Hedge Fund Greenlight Capital’s Letter to Apple Inc. (AAPL) Shareholders

Apple Inc. (NASDAQ:AAPL) is one of the largest positions in Greenlight Capital’s portfolio (see its top stock picks). Billionaire David Einhorn’s hedge fund bought Apple Inc. (NASDAQ:AAPL) shares in 2010 when the stock was trading around $250. So, they made a bundle from this investment but they believe there is still a lot of money to be made in the stock. However, they have a favor to ask from AAPL shareholders. Here is what they want:

Dear Fellow Apple Shareholder,

Greenlight Capital, Inc. (and affiliates, “Greenlight”) has been a significant shareholder of Apple Inc. (“Apple” or the “Company”) since 2010.  We believe Apple is a phenomenal company filled with talented people creating iconic products that consumers around the world love.  We are long-term shareholders of Apple.

However, like many other shareholders, Greenlight is dissatisfied with Apple’s capital allocation strategy.  The combination of Apple’s low (and shrinking) price to earnings multiple and $137 billion (and growing) hoard of cash on the balance sheet supports Greenlight’s contention that Apple has an obligation to examine all options to create and unlock additional value.

We understand that many of our fellow shareholders share our frustration with Apple’s capital allocation policies.  Apple Inc. (NASDAQ:AAPL) has $145 per share of cash on its balance sheet.  As a shareholder, this is your money.  Though Apple recently commenced paying a common dividend and initiated a nominal share repurchase program, we believe that there is much more that the Board should do for shareholders.  We believe that it is important for shareholders to send Apple’s Board the message that the current capital allocation policy is not satisfactory, and that after considering all options, Apple’s Board should act to unlock the latent value of Apple’s balance sheet and franchise.  If you share our frustration, please join us in blocking the Company’s effort to restrict its value creation options by voting AGAINST Apple’s plan to amend its corporate charter in Proposal 2 to eliminate preferred stock.

Send Apple And Its Board A Message That We Want Apple To Change Its Capital Allocation

Policy To Unlock Value For Shareholders – VOTE AGAINST PROPOSAL 2

At a May 2012 investment conference, Greenlight introduced the idea that Apple could unlock several hundred billion dollars of shareholder value by distributing to existing shareholders a perpetual preferred stock.

Since then, Greenlight has had discussions with Apple Inc. (NASDAQ:AAPL) encouraging the Company to distribute perpetual preferred stock as an innovative method of rewarding all shareholders for the Company’s strong balance sheet and substantial cash flows. Put plainly, Greenlight is encouraging Apple to distribute a perpetual, high-yielding preferred stock directly to shareholders at no cost.  This would enable shareholders to own and separately trade the new preferred shares and Apple’s existing common shares.  Importantly, Greenlight believes these preferred shares represent a simple, low-risk way to reward shareholders without compromising the financial and strategic flexibility of the Company, or forcing the company to incur tax on repatriating its offshore cash balances.