John Paczkowski

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Einhorn Says Apple’s Next Product Should Be iPrefs

Slide-To-Unlock-Value-Cropped Greenlight Capital founder David Einhorn said his proposed capital-allocation strategy for Apple is a “a win-win for everyone,” and in a Thursday afternoon presentation to investors, entitled “iPrefs, Unlocking Value,” the longtime Apple bull explained why.

“In contrast with the rest of the business, where innovation is the norm, Apple’s attitude toward its cash is quite conservative,” he said. “We have a solution that allows it to have its cake and eat it, too.”

That solution? iPrefs, a perpetual preferred stock that Einhorn argues should be Apple’s next “product.” So, what are iPrefs — aside from being “the product Apple doesn’t know it needs.”

Essentially, they’re shares that pay dividends forever.

“An iPref has a base value of $50, and pays a dividend of $2 per year,” Einhorn explained. “Apple can redeem them for face value, shareholders should expect to receive 50 cents per quarter, every quarter, forever.” And for Apple, he said, they won’t cost any of its existing cash stockpile. “iPrefs don’t interfere with whatever Apple’s business plan is. … They are a form of equity, not debt.”

iPrefs
But why does a company like Apple need such a thing? Most other publicly traded companies don’t seem to. Well, Apple isn’t like most other companies.

“Most companies are appropriately capitalized and consequently trade at market valuations commensurate with their intrinsic value,” Einhorn said. “Apple is different, though. … It’s not appropriately capitalized. And it’s not minimizing its cost of capital. This is one reason why we believe Apple’s stock trades at a valuation well below its intrinsic value.”

If iPrefs sound like a bunch of financial engineering, they’re not — according to Einhorn, anyway. “This is not a complicated idea, it’s just unfamiliar,” he said. “[With iPrefs], Apple can keep its cake, and the shareholders get to eat it, too.”

Apple’s annual shareholder meeting scheduled for next Wednesday, Feb. 27, at company headquarters in Cupertino, Calif.

Below, Einhorn’s presentation in full.


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