Tags: Apple | Talks | Cash | Investors

Apple’s ‘Very Active’ Talks on Cash Fail to Assuage Investors

Wednesday, 27 February 2013 04:32 PM

Apple Inc. Chief Executive Officer Tim Cook, saying he’s in “very, very active” talks about what to do with the company’s growing cash pile, did little to assuage investors seeking more clarity on his plans.

Apple shares fell 1 percent, while the rest of the U.S. stock market rallied, as Cook ended the company’s annual shareholder meeting without giving any additional insight on what he’ll do with $137.1 billion in cash and investments. Shareholders re-elected the board, approved Ernst & Young LLP as accountant and passed a non-binding measure on executive pay.

Cook is under growing pressure to use higher dividends, stock buybacks or a new class of preferred shares to compensate investors after Apple shares tumbled by more than a third from a September peak. The calls grew louder amid signs of slowing sales and profit growth and increasingly acute competition from Samsung Electronics Co. and Google Inc.

“The stock isn’t going to do much until the investment community gets more granularity or clarity about how they are thinking about returning capital to shareholders,” Ted Bridges, a shareholder from Omaha, Nebraska, who attended the meeting, said in an interview. He runs Bridges Investment Counsel Inc.

Cook, dressed in dark button-up shirt and seated on a stool in the company’s auditorium, said he and other executives are “focused on the long term” and aren’t happy with the falling stock price.

Apple’s shares ended at $444.57 in New York Wednesday. Through Tuesday, the stock had dropped 36 percent from a record in September.

Proxy Proposal

After taking over as CEO in 2011 from co-founder Steve Jobs, Cook 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.

Investors defeated another measure, offered by a shareholder, that would have required executives to hold more company stock, to ensure that their interests are better aligned with those of investors. Apple had said its existing structure, which includes salary, bonus and shares that vest over time, is enough to keep management focused on performance over the long haul.

“Winning for us isn’t about making the most,” Cook said. “We want to make the best. That’s why we’re here.”

Cash Position

A proposal that would have required Apple to get shareholder approval before issuing preferred shares was scrapped before the meeting. Greenlight Capital Inc. founder David Einhorn, who advocates a bigger payout, 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.

Cook has defended Apple’s policies, saying that it’s 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.

Cook said Apple is working on “new categories” for products.

“We don’t have our head stuck in the sand,” Cook said. “We’re in this for the long term.”

New Headquarters

Apple should follow the example of International Business Machines Corp., which has consistently returned more than 100 percent of its free cash flow to investors each year, primarily through stock buybacks, said Toni Sacconaghi, an analyst with Sanford Bernstein & Co.

Sacconaghi said Apple can return 50 percent to 70 percent of its free cash flow to shareholders each year, to attract “value investors” who are concerned about the company’s slowing growth.

Cook updated shareholders on the progress of Apple’s future headquarters, a project that Jobs worked on before his death in 2011. The spaceship-like headquarters with a circular design, set on 176 acres in Cupertino, is taking longer to build than expected, with plans to move in by 2016, Cook said.

Jobs “put a lot of love and attention” into designing the building, Cook said.

At the shareholder meeting, investors voted 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.

Some investors joined the meeting with ideas other than Apple’s stock price or use of cash. One woman asked that Apple put more bathrooms in its retail stores, while another suggested the company create an “iBike computer.” Another investor said Gore shouldn’t be on the board because he sold his Current TV network to Al Jazeera, the cable channel funded in part by oil- rich Qatar.

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Apple Inc. Chief Executive Officer Tim Cook, saying he's in "very, very active" talks about what to do with the company's growing cash pile, did little to assuage investors seeking more clarity on his plans.
Wednesday, 27 February 2013 04:32 PM
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