blank check preferred stock

David Einhorn is suing Apple to make them give shareholders a separate vote over whether shareholders should have a vote over whether Apple can issue preferred stock. I guess that requires some unpacking. Let’s start at the end, with the preferred stock. Here is Einhorn’s plan:

For example, Apple could initially distribute to existing shareholders $50 billion of perpetual preferred stock, with a 4% annual cash dividend paid quarterly at preferential tax rates. … Assuming Apple retains its price to earnings multiple of 10x and the preferred stock yields 4%, our calculations show that every $50 billion of perpetual preferred stock that Apple distributes would unlock about $30 billion, or $32 per share in value. Greenlight believes that Apple has the capacity to ultimately distribute several hundred billion dollars of preferred, which would unlock hundreds of dollars of value per share. Further, Greenlight believes additional value may be realized when Apple’s price to earnings multiple expands, as the market appreciates a more shareholder friendly capital allocation policy.

What do you think? I vote yes. (I mean, I think it’s a good idea. The voting is more complicated.) My math is here and ties closely to Einhorn’s:


The math is super straightforward though it can and should boggle you conceptually if you think about it. Read more »