David Einhorn's Apple Conference Call: Full TranscriptVW Staff
Apple Inc. (NASDAQ:AAPL) got a slight boost after famous hedge fund manager David Einhorn proposed some interesting ideas to unlock shareholder value. The founder of Greenlight Capital has been waging an activist campaign against Apple. David Einhorn thinks that Apple’s capital allocation policies are poor and discussed ways to use preferred shares, including the creation of a security Einhorn termed as “iPrefs.” David Einhorn believes that Apple “can have its cake and eat it too.” We live blogged the conference call earlier today. We have now obtained a full transcript containing David Einhorn’s entire speech about Apple Inc. (NASDAQ:AAPL).
The full text of the speech can be found below:
Ladies and gentlemen thank you for your patience picture greenlight capital conference call will begin shortly. Again, thank you for your patience and please continue to stand by.
Descendent event thank you for your patience. You’re Greenlight Capital conference call will begin shortly. Again, thank you for your patience and please continue to stand by.
Good afternoon. Thank you for joining Greenlight Capital’s conference call. The purpose of this call is to discuss Apple Inc. (NASDAQ:AAPL)’s cash total allocation strategy and green lights proposal to unlock significant value for all Apple shareholders. Joining us on the line today is David Einhorn President of Greenlight Capital, who will begin with some prepared remarks before opening up the line for approximately 15 minutes of Q&A. The slide that Mr. Reinhard is presenting can be accessed via webcast. A link which is available on greenlight’s website at www. Greenlight Capital . com. Please note, Mr. Einhorn will be speaking today solely about Apple and will not be discussing any of the firms other investments. In order to ask a question, please press star one.
Please limit yourself to one question and then rejoin the queue for any additional follow-up questions. With that, please allow me to turn it over to Mr. Einhorn.
Hi. Good afternoon everyone. This is David Einhorn. I want to thank you for joining us on short notice to let us tell you a bit about our thoughts on Apple and how to unlock the mythic and shareholder value. I’m going to go through a detailed PowerPoint presentation work if you are on the call and not the w ebcast, I recommend you sign onto the webcast right now so that you can follow along. You can find a link to it from our website at www.Greenlight Capital .com. This is our legal disclaimer.
I want to stress that this presentation is greenlight’s work and opinions and it has not been endorsed in any way by Apple. In the text base Apple Inc. (NASDAQ:AAPL) is a leader in innovation. They are bold original thinkers with genuine insight into what consumers want.
Long before consumers even know they wanted. Over the years, they have done very well by exploring new ideas and locking in on what works across their areas of expertise.
They’ve done so well that they’ve ended up with the stockpile of cash that exceeds the market capitalization of all but 17 companies in the S&P 500. The size of Apple’s rainy Day fund reveals a basic flaw in Apple’s capital allocation. Apple Inc. (NASDAQ:AAPL) and it’s shareholders would like a solution and we are offering one. We aren’t here to offer any thoughts on their strategic trends to operate their business. A are the experts on that. We don’t know what their plans are and we don’t need to know.
The beauty of our idea is that it lets them on their business no matter what those plans are. There has been a lot of discussion around our idea that Apple should distribute perpetual preferred stock.
Many have asked why don’t they just increased the dividend or buy back shares. This sounds too complicated. It’s not complicated. It’s merely unfamiliar. It’s also simple and innovative. We are going to start with how conventional thinking has led Apple Inc. (NASDAQ:AAPL) and other large tech companies into having such bloated balance sheets. We’ll talk about the usual solutions and why they don’t align well with Apple’s priorities. Then, we are going to walk you step I step through our idea. We want to thank you all for joining us today. Our solution is not customary, but we think you will agree that we are presenting the best solution for unlocking the most value for Apple shareholders without impinging in any way on Apple’s business plan.
Let’s see how Apple Inc. (NASDAQ:AAPL) found itself in this exceedingly fortunate position. In most sectors, companies run with debt and issue equity currency as needed for growth or acquisitions. Technology companies have operated differently.
Particularly some of the largest, most successful companies. They have accumulated enormous amounts of cash that sit idle on their balance sheet for years on end. There are several common themes that explain the tech industry’s hoarding. Part of it, is that companies view their self-importance by the size of their bank accounts. They like to know that they can make small, medium and large acquisitions. It is also widely understood that when tech companies get into trouble, Wall Street won’t be there with fresh capital.
Many companies that held industry-leading positions at one point over the last few decades ultimately lost their market position, ran out of money, and went bankrupt. In tech, product innovation happens at light speed, and consumer desire shift just as quickly, profits can turn to losses faster than you might think. Much of Silicon Valley has learned a lesson. If Wall Street can’t be counted on, the key to survival is a rainy day fund that will get you through tough times. Another bit of Silicon Valley lore is that there is no reward for distributing cash. Executives will routinely cite studies and examples of where buybacks destroy value and dividends were not rewarded. The value of buybacks depends on the value of the stock.
Historically, some of the most aggressive stock repurchases have been overvalued companies with management’s working to Kyte already high stock basis. Back when Dells PE was in the stratosphere, much of this free cash flow went into share repurchases. Conversely, when Dell shares traded at reasonable values, tell about cash to pile into its balance sheet. Further, there is a sphere that dividends single core growth prospects or the end of innovation. Microsoft is apparently the poster child for this argument. Over the last few years Microsoft has shown that one-time dividend, ongoing dividends and share repurchases aren’t by themselves good enough to drive value in the face of the deteriorating competitive position.
Tech companies use cash strategies available under current laws that maximize off shoring. They are in their money jurisdictions with more favorable tax rate than the US as long as they don’t bring it back to the US, they pay tax at the lower rate. I guess what’s earned an island stays an island. The lower rate allows for higher recorded earnings. Occasionally, a US company finds a for an acquisition where it can deploy some offshore cash, but in general, overseas earnings remain overseas.
In contrast, companies have complete access to their domestic cash. So, this generally gets used. But, while the foreign cash accumulates. In 2004, the US had a one-time tax holiday where companies were able to repatriate their trapped cash by paying
To be continued: See pages below.