Einhorn's Apple (AAPL) proposal is pretty much the stub stock idea made famous by Joel...

Einhorn's Apple (AAPL) proposal is pretty much the stub stock idea made famous by Joel Greenblatt, writes The Brooklyn Investor, showing how issuing $50B in preferred would theoretically add $32/share in value. In cases where an underleveraged firm won't lever up, Greenblatt reminded an investor can and should create their own leverage using LEAPs. This spreadsheet (from May) on Greenlight's site details Einhorn's preferred idea for not just Apple, but DELL, GM, MRVL, and MSFT.

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Comments (34)
  • Whitehawk
    , contributor
    Comments (3121) | Send Message
    Aapl LEAPs can throw off a good return, and have in the last week or so (the range varies, but Jan14 OTM $700s almost doubled), courtesy of the Einhorn publicity. But publicity has a time decay: take the gains you get.
    10 Feb 2013, 06:28 PM Reply Like
  • LumiaMan
    , contributor
    Comments (323) | Send Message
    Eihorn is an idoit and a crook, and should be dismissed as a fool
    10 Feb 2013, 07:00 PM Reply Like
  • Zheeeem
    , contributor
    Comments (446) | Send Message
    "Eihorn is an idoit..."


    11 Feb 2013, 02:52 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (6952) | Send Message
    I'm just upset that another dumb lawsuit was filed. How much do taxpayers lose after all these dumb court appearances? You're offering a court extension on a speeding ticket. Give me a break. Yes, the plaintiffs pay for the lawyers, but who pays for everything else? Want to fix unnecessary spending: fix our court system.
    11 Feb 2013, 12:09 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (6952) | Send Message
    As for (AAPL) stock, he just made it cheaper for me to buy. So thank you Einhorn for that.
    11 Feb 2013, 12:10 PM Reply Like
  • techwonk
    , contributor
    Comments (288) | Send Message
    It's inexpensive publicity for Einhorn.


    Legally the point is kind of interesting, not unlike the scuffle over recess appointments. I doubt the judge reviewing the briefs would consider it a total waste of time; and a jury is not likely to be involved. But yes, we will underwrite part of the costs.
    12 Feb 2013, 06:49 PM Reply Like
  • bjnflicks
    , contributor
    Comments (4335) | Send Message
    dismissed as a fool in exchange for what? Apple management doing nothing to protect the value of their brand and stock price as they have for the past six months? NO WAY. Apple management has gotten the message. They can no longer ignore market moves, false rumors, short shenanigans, bad PR, unhappy stockholders, funds reluctant to buy AAPL, value investors, income investors, BS Samdung TV ads trying to portray the copycat as the innovator, etc. etc.


    Apple has performed miraculously in all areas except the above. There they have performed poorly. The 250 point drop had zero to do with fundamentals or any real bad news, and everything to do a snowball effect of shorts and nay-sayers not being punished, and being rewarded for falsely accusing Apple of being a descending company. Apple management could have stopped it any any time, but they did nothing. But now they have gotten the message. Eeinhorn is just one of thousands of shareholders who has been voicing these same concerns, he is just the one who got on TV.


    As for the facts, Apple is doing great. They still havbe growth and plenty left if they execute properly, but their stock price is now 50%-100% undervalued, below book value, one third of real value, the cheapest and best stock in the world right now, and since they are about to raise the dividend (the least they will do) it also becomes a great investment longterm and as good or better a hold as IBM or GE or any other top innovative high profit margin blue chip giant.


    Tim Cook was with when he said 'dont bet against Apple", but he was making a big mistake as he was saying that, ignoring the fact that market manipulators will try and steal the money if they are not disciplined, and now hat Cook apparently intends to use some of Apple's mountain of cash, anyone shorting or selling this stock must be insane. It's like trying to fight the Fed. Apple has enough extra free cash to buy 10% of the company and double dividends right now. They won't go that far, but what if they go half that far? Then we are right back over $550 and climbing. and holding. In short, the pendulum is swinging back and Einhorn is just one of the many catalysts,. But preferred stock or not, w can expect at least a 3.5% dividend to be annonced within a few weeks, hopefully 4%. and that alone clobbers anyone fool enough to short this stock now, and make the idiots who sold at $440 quit trying to invest money, as they are clueless about true value and what it means when such a great company is so outrageously oversold.
    10 Feb 2013, 07:19 PM Reply Like
  • wiesje
    , contributor
    Comments (2846) | Send Message
    @ bjnflicks : i agree with yr fundamental analyze of the numbers and i can also follow why you believe the stock is severely undervalued, but are we going to see that reflect in Apple's share price , i have seen on some other comment that you feel that the stock is very rapidly going to move towards the 550 level and then continue to move up towards the previous high of 700 within the coming 12 months. i am not disputing this is not possible, but i have to believe that is extremely difficult to achieve, because i think the stock is for the time being only " correcting " itself in a still 5 month down-trend, i am also Long Apple, but i would look to take profits at 500/535 and would then first like to see if the stock can hold on to those gains, from the low of 435 that would be a 15 to 20 % correction , which is normal for a stock which has been
    somewhat oversold. i am not as convinced as you that we will not re-visit the lows or even make new lows of 400 , i fear that if this is a renewal of a new hype of Apple buying by mainly the smaller investors , this could well be a short-lived recovery.
    again i am not talking bearish on the stock, i also feel it turned but i am not convinced this is the 100% turn-around and that we have seen the lows and that once the stock goes thru 500 we will see no set-back.
    11 Feb 2013, 03:22 AM Reply Like
  • rrosey2
    , contributor
    Comments (883) | Send Message
    I am in favor of buyback rather than preferred.


    The preferred would, of course, give the stock one hell of a bump up.


    But, it is a "giveaway" which is an irreversible obligation.


    Better to use the money to shore up the stock by buying in.


    Now, while the market price is low versus vale, Apple will make big money against the future value.


    Apple needs to consolidate stock, and also raise the price, this way, to fend off a possible future attempted leveraged buyout.
    10 Feb 2013, 07:24 PM Reply Like
  • MintyFresh32
    , contributor
    Comments (411) | Send Message
    Why so complicated? How about a good old fashioned special dividend plus generous increase to the quarterly dividend?
    10 Feb 2013, 07:38 PM Reply Like
  • JG2000
    , contributor
    Comments (492) | Send Message
    I'm not clear on why Apple has not been more aggressive in buybacks if they share the undervalued assumption. Current buybacks just offset further dilution. A real share-shrinking buyback program shows confidence that the stock is a worthy investment and actually helps make it so. They don't need to empty the cash hoard on buybacks, just increase somewhat beyond net zero share shrinkage.
    10 Feb 2013, 07:48 PM Reply Like
  • Richard0623
    , contributor
    Comments (176) | Send Message
    Apple should just continue to build it's cash pile and then take itself private. All these headaches from the insane media attention and shareholders. They are banking over $50B in Net Profit each year and certainly don't need public owners for raising funds.
    10 Feb 2013, 07:50 PM Reply Like
  • techwonk
    , contributor
    Comments (288) | Send Message
    Now that's the first argument I've heard that makes some sense.


    My assumption about the cash all along has been that they'll use it to buy some growth. That's a typical direction for a company that's reached this size and market cap.
    10 Feb 2013, 10:35 PM Reply Like
  • wiesje
    , contributor
    Comments (2846) | Send Message
    @ richard0623 : too late for that, the investment & hedge funds won't allow it , they own the company and they would then rather brake-up the company all together and collect 2,5 x market cap.


    every advantage has it's disadvantage, the good thing abt Einhorn he brought the cash issue to the forefront and that will enhance Apple's share price, the low multiple will improve , the bad thing Apple's board may still run the company but they are no longer on their own deciding what is going to happen, the money managers are in now, the pressure will get worse for the Board.


    i am Long Apple , but i would have preferred Einhorn to shut-up
    11 Feb 2013, 12:21 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (6952) | Send Message
    @wiesje: Why too late? (AAPL) already has 1/4 of their market cap in cash.
    11 Feb 2013, 12:15 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (6952) | Send Message
    They could use all their cash and buy (AMZN). (AAPL) has $137 billion in cash. (AMZN)'s market cap is $117 billion.


    (NFLX) only has a $10 billion market cap. (STRZA) has a $2 billion market cap. Even (LMCA) only has a $13 billion market cap. Even the great (TWC) only has a $26 billion market cap.


    Hm, I also heard (SNE) is up to something big. Could (AAPL) buy the entertainment division of (SNE)?
    11 Feb 2013, 12:23 PM Reply Like
  • m_moacyr
    , contributor
    Comment (1) | Send Message
    I am in favor of buy back to increase the value of the stock.
    And I agree with Minty about a special dividend + generous increase to the quarterly dividend.
    10 Feb 2013, 07:59 PM Reply Like
  • normanbk
    , contributor
    Comments (42) | Send Message
    The Greenhithll concept is so dependant on the P/E ratios remainig the same as before the issuance of the Preferreds, that's why one should take a look at the other financial ratios related to aapl.


    Like the return on equity or the return on assts which clearly will drop precipitously.....Then there is the effect of higher interest rates which will erode the value of the Preferred stock.


    It all depends obviously on what Apple can do with the cash!
    10 Feb 2013, 08:07 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10652) | Send Message
    For further reading on Greenblatt: http://seekingalpha.co...
    10 Feb 2013, 08:25 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11177) | Send Message
    Apple should borrow ~$30 billion @ <2.5% and use the cash pile and bond proceeds to buy back 15% of their outstanding shares.


    Even at HALF current growth rates Apple could pay off the bonds @ par within only four years.


    Meanwhile EPS would grow an EXTRA 15%.


    There is no reason why they shouldn't do this with borrowing costs near record lows.


    Decrease the shares outstanding and make each remaining share worth that much more...
    10 Feb 2013, 08:50 PM Reply Like
  • ctjl33
    , contributor
    Comments (11) | Send Message
    The 62% unlocked value is based on the $500 face value of the preferred stock, and $500+ stock price in May. I think Einhorn said FMV of the preferred was probably around $320. If you adjust for the FMV rather than the face value, the unlocked value is 27%, assuming everything else is estimated reasonably.


    A lot of investors would not want to own the preferred and if they sold, they would have to recognize a portion of their gain or loss.


    A similar concept would be to raise the common dividend from $10+ per share to $30+ per share. If they did that how much would the stock go up? I think quite a bit, maybe near 27%. So why go through all the gyrations with preferred just to squeeze a little more for shareholders?


    Realistically speaking, I don't think Apple wants to make that much of a commitment on the dividend in the short run, regardless of whether it is common, preferred or both. They announced a dividend early last year along with a buyback, and perhaps they will announce increases to both over the next few months.
    10 Feb 2013, 08:53 PM Reply Like
  • tjmxxx
    , contributor
    Comments (99) | Send Message
    Who is going to buy out Apple, that is hilarious. If by some miracle it did happen, I would applaud. Perhaps they would replace the shareholder hating bonehead Cook.
    10 Feb 2013, 09:09 PM Reply Like
  • Michael O'Neill
    , contributor
    Comments (474) | Send Message
    Idiot comment.
    11 Feb 2013, 01:20 AM Reply Like
  • The Geoffster
    , contributor
    Comments (4293) | Send Message
    "The revolution is not an apple that falls when it is ripe. You have to make it fall." -- Che Guevara
    10 Feb 2013, 09:32 PM Reply Like
  • skleiniv
    , contributor
    Comments (88) | Send Message
    I agree with most of you, buy back more shares at this reduced price, hike the dividend to 4% & we as shareholders would all take pride in apples management team for doing the right thing. As many of you have noticed a lot of investors, very loyal people to the apple brand, have been feeling slighted by apples apparent lack of action to speak out or fight back against the negative press & short interests. Sadly if they don't hike the dividend enough apple will lose a lot of their loyal shareholders....I'll be one of them.
    10 Feb 2013, 09:38 PM Reply Like
  • XRTrader
    , contributor
    Comments (713) | Send Message
    Im not optimistic about AAPL doing anything crazy in terms of size of cash return (like a 50 billion buy-back).


    But, a $3/share increase in the dividend (about a 30% hike) would be an extra 2.8 billion a year. And, an extra 15 billion buy-back (about 3.5% market cap buyback) would be a nice start.


    This could be easily accomplished using on-shore cash on top of the current commitment.
    10 Feb 2013, 10:37 PM Reply Like
  • Vipertom
    , contributor
    Comments (169) | Send Message
    We now recognize what iTunes did to the music industry.
    What is an industry ripe for a change? Cable! We are forced to pay for what we don't want. What if Apple used its cash hoard to buy Comcast, Netflix, Disney, and then offered their inventory on a pay for view basis. They would revolutionalize the business, and nobody has the cash to compete with them. Of course Obama would consider this unfair and not allow this to happen...
    10 Feb 2013, 10:44 PM Reply Like
  • STDvooh
    , contributor
    Comments (641) | Send Message
    It is not the job of Apple's management to try to tinker with the price of the company's stock. Tim Cook and the rest are doing a splendid job of running and growing a fine company, providing excellent profits. If you like that, then buy more shares of AAPL and its price will rise. If you don't like how the company is run, then sell your shares and invest in something more to your liking.


    Long term AAPL investors are sick of speculators and fast buck artists trying to loot Apple for their short term profits, to the detriment of the long term success and profitability of Apple.
    11 Feb 2013, 12:39 AM Reply Like
  • metal27
    , contributor
    Comments (691) | Send Message
    Clearly, you have never held a management position at a publicly held corporation.
    11 Feb 2013, 02:53 AM Reply Like
  • techwonk
    , contributor
    Comments (288) | Send Message
    Hey, who you callin' an artist?


    Seriously, though, a publicly traded company has to keep an eye on its shares. Shouldn't be that way but it is. Plenty of wolves out there among the sheep.
    11 Feb 2013, 02:26 PM Reply Like
  • George Kesarios
    , contributor
    Comments (784) | Send Message
    My take here http://seekingalpha.co...
    11 Feb 2013, 02:45 AM Reply Like
  • Zheeeem
    , contributor
    Comments (446) | Send Message
    I think, as a general rule, shareholder activism is good. And I think AAPL is a complacent giant that needs someone to rattle the cage.


    I am no fan of buybacks. Better that AAPL increase its dividends or go with stubs. Since I like preferred shares a lot, being a geezer and all, stubs would be my preference, so to speak.
    11 Feb 2013, 03:27 AM Reply Like
  • milehr
    , contributor
    Comments (682) | Send Message
    Is this a joke?
    11 Feb 2013, 09:03 AM Reply Like
  • BermudaHigh
    , contributor
    Comments (568) | Send Message
    The assumptions about the preferred trading at par and the constant P/E are flawed. There is no free lunch here. http://bit.ly/w4jRpw~adamodar/
    11 Feb 2013, 11:38 AM Reply Like
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