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2013-02-12 07:35:09
Feb 8th 2013, 1:27 by M.G. | SAN FRANCISCO
IN AN article about Apple published in The Economist last month, we looked at
the reasons for the steep fall in the company s share price since last autumn
and suggested that it might be tempted to use some of its $137 billion cash
mountain in order to give its stock a fillip. Lo and behold on February 7th the
company issued a statement saying that it was examining the possibility of
returning more money to shareholders. By the end of trading, its shares had
risen 3%, to $468.
Ever since Apple s near brush with bankruptcy in the 1990s, the company has
liked to have a mountain of cash in its coffers. Steve Jobs, its legendary
former boss, was renowned for refusing pressure from investors to hand back
some of its riches. But last year Apple s new chief executive, Tim Cook,
announced that it would start buying back some shares and paying a quarterly
dividend. The fuss over its mountain of money died down, but the cash kept
piling up: in its latest quarter Apple clocked up a whopping $23 billion of
operating cash flow, which raised more questions about what the firm would do
with such Croesus-like sums of money.
It is a high-class headache that other companies would dearly love to have. But
it has now become a legal headache too: before Apple issued its statement, news
emerged that Greenlight Capital, a hedge fund run by David Einhorn, a noted
activist investor (pictured), had sued the company because it believed Apple
was planning a move that would effectively prevent the tech firm from issuing
preferred shares. Apple maintains that after the change it will still be able
to issue such stock.
The lawsuit gave Mr Einhorn an opportunity to protest in the media about what
he sees as a kind of Depression-era mentality at Apple, which in his view means
that it stashes away far too much cash. The fact that the firm finds itself
under very public attack from a prominent shareholder is a sign of just how
much times have changed for the consumer-electronics giant, which has seen its
share price tumble from a high of more than $700 last September.
The stage is now set for an interesting tug of war between the tech firm and
hedge funds and other investors who have seen their returns dented by the steep
fall in Apple's share price. Many of them piled into Apple stock in the first
half of last year, partly in anticipation that it would start coughing up
dividends.
The spat is also significant because it underlines a growing tension between
Wall Street and Silicon Valley. On February 5th Michael Dell, the eponymous
founder of the world s third-largest personal-computer maker, and Silver Lake,
a private-equity firm, announced a $24.4 billion plan to take Dell private. Mr
Dell feels investors have failed to give him and his team enough credit for the
turnaround that he is trying to engineer at the company, whose shares have
underperformed the NASDAQ stockmarket index for quite some time.
Apple isn t likely to follow Mr Dell s lead in bidding farewell to the public
market. But nor is the firm suddenly going to loosen its purse strings
altogether. Instead, Mr Cook and the company s board will probably increase
somewhat the level of dividends and buybacks it has already announced, while
resisting calls to turn the company into one big iCash dispenser.