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Apple Considering Two Options for its Cash Pile

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On Tuesday, Appleinsider reported that Apple (NASDAQ: AAPL) will initiate a share buyback program or increase its dividend in order to silence the legion of critics—including David Einhorn—who believe Apple should return some of its $137 billion in cash to its shareholders.

Apple is reportedly exploring options but a stock buyback or increased dividend is at the top of its list. David Einhorn’s plan has received consideration too. Dubbed the “iPref” plan, Einhorn’s idea includes issuing perpetual preferred stock. Einhorn took Apple to court to block the company from bundling four separate issues into one proposal. Einhorn won the case.

Apple CEO Tim Cook called the suit a “silly sideshow” but sources said that Apple found the preferred stock idea interesting.

With the stock down more than 35 percent and long term investors wondering what happened, Apple is under increasing pressure to do something to return value to its shareholders.

Whether that is through a stock buyback in order to put a floor under the stock, a $30 cash dividend—a rumor that made its way around Wall Street last week, or the issuance of preferred shares, it’s becoming increasingly clear that Apple knows it has to do something.

In an earlier story, Bloomberg reported that Apple would announce its plans for its cash by April. According to the story, Howard Ward, chief investment officer at Gamco Investors Inc. said, “We’re going to get an announcement from the company as to how they intend to reallocate some of their cash. They will put a floor under their stock at a higher price than it is today.”  

But two investing titans don’t necessarily believe that Apple has an obligation to bow to shareholder pressure.

In a CNBC interview, former GE (NYSE: GE) CEO Jack Welch said, "They'd come after us, 'What are you going to do with all that cash?' Well, we're going to do a smart thing! Trust us!" Welch later said, "Apple deserves, after all they've done, a chance to deliver on all their promises.”

Warren Buffett, who is known for keeping a sizable cash position for Berkshire Hathaway (NYSE: BRK-B) had this advice for Tim Cook regarding David Einhorn: “I would ignore him. I would run the business in such a manner as to create the most value over the next five or ten years. You can’t run a business to try and run the stock up every day.”

Apple is down fractionally in premarket trading Wednesday morning.

Latest Ratings for AAPL

DateFirmActionFromTo
Oct 2014Morgan StanleyMaintainsOverweight
Oct 2014Credit SuisseMaintainsNeutral
Oct 2014OppenheimerUpgradesMarket PerformOutperform

View More Analyst Ratings for AAPL
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Posted-In: Analyst Color CNBC News Dividends Rumors Buybacks Management M&A Best of Benzinga

 

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