Apple Stock Split Rumors Fly as Shareholder Meeting Looms
The stage is set for an Apple shareholder meeting that promises to generate more media attention than normal -- even for Apple. Blame a tough winter for the stock price, questions about future products and a shareholder revolt staged by hedge fund manager David Einhorn. Speculation is on fire heading into Wednesday's meeting, with investors eager for news about stock plans and possible new devices.
02/27/13 5:00 AM PT
Apple's Cupertino headquarters will be open for investors Wednesday as the company holds its annual shareholder meeting, an event that has attracted more than its share of hype thanks to two big questions: What's coming next from the tech giant, and what it will do with its $137 billion cash pile?
Any investor meeting for one of the world's most high profile companies typically draws some attention, but this year's is especially important. For the past month, hedge fund manager David Einhorn has used a lawsuit and publicity to drum up investor outrage about Apple's reluctance to depart with its cash. He suggested the company distribute what he called "iPrefs," a form of preferred stock that he claimed could add $150 in value to the current stock price.
Last week a federal judge agreed with Einhorn's charge that Apple had improperly bundled some of the proposals for its charter, one of which applied to the way it could distribute preferred stock. Investors will not be voting on that bundled proposal during this year's meeting.
Apple CEO Tim Cook brushed off the lawsuit over the bundled proposal earlier this month, calling it a "waste of shareholder money" and a "silly sideshow," while defending the benefits of having a lot of cash on hand.
The company has not made any statements about plans to announce any sort of stock issuance or dividend at its meeting.
That hasn't stopped some investors, such as Douglas Kass, from guessing what could on the agenda at the meeting. Kass tweeted Tuesday that he had heard a rumor that Apple will announce a stock split on Wednesday. The company's shares rose Tuesday afternoon when speculation about the stock split hit. Apple's stock climbed as high as US $451.54, more than a 1 percent increase.
Kass's tweet added to recent speculation that although Apple would not agree to Einhorn's specific "iPref" plans, the company would still feel pressured to acknowledge the publicity surrounding the lawsuit.
Einhorn's idea, however, probably isn't the best way to make sure that investors get the most out of the deal, said Aswath Damodaran, professor of corporate finance at the Stern School of Business at New York University.
"The preferred dividend on the preferred stock will show the market that Apple is confident about its capacity to generate high cash flows in the future," he told MacNewsWorld. "I am not convinced that it is the best approach for signaling that capacity, and that Apple has easier and simpler options available to it, including raising dividends on its common stock."
Depending on certain tax restrictions, dividends can also be very limiting to several shareholders, said Trip Chowdhry, senior analyst for Global Equities Research. If Apple is going to announce any stock issuance Wednesday, it will probably be something that will bring as much value to as many of its investors as possible.
"Apple has a history of being somewhat democratic in their behavior towards investors," he told MacNewsWorld. "If anything, I think they might do a share buyback program. They will want to make sure the meeting doesn't bring anything out of the ordinary, and a share buyback program would be something small and a good deal for the most number of shareholders."
Switching from Cash to Innovation
Outside of answering questions about the company's cash, Tim Cook and Apple will want to use Wednesday to reassure investors that the company has not forgotten its history of innovation, said Chowdhry. Some investors would rather see Apple use its cash for developing its next big product rather than paying a dividend.
Cook may have to reiterate during the meeting that innovation is alive and well at the company -- and he would be right, said Chowdhry.
"This decade is really different than the last decade," he pointed out. "But Apple changes the rules of the game quite often. Every company is still trying to emulate Apple. That's obvious when you see Microsoft and Google opening retail stores, trying to get an edge there like Apple has."
Apple is also making moves to invest in its supply chain. The well-reported decision to build some of its Mac products in the U.S. rather than in China is a small start to Apple's commitment for greater efficiency. That shows that the company knows that products are just one piece of the puzzle; it also wants a future where it produces products in the same place where they are sold. That will help cut down on wait times for products, and open the door for greater efficiency once it launches them, Chowdhry said.
Some Apple investors may be worried about its cash, but the company has larger issues on its mind come Wednesday.
"Apple might use the meeting to announce a shareholder buyback program," he said. "But they also want to increase customer satisfaction and expectations by talking more about their manufacturing move to America, or to wherever their products are being bought. They're also going to point out that they're investing in the supply chain. The innovation is there, and they're going to let investors know that."