David Einhorn's Apple (AAPL) 'iPrefs' Presentation
Tweet
Share
E-mail
Get Alerts AAPL Hot Sheet
Price: $165.00 -1.22%
Revenue Growth %: -4.1%
Financial Fact:
Other income and expense: 427M
Today's EPS Names:
MAXN, CSTR, ACU, More
Revenue Growth %: -4.1%
Financial Fact:
Other income and expense: 427M
Today's EPS Names:
MAXN, CSTR, ACU, More
Join SI Premium – FREE
(Updated - February 21, 2013 5:54 PM EST)
David Einhorn of Greenlight Capital took his case on Apple (NASDAQ: AAPL) directly to shareholders Thursday, suggesting the iPhone maker could unlock billions of dollars of shareholder value by issuing a new perpetual preferred stock he coined 'iPrefs.'
Einhorn first discussed this novel ideal earlier in the month, which triggered a direct response from Apple saying they would review the idea. Since that time, critics have come out against Einhorn's plan, calling it 'complicated.' Many say Apple should just focus on share repurchases or dividends. Einhorn addressed the critics and called his idea "simple and innovative."
Addressing the Silicon Valley lore that there is no reward for distributing cash, Einhorn said while this may be the case for bloated tech stocks buying at the highs, Apple is a rare case because of its low valuation. Einhorn showed how shareholder friendly tech companies like IBM (NYSE: IBM) and Texas Inst (NYSE: TXN) trade at P/E multiples above their peers.
Einhorn called Apple's $137 billion war chest of cash a "war vault." He noted how most of the cash - $94 billion or 69% – is offshore and would require paying taxes to be brought onshore.
In addition to his 'iPrefs' proposal, Einhorn went through 4 conventional alternatives Apple could use to return cash: A one-time special distribution of excess cash; A one-time stock repurchase using excess cash; A plan to use future cash to repurchase stock in the future; and An increase in the common dividend.
A one-time dividend could unlock up to $89 per share in value, he calculated. A large one-time share repurchase could also unlock up to $89 per share in value. Large on-going share repurchases could unlock about $75 per share. If Apple were to double the dividend he sees $21-$80 in value added per share, but warns "often when a stock with a low P/E introduces or raises its dividend, it just becomes a stock with a low P/E and an attractive dividend."
The hedge fund manager said 'iPrefs' are a "creative way to unlock significant value for shareholders in publicly traded cash rich technology companies." He described a perpetual preferred stock as a stock the pays quarterly dividends "literally forever." While Apple would have the right to redeem it at face value, they likely never will.
According to the proposal, 'iPrefs' would have a face value of $50 and pay a dividend of $2 per year, or a 4% annual yield. Apple can distribute iPrefs, tax-free and at no cost, to existing Apple shareholder. "What iPref holders should expect is to receive $0.50 a quarter in dividends, every quarter, forever." The iPrefs will be registered and listed. "When Apple shareholders receive them, they can either keep them for the future dividends or sell them into the market. We believe that the 'iPrefs' will trade at approximately face value, subject to future changes in long-term interest rates."
Given that 'iPrefs' are a new concept, Einhorn recommends Apple "start small," distributing $50 billion worth to start. "The purpose of starting small is to give the market an opportunity to develop and stabilize. Initially,there may be an imbalance between the demand for iPrefs and Apple shareholders that don’t wish to keep the iPrefs, because current Apple shareholders –including us – are mostly interested in Apple's growth and the capital appreciation of the common stock."
Buyers for 'iPrefs' would be fixed income funds, pension funds, endowments, and insurance companies as well as individual savers. Einhorn said 'iPrefs' would be a success as the demand for yield is high.
The hedge fund manager said Apple could unlock a net $30 per share in value through the issuance of one 'iPref'. 5 'iPrefs' could add a net $150 per share in value, he said.
According to Einhorn, issuing 'iPrefs' could boost the current share price to $600 per share, versus the current $450 level. 'iPrefs' would also unlock more value than a special dividend, one-time stock repurchase, on-going share repurchases or doubling the dividend, he said.
Below are the slides from today's conference call:
David Einhorn of Greenlight Capital took his case on Apple (NASDAQ: AAPL) directly to shareholders Thursday, suggesting the iPhone maker could unlock billions of dollars of shareholder value by issuing a new perpetual preferred stock he coined 'iPrefs.'
Einhorn first discussed this novel ideal earlier in the month, which triggered a direct response from Apple saying they would review the idea. Since that time, critics have come out against Einhorn's plan, calling it 'complicated.' Many say Apple should just focus on share repurchases or dividends. Einhorn addressed the critics and called his idea "simple and innovative."
Addressing the Silicon Valley lore that there is no reward for distributing cash, Einhorn said while this may be the case for bloated tech stocks buying at the highs, Apple is a rare case because of its low valuation. Einhorn showed how shareholder friendly tech companies like IBM (NYSE: IBM) and Texas Inst (NYSE: TXN) trade at P/E multiples above their peers.
Einhorn called Apple's $137 billion war chest of cash a "war vault." He noted how most of the cash - $94 billion or 69% – is offshore and would require paying taxes to be brought onshore.
In addition to his 'iPrefs' proposal, Einhorn went through 4 conventional alternatives Apple could use to return cash: A one-time special distribution of excess cash; A one-time stock repurchase using excess cash; A plan to use future cash to repurchase stock in the future; and An increase in the common dividend.
A one-time dividend could unlock up to $89 per share in value, he calculated. A large one-time share repurchase could also unlock up to $89 per share in value. Large on-going share repurchases could unlock about $75 per share. If Apple were to double the dividend he sees $21-$80 in value added per share, but warns "often when a stock with a low P/E introduces or raises its dividend, it just becomes a stock with a low P/E and an attractive dividend."
The hedge fund manager said 'iPrefs' are a "creative way to unlock significant value for shareholders in publicly traded cash rich technology companies." He described a perpetual preferred stock as a stock the pays quarterly dividends "literally forever." While Apple would have the right to redeem it at face value, they likely never will.
According to the proposal, 'iPrefs' would have a face value of $50 and pay a dividend of $2 per year, or a 4% annual yield. Apple can distribute iPrefs, tax-free and at no cost, to existing Apple shareholder. "What iPref holders should expect is to receive $0.50 a quarter in dividends, every quarter, forever." The iPrefs will be registered and listed. "When Apple shareholders receive them, they can either keep them for the future dividends or sell them into the market. We believe that the 'iPrefs' will trade at approximately face value, subject to future changes in long-term interest rates."
Given that 'iPrefs' are a new concept, Einhorn recommends Apple "start small," distributing $50 billion worth to start. "The purpose of starting small is to give the market an opportunity to develop and stabilize. Initially,there may be an imbalance between the demand for iPrefs and Apple shareholders that don’t wish to keep the iPrefs, because current Apple shareholders –including us – are mostly interested in Apple's growth and the capital appreciation of the common stock."
Buyers for 'iPrefs' would be fixed income funds, pension funds, endowments, and insurance companies as well as individual savers. Einhorn said 'iPrefs' would be a success as the demand for yield is high.
The hedge fund manager said Apple could unlock a net $30 per share in value through the issuance of one 'iPref'. 5 'iPrefs' could add a net $150 per share in value, he said.
According to Einhorn, issuing 'iPrefs' could boost the current share price to $600 per share, versus the current $450 level. 'iPrefs' would also unlock more value than a special dividend, one-time stock repurchase, on-going share repurchases or doubling the dividend, he said.
Below are the slides from today's conference call:
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- KB Home (KBH) Announces $1B Share Buyback, Raises Dividend
- Nitor Capital Management Issues Letter to Tejon Ranch (TRC) Stockholders Announcing its Intention to Withhold Support for Four Directors
- Baozun Inc. (BZUN) Chairman Issues 2023 Letter to Shareholders
Create E-mail Alert Related Categories
Conference Calls, Corporate News, Hedge Funds, Insiders' Blog, Trader TalkRelated Entities
Greenlight Capital, David Einhorn, Dividend, Hedge Funds, Stock BuybackSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
