Greenlight Capital

  • 24 Mar 2014 at 5:12 PM

CSI: Greenlight Capital

David Einhorn has watched enough criminal procedurals to do a little gumshoeing himself. Read more »

David Einhorn doesn’t know who Seeking Alpha contributor “Valuable Insights” is. He’s pretty sure VI is a fellow Micron Technology investor. And he’s damned sure (a) that one of VI’s more recent insights was anything but valuable to him, and (b) that he’d like to find out exactly who VI is. And he would appreciate it if a court would help him do so. Read more »

The Greenlight Capital funds, run by hedge fund manager David Einhorn, returned 4.3 percent in the third quarter of 2013, bringing the funds’ year-to-date net return to 11.8 percent, according to a letter to investors seen by Reuters…The letter said that “virtually every long position” that the firm had was profitable in the third quarter, and that it added a “medium-sized long position” in Osram Licht AG . [Reuters]

I used to work on sort of a cats-and-dogs capital markets desk, which occasionally meant that spivvy companies without great access to the equity and bond markets, or industry bankers who were a bit too clever for their own good, came to me and asked “hey, what if we issued preferred stock?”1 I cannot recall that ever working out well. “Preferred stock” is a thing that exists in corporate finance textbooks, and occasionally solves for quirky corporate finance equations (“can we structure this investment as debt only it isn’t debt …”), but its practical uses tend to be limited to:

  • private companies, private investments in public companies, joint ventures, VC investments, and other non-publicly-traded things;
  • convertible preferred stock, which is not really the same thing at all;
  • convertible preferred’s weird Warren-Buffett-and-TARP cousin, “preferred stock with warrants”; and
  • a couple of sectors that are really into leverage, capital-structure engineering, and retail financing – meaning mostly banks, insurance companies and REITs.

So David Einhorn’s too-clever-for-his-own-good “iPrefs” deck brought back fond memories: why not convince a tech company that the next level of financial-engineering innovation is to issue preferred stock? And, since the phrase “preferred stock” does still kind of conjure up turn-of-the-last-century financial markets and/or cheesy cologne, why not rebrand it as “iPrefs”? There is something … something very investment-banker-y about taking an absolutely standard financial product, giving it a different name, and calling it an innovation. Of course I love it.

The only thing I love more than the name is the ambition. Read more »

David Einhorn Sees A Lot Of His Nana In Apple

“It is kind of like my grandma Roz. She wanted to hoard money. She would not leave me a message on my answering machine because she did not want to be charged for a phone call. It is really hard to convince somebody with that mindset to change what they’re doing. We have come up with what we think is a win-win situation for Apple where Apple gets to keep its war chest, they get to keep the money, they get to have it for bad times, for growth, for acquisitions.”[Bloomberg TV, earlier]

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 »


Greenlight Capital Fourth Quarter Letter [ValueWalk]