From Apple advocate to Apple agitator

Hedge fund star manager David Einhorn was arguably Apple Inc's biggest cheerleader on Wall Street with a stake worth about $US600 million and an oft-cited prediction that the company's market value would hit $US1 trillion some day.

So it was a shock when Einhorn announced that he was suing Apple to get it to deploy its $US137.1 billion cash pile more effectively and arrest a 35 per cent drop in its share price from a record high logged last September.

Unknown to Wall Street, Einhorn had for months been imploring Apple's chief financial officer, Peter Oppenheimer, to have the company issue dividend-paying preferred shares to reward investors and juice the stock price.

Einhorn told Reuters he felt blindsided when he received Apple's January 7 annual proxy statement and saw that it contained a proposal that would make it more difficult for the company to issue preferred stock.

"We saw that the proxy came out and we saw they were planning to get rid of preferred and then we said, 'Wait a minute, we are not going to be able to bring this up again in a good way if we allow them to do this. So we should contest it now,'" Einhorn said in a phone interview.

Einhorn's $US8 billion Greenlight Capital Inc on Thursday sued Apple in US District Court in New York, asserting that its Proxy Proposal 2 would "restrict the board's ability to unlock the value on Apple's balance sheet.

The 44-year-old hedge fund manager, who made his name and fortune by predicting the collapse of Lehman Brothers, is also urging Apple shareholders to vote against the proxy proposal at the company's annual meeting on February 27.

Apple said in a statement that it will evaluate Greenlight's recommendation and denied that its proxy proposal was aimed at preventing the issuance of preferred stock. If Proxy Proposal 2 is adopted, Apple said it could still issue preferred stock as long as it obtained approval from shareholders.

But the extra hurdle, from Einhorn's point of view, was unacceptable and so he took the matter to Apple CEO Tim Cook.

The way Einhorn tells it, Cook was more receptive than his CFO and the two sides are still talking. But Einhorn decided to file suit anyway because of the approaching annual meeting.

"The lawsuit is just to get the proxy sorted out," he said.

Long on Apple

Einhorn began investing in Apple in 2010 and holds 1.3 million shares worth about $US600 million at current values.

He emerged as a prominent advocate for the stock after it began to fall last year following some disappointing quarterly results, stiffer competition in the smartphone market, and product snafus that fuelled fears Apple had lost its innovative edge following the death of co-founder Steve Jobs.

Einhorn said in a letter to investors last month that Greenlight had taken advantage of the drop in Apple's shares to buy more stock in the fourth quarter. That was one reason the fund posted a negative return of 4.9 per cent in the quarter.

Since May last year, Einhorn has been urging the company to unlock several hundred billion dollars of shareholder value by distributing preferred stock, which he favoured over a share buyback because it did not deplete cash immediately.

In private conversations with Oppenheimer, Einhorn said Apple could initially distribute $US50 billion of perpetual preferred stock with a four per cent annual cash dividend paid quarterly at preferential tax rates.