Breaking News

Tweet TWEET

Apple CEO to Face Investors Seeking More of Cash Hoard

Feb. 25 (Bloomberg) -- Anne Simpson, senior portfolio manager and director for corporate governance at CalPERS, talks about Greenlight Capital Inc.'s move to block a vote that would have allowed Apple Inc. to issue preferred stock. Simpson speaks with Stephanie Ruhle and Erik Schatzker on Bloomberg Television's "Market Makers." (Source: Bloomberg)

As Apple Inc. Chief Executive Officer Tim Cook takes the stage at this year’s shareholder meeting, he may not get the reception he received in 2012, when investors lauded the company’s performance and rising shares.

The annual event, where holders will vote on re-electing board members, takes place today at Apple’s headquarters in Cupertino, California. In this year’s run-up, the company has been enmeshed in a public spat over distribution of its $137.1 billion in cash and investments with hedge-fund manager David Einhorn, who advocates a bigger payout, using preferred shares.

After a five-year rally following the iPhone’s 2007 debut, the stock has fallen 36 percent from a September peak and 13 percent since last year’s gathering. Slowing sales and profit gains have increased pressure on the company to introduce new products that can reignite growth, setting the stage for a higher degree of confrontation this time.

“Investors over the past few years have seen the stock only going up during a series of very successful product introductions,” said Michael Obuchowski, a portfolio manager at North Shore Asset Management LLC, which owns Apple shares. “Now there are a lot of questions being raised about Apple’s future, and with good reason.”

Photographer: David Paul Morris/Bloomberg

Tim Cook, chief executive officer of Apple Inc., during an event in San Francisco. Close

Tim Cook, chief executive officer of Apple Inc., during an event in San Francisco.

Close
Open
Photographer: David Paul Morris/Bloomberg

Tim Cook, chief executive officer of Apple Inc., during an event in San Francisco.

A central criticism among shareholders is the money accumulated by Apple, the world’s most valuable company by market capitalization. Investors want a bigger slice of the cash hoard that has grown over a half decade amid surging sales of iPhones and iPads. Apple’s shares fell less than 1 percent to $446.66 at 9:34 a.m. in New York.

Jobs Contrast

While Cook will probably discuss cash at today’s meeting, the company doesn’t typically use the annual gathering to announce new products or strategy shifts.

Cook, who took over as CEO in 2011 from co-founder Steve Jobs, has proved more sensitive to shareholders’ concerns than his predecessor. While Jobs long dismissed investors’ cash demands, Cook reinstated the company’s quarterly dividend and unveiled a $10 billion stock buyback program last year.

That wasn’t enough for some shareholders. The tension has built in the weeks leading up to the investor meeting, after Greenlight Capital Inc. founder Einhorn sued Apple as part of a push to get the company to create a new class of dividend-paying preferred stock. A judge sided with Einhorn in a ruling last week, prompting Apple to scrap a proxy proposal that would have required the computer maker to get shareholder approval before issuing such a new category of shares.

Jonathan Gasthalter, an outside spokesman for Greenlight, didn’t return a call seeking comment on Einhorn and whether he plans to attend the meeting.

Steve Dowling, a spokesman for Apple, declined to comment on expectations for the meeting.

Message Sent

Even investors who don’t support Einhorn’s plan for the new type of stock applaud his tactics, saying they have sent a message to Apple’s management about returning money to shareholders.

“It took a pretty extreme action to get the company’s attention,” said Keith Goddard, president of Capital Advisors Inc., which owns Apple shares. Goddard said he supported the lawsuit, and that he prefers buybacks and higher dividends.

The tussle between Apple and its shareholders heralds a new era for Apple, in which investors who have seen the stock drop in recent months won’t be as patient with the company as they were when it was performing well.

Jobs’s ‘Mystique’

“Apple could get away with saying very little to investors when it had the mystique of Steve Jobs and it was coming out with great products,” said Kathleen M. Wailes, a senior vice president at Levick, an investor-relations firm in Washington. “But with the stock falling, more are going to want cash if they are going to maintain their positions.”

Apple also may decide to split its stock, according to Laurence Balter, chief market strategist at Oracle Investment Research. Splitting the stock 10 for 1 would spur a rally by attracting individual investors willing to buy Apple at a lower price, while Einhorn’s plan would deplete the company’s cash flow, Balter wrote in a report.

Cook and other executives will take questions from investors at the meeting. The CEO has defended the company’s policies, saying that it is handling cash responsibly to invest in operations, while acknowledging the company has money to spare. The board is exploring different options, including boosting dividends and buybacks and issuing preferred shares.

At the shareholder meeting, investors will vote to re-elect the company’s slate of directors. It includes Cook; Chairman Art Levinson; former Avon Products Inc. CEO Andrea Jung; former U.S. Vice President Al Gore; J. Crew Group Inc. CEO Mickey Drexler; former Intuit Inc. CEO Bill Campbell; former Northrop Grumman Corp. CEO Ron Sugar; and Walt Disney Co. CEO Bob Iger. All the board members are scheduled to attend the meeting.

Executive Pay

Apple also has asked shareholders to make an “advisory vote” on the company’s executive compensation. The measure is non-binding, so even if majority of shareholders vote against the pay structure, Apple wouldn’t be required to change it.

Another measure offered by a shareholder would require executives to hold more company stock -- to ensure that their interests are better aligned with those of investors. Apple defends its existing structure, which includes salary, bonus and shares that vest over time. The company says that arrangement keeps management focused on performance over the long haul.

In the face of recent criticism, some investors want to see Cook address investor issues more assertively, said Walter Price, managing director at RCM Capital Management. IPhone sales are slowing as the smartphone market becomes increasingly saturated, and Apple needs to show that it can appeal to customers in developing countries where Samsung Electronics Co. has excelled with less-expensive models, Price said.

Growth Slows

Some investors are holding Apple to unrealistically high expectations, given its past successes, Obuchowski said. Apple’s fiscal first-quarter results represented one of the best quarters the technology industry has ever seen. Still, the numbers, released last month, fell short of some analysts’ projections.

There’s evidence that growth is decelerating. Apple forecast that second-quarter revenue would increase less than 10 percent, the slowest rate since 2009. Rivals such as Google Inc., Samsung and Amazon.com Inc. are introducing compelling new products to challenge Apple’s stronghold in smartphones and tablets, Obuchowski said.

Some investors are abandoning the stock after a lucrative run and while they wait to see what new products Apple will introduce, he said. In the meantime, a bigger dividend or creation of new class of preferred shares may be necessary to hang on to investors who haven’t given up yet.

“They are at a point where investors are questioning what the future of Apple is,” Obuchowski said.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.