Buffett to Tim Cook: Ignore Einhorn
The legendary investor says Apple should avoid listening to Greenlight Capital's founder, and work to create value for the long term.
When Warren Buffett speaks, the markets listen. Perhaps it's time for Apple (AAPL) to listen as well.
Appearing on CNBC Tuesday morning, Berkshire Hathaway's (BRK.A) Buffett had some advice for Apple on managing the company.
The Cupertino, Calif., company has come under attack from David Einhorn in recent weeks with regard to Apple's $137 billion cash hoard and what to do with it. "I would ignore him," Buffett told Becky Quick, talking about Greenlight Capital's Einhorn. "I would run the business in such a manner as to create the most value over the next five to 10 years. You can't run a business to push the stock price up on a daily basis. Berkshire has gone down 50% four times in its history. When that happens, if you've got money you buy it. You just keep working on building the value."
In order to boost Apple's share price, Einhorn has suggested Apple issue preferred stock, dubbed "iPrefs," to unlock the value of the company's foreign cash, which he believes the market is not giving credit to. Apple would offer perpetual preferred stock at a dividend rate of 4% to 6%, and not use any of its existing cash. Apple has responded to this, saying it would "thoroughly evaluate Greenlight Capital's current proposal to issue some form of preferred stock" (see TheStreet).
Speaking at a Goldman Sachs conference last month, Apple CEO Tim Cook echoed Buffett's thoughts. "We're managing Apple for the long-term," he said, when asked about Apple's direction. "I know people care about quarters and so forth and we care, but the decisions we make, the profound decisions we make, are for Apple's long-term health. Not for the short-term 90-day clock."
Apple has discussed returning cash to shareholders in recent weeks, and Buffett suggested that perhaps buying back stock would be the best course of action. He gave Steve Jobs this advice when he was running the company and asked what to do with Apple's growing cash hoard. "When Steve called me, I said, 'Is your stock cheap?' He said, 'yes.' I said, 'Do you have more cash than you need?' He said, 'a little.' [laughs] I said, 'then buy back your stock.' He didn't ... But if you could buy dollar bills for 80 cents, it's a very good thing to do."
At its recent shareholder meeting, Cook said he and the board are not happy with Apple's share price compared to a few months ago (see TheStreet). He reiterated, however, that the iPhone maker is focused on the long term. Cook mentioned that Apple's actively thinking about returning cash to shareholders. Apple's $137 billion cash hoard has attracted a lot of attention and Cook said Apple is in "very, very active" discussions on what to do with it.
On Monday Buffett revealed that Real Money's Doug Kass has been appointed to represent the bearish view of Berkshire Hathaway at the company's shareholder meeting scheduled for May 4 (see TheStreet).
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The offering could become the second-biggest this year if underwriters exercise an option to buy more shares.
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