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Investor sues Apple, urging it to distribute its pile of cash

Customers enter an Apple Store in Beijing. Apple is the world’s most valuable company, but its $137 billion in cash makes up nearly a third of Apple’s stock market value.

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Customers enter an Apple Store in Beijing. Apple is the world’s most valuable company, but its $137 billion in cash makes up nearly a third of Apple’s stock market value.

NEW YORK — With its annual meeting looming and its stock on the decline, Apple is facing a rebellion from an influential investor that wants the company to stop stockpiling cash and give it to shareholders instead.

Greenlight Capital said Thursday that it is suing Apple in a New York federal court over the company's proposal to make it more difficult for it to issue preferred stock. David Einhorn, who heads the investment fund, said Apple's proposal would close down one avenue for the company to reward shareholders with more cash.

Apple is still the world's most valuable company, but its stock has lost 35 percent of its value since September, as it has become obvious that its once-rapid growth has slowed down. The company is fabulously profitable, and Wall Street wants the company to share more of that money with its shareholders rather than tucking it away in low-yielding bank accounts.

"Apple has $145 per share of cash on its balance sheet. As a shareholder, this is your money," Einhorn said in a letter to the company. He has a history of criticizing companies publicly, often after shorting their stocks.

In a statement Thursday, Apple said its management and board continue "active discussions" about what to do with the money, and it will take Einhorn's proposal into consideration.

Its $137 billion in cash makes up nearly a third of Apple's stock market value. Corporations normally don't hoard cash the way Apple does. They keep enough on hand for immediate needs and either invest the rest in their operations or hand it out to shareholders in the form of dividends or stock buybacks. If they need more cash for, say, an acquisition, they borrow it.

Einhorn told CNBC on Thursday that Apple was acting like his grandmother "Roz," who grew up during the Great Depression. People who've experienced financial trauma, he said, "sometimes feel like they can never have enough cash."

Analysts say the company should be doing more if it wants to lure investors back to its shares. Stuart Jeffrey at Nomura Securities calculates that Apple will generate about $103 billion more over three years to add to the $137 billion it has now, but it has committed to returning only $45 billion of that $240 billion in total cash to shareholders.

Greenlight, a shareholder since 2010 with 1.3 million Apple shares worth nearly $600 million, wants Apple to create a class of preferred stock that carries a higher dividend and give it away to current shareholders. That way, he believes, the company would appeal to value investors and those who are risk-averse.

Einhorn said his firm has been talking to Apple over the past several months about the creation of the new share class. Apple, he said, rejected the idea in September. The company doesn't currently issue preferred stock. At its annual meeting Feb. 27, it plans to ask shareholders to approve a measure that would force the board to get shareholder approval before issuing preferred shares.

Apple said in its proxy statement filed with the Securities and Exchange Commission that its board does not plan to issue preferred stock in the future and believes it is "appropriate" to eliminate the possibility from its charter.

Greenlight urges Apple shareholders to vote against the proposal.

Investor sues Apple, urging it to distribute its pile of cash 02/07/13 [Last modified: Thursday, February 7, 2013 10:05pm]

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