The Dell and Apple Cash Problems
posted by Lawrence Cunningham
As Apple’s board and shareholders fight over what to do with the oceans of cash the company has accumulated, it’s usful to compare another tech company in the news, Dell, which also boasted substantial accumulated cash. Drawing the connection is David Einhorn, the Apple shareholder trying to pressure Apple’s board into issuing new preferred stock with a perpetual cash dividend as a way to distribute vast portions of its cash.
Einhorn was a large shareholder in Dell through last year when he tried to persuade that company’s board to revise its policy on cash retention versus dividends. According to Einhorn, he grew frustrated with Dell’s stubbornness and eventually gave up by following the old-fashioned Wall Street Rule: selling the stock and thus exiting his position.
As Einhorn tells it, that disagreement, along with similar disappointment of other large shareholders, contributed over the ensuing year to the downward pressure on Dell’s stock price. The result is a price so low that, lo-and-behold, the time came for company founder and 16% stockholder Michael Dell to propose to acquire the company in a leveraged buy out that will, in effect, now use hoarded cash to support the deal. Einhorn is clearly upset with this turn of events.
The Dell part of Einhorn’s Apple story is a pretty clear threat to Apple’s board: he will try to influence Apple’s cash/dividend policy for a while, hoping to win; if he does not succeed within short order, however, he can follow the Wall Street Rule and sell the stock.
It’s a high-stakes threat. Apple’s board may prefer to get rid of Einhorn, a thorn in their side, which they can apparently count on whether they change Apple’s cash policy or not.