Apple is facing a legal challenge from a shareholder who demanded it dole out more of its $137 billion cash pile to investors.
Hedge fund manager David Einhorn's Greenlight Capital filed the suit as the world's largest technology company grapples with a tumbling share price, mounting competition in the smartphone and tablet markets and concerns about its ability to produce new breakthrough products.
Einhorn, a well-known short-seller and Apple gadget fan, said in an interview with CNBC that the company harbored a "Depression-era" mentality that led it to hoard cash and invest only in the safest, lowest-yielding securities.
Einhorn's lawsuit filed in U.S. District Court in Manhattan yesterday, targets a proposal by Apple to eliminate from its charter "blank check" preferred stock. The board now has discretion to issue preferred stock but is asking shareholders at its annual meeting on February 27 to vote on a proposal that would first require shareholder approval.
Einhorn urged Apple shareholders to vote against the plan, and put forward his own proposal for an issuance of preferred stock - which he deems superior to dividends or share buybacks - with a perpetual 4 per cent dividend.
"We saw that the proxy came out and we saw they were planning to get rid of preferred and then, we said, 'Wait a minute, we are not going to be able to bring this up again in a good way if we allow them to do this. So we should contest it now’," said Einhorn.
Apple nearly went broke in the 1990s before Steve Jobs returned and engineered a sensational turnaround, with products such as the iPhone and iPad and the company's near-death experience has led Apple to be exceptionally conservative with its cash.
Einhorn said he had gone to Apple CEO Tim Cook in recent weeks after the company's chief financial officer, Peter Oppenheimer, brushed off his entreaties in September.
Cook, who is rarely known to engage investors in exclusive conversations, was unaware of the earlier conversations with Oppenheimer, according to Einhorn.
"When I discussed this with Tim Cook, and actually, the conversation has been going on for the last couple of weeks, he said that he wasn't familiar with my previous conversations with Peter Oppenheimer and whoever Peter Oppenheimer's advisers were. I was surprised by that," he said.
Einhorn has a history of activism, usually directed at struggling companies or those grappling with management issues. In 2011, he urged Microsoft Corp to get rid of Chief Executive Steve Ballmer, accusing him of being "stuck in the past." Einhorn slashed his stake in the software giant six months later.
Analysts have expected stockholder pressure to increase as Apple's share price declines and its outlook grows murkier. Stock in the company that once seemingly could do no wrong has fallen 35 per cent since its September record high through Wednesday. It ended Thursday 3 per cent higher at $468.22.
Einhorn, whose Greenlight Capital, had a sub-par year in large part because of Apple's late-2012 stock swoon, said the company needs to fix its "cash problem."
"It has sort of a mentality of a depression. In other words, people who have gone through traumas ... and Apple has gone through a couple of traumas in its history, they sometimes feel like they can never have enough cash," Einhorn said in an interview with CNBC.
Oral arguments between Apple and Einhorn have been set for February 22 in U.S. District Court for the Southern District of New York and Apple has until February 15 to respond to Greenlight's suit.