Apple 2.0

Covering the business that Steve Jobs built

How would Steve Jobs return cash to his shareholders?

February 8, 2013: 6:35 AM ET

Simply and transparently? Or through a complex scheme designed by a hedge fund?

With apologies to the estate of Rube Goldberg

With apologies to the estate of Rube Goldberg

FORTUNE -- After Thursday's Wall Street drama -- in which a media blitz orchestrated by hedge fund billionaire David Einhorn got a rise out of Apple (AAPL) management and a pop in the stock price -- I have a few thoughts about what's going on.

First, I take the company at its word (see statement) that it's got way more cash than it needs and is serious about returning more of it to Apple's shareholders. $137 billion is a lot of money, especially for a company that doesn't go in for big, transformative acquisitions.

Apple also says it welcomes Einhorn's views and promises to "thoroughly evaluate" his proposals for reallocating its capital. Here I have my doubts.

For starters, let's look at the lawsuit Einhorn filed and the proxy fight he launched.

Einhorn told Reuters Thursday that he felt "blindsided" when he received Apple's proxy statement in January. He had tried to talk Apple management into issuing a 4% dividend to existing shareholders, like him, in the form of a so-called perpetual preferred stock. He claims that an amendment in Apple's proxy would close off that option. But what the amendment actually proposes to eliminate is "blank check" preferred stock -- shares with special rights issued by management without shareholder approval. Einhorn is lobbying ordinary investors to vote against transparency and shareholder rights!

Second, the more I look at Einhorn's preferred stock option, the less I like it. To get a feel for its complexity and the effect it might have on the value of Apple's common stock, I encourage you to read through the e-mail exchange between Einhorn and Business Insider's Henry Blodget -- a guy who knows a bit about financial finagling.

I have to ask myself, if Steve Jobs were going to return cash to his shareholders, would he use a complicated scheme designed by a hedge fund manager and pushed through without shareholder approval?

Or would he simply increase the dividend that Apple is already paying?

Tim Cook is scheduled to speak at a Goldman Sachs investor summit next Tuesday, Feb. 12, and Apple will hold its annual shareholder meeting on Feb. 27. This could get interesting.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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