  - CJefferson 14y ago
    I'm not saying spending money is always better than spending it, but there is a balance. At this point 'Apple' by itself is one of the world's biggest hedge funds. Apple is not just sitting on cash, it is doing it's own investment. If the owners of Apple think they can do a better job with that giant pile of money, then they are quite within their rights to ask to be given at least some of it. They can still leave Apple with a bigger reserve than any other tech company around.
- r00fus 14y ago
  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.
matdrewin 14y ago
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 14y ago
  Apple issued its shares a long time ago, when it needed capital to fund projects/research etc.
crusso 14y ago
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 14y ago
  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 14y ago
    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.
bpolania 14y ago
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.
gamblor956 14y ago
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.
cremnob 14y ago
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 14y ago
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!

35 points by 6thSigma 14y ago

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 14y ago
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 14y ago
  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 14y ago
    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.
- Marazan 14y ago
  Companies don't have any responsibility to the shareholders. Directors of the company do. However that responsibility does not extend to making money for the shareholders. In the UK and the US directors have a huge amount of latitude in running the company and it basically resolves down to making "good faith" decisions for the betterment of the company.

digitalengineer 14y ago

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

tedunangst 14y ago
I doubt Einhorn gets any ideas from zerohedge.
angersock 14y ago
I submitted that and it was instakilled by the submissions system--is there a filter on submissions or something like this?
- sp332 14y ago
  It wasn't on this blacklist https://news.ycombinator.com/item?id=499044 https://news.ycombinator.com/item?id=499044 but then, that list is a few years old...
cremnob 14y ago
There isn't a chance in hell that they hold anything but cash and extremely liquid investments like US debt.

6thSigma 14y ago

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 14y ago
Or how about the hedge fund that is suing them?

nlh 14y ago

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.

jonnathanson 14y ago
Indeed, Apple's massive success story over the last 15 years probably had a lot to do with ignoring Wall Street outright. This is easier said than done, as most CEOs feel enslaved by the quarterly reporting cycle. Apple made long-term bets instead of short-term optimizations on paper. So the interesting question is: why was Apple able to do this, when other major corporations can't seem to shake their Wall Street shackles? I would guess that it had a lot to do with an early chain of big hits. The iPod, followed by the massively successful generations of subsequent iPods and iTunes, gave Jobs a large degree of immunity to criticism (and he still got quite a bit of criticism!). The iPhone had its pre-launch naysayers, in finance and in the press, but Apple's share price didn't take any real damage as a result. And so on with other product launches, up until recently. Prove the analysts hugely wrong for years on end, and eventually their critiques won't hurt you. But getting to that point in the first place is the tricky part.
- Samuel_Michon 14y ago
  "Why was Apple able to [ignore Wall Street outright], when other major corporations can't seem to shake their Wall Street shackles? I would guess that it had a lot to do with an early chain of big hits. The iPod, followed by the massively successful generations of subsequent iPods and iTunes" I agree, but the chain of hits started with the iMac, which quickly became the bestselling personal computer ever. Also, Jobs had already demonstrated his ability to make tough decisions: when he became interim CEO at Apple, he appointed an entirely new board of directors, chose new VPs, slashed many product lines (Performa, Newton, Network Server, QuickTake, LaserWriter, etc etc), and he wouldn't take more than $1 in salary.

deleted 14y ago

[deleted]

CJefferson 14y ago

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).

pothibo 14y ago
You are assuming that spending money is always a better solution than not spending it. I think you are misled. The fact they have 100 billions in cash and not willing to jeopardize their culture and focus is a proof of their dedication to do what's best for the company.
- CJefferson 14y ago
  I'm not saying spending money is always better than spending it, but there is a balance. At this point 'Apple' by itself is one of the world's biggest hedge funds. Apple is not just sitting on cash, it is doing it's own investment. If the owners of Apple think they can do a better job with that giant pile of money, then they are quite within their rights to ask to be given at least some of it. They can still leave Apple with a bigger reserve than any other tech company around.
r00fus 14y ago
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.

matdrewin 14y ago

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 14y ago
Apple issued its shares a long time ago, when it needed capital to fund projects/research etc.

crusso 14y ago

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 14y ago
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 14y ago
  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.

bpolania 14y ago

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.

gamblor956 14y ago

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.

cremnob 14y ago

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 14y ago

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!