SAN FRANCISCO (Reuters) - Apple Inc Chief Executive Tim Cook said the board is carefully considering David Einhorn's proposal for the company to issue preferred stock and return more cash to investors, but he called a lawsuit brought by the star hedge fund manager against Apple a "silly sideshow."
Waving aside Einhorn's assertion that Apple is clinging to a "Depression-era" mentality, Cook said on Tuesday the board is in "very active discussions" on how to dole out more of its $137 billion hoard of cash and marketable securities.
Einhorn and his Greenlight Capital are suing Apple as part of a wider effort to get the iPhone maker to share more of its cash pile, one of the largest among technology companies. They are challenging "Proposal 2" in Apple's proxy statement, which would abolish a system for issuing preferred stock at its discretion.
The lawsuit, the first major challenge from an activist shareholder in years, calls on Apple to issue perpetual preferred shares that pay dividends to existing shareholders. Such a vehicle, the Einhorn says, would be superior to dividends or share buybacks.
Cook gave Einhorn credit for a novel idea, but the usually unflappable chief executive turned slightly impatient when discussing the lawsuit. He was also dismissive of Einhorn's media and legal blitz - which included the lawsuit as well as multiple television and media interviews.
"This is a waste of shareholder money and a distraction, and not a seminal issue for Apple. That said, I support Prop 2. I am personally going to vote for it," Cook told a packed hall at Goldman Sachs' annual technology industry conference in San Francisco.
The conflict over Prop 2 "is a silly sideshow," added Cook, who on Tuesday traded in his usual casual jeans attire for slacks and a dark suit jacket, in a nod to Wall Street. Cook said he thought it "bizarre that we would find ourselves being sued for doing something good for shareholders."
Einhorn's clash with Apple centers on a proposed change to its charter that would eliminate the company's ability to issue "blank check" preferred stock at its discretion. Apple, which said the change would not preclude future issuance of preferred shares, is recommending shareholders vote in favor at its annual meeting on February 27.
The lawsuit, filed in the U.S. district court in Manhattan, objects to the bundling of the charter change with two other corporate governance-related proposals in "Proposal 2."
The hedge fund manager, a well-known short-seller and Apple gadget fan, counters that striking the preferred-share mechanism from the charter would make it more difficult to issue such securities down the road.
Apple's share price has tumbled in recent months from a high of just over $700 last September. In late afternoon trade on Tuesday, the shares were down around 2.2 percent at $469.30.
DIMINISHING CLOUT
Investors were disappointed that Cook - who rarely makes lengthy public-speaking engagements - did not provide a "more substantial" view on returning cash.
"The only thing that would substantially move the stock would be him saying they were returning cash to shareholders or hinting at a new product," said a manager from a mid-size Dallas hedge fund that owns Apple shares.
"There was a small chance of that happening."
Apple stock is a mainstay of many fund managers' portfolios, with research firm eVestment estimating that 75 percent of U.S. large-cap growth managers had invested more than 5 percent of their portfolios in Apple as of the end of the third quarter of 2012.
But that also increases the pressure on Apple to give away a bigger portion of its cash hoard, which is rising as the share price declines and its outlook grows murkier.
Last March, Apple announced a quarterly cash dividend and a share buyback that would pay out $45 billion over three years. At the time, it was sitting on $98 billion in cash. It has so far returned $10 billion of that, but investors want more.
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