| WHEN: TODAY, THURSDAY, FEBRUARY 7TH WHERE: CNBC'S "SQUAWK BOX" Following is the unofficial transcript of a CNBC interview with David Einhorn, Greenlight Capital Founder & President, on CNBC's "Squawk Box" today. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000146479. All references must be sourced to CNBC. |
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| ANDREW ROSS SORKIN: JOINING US NOW ON THE "SQUAWK" NEWSLINE IS DAVID EINHORN WHO JUST MADE SOME NEWS ABOUT 15 MINUTES AGO REGARDING APPLE. DAVID, GOOD TO HAVE YOU ON THE SHOW. EINHORN: GOOD MORNING, ANDREW. SORKIN: IF YOU COULD, BECAUSE IT'S COMPLICATED AND TECHNICAL AND I SHOULD ALSO TELL YOU THAT APPLE STOCK IS MOVING ON THIS PRESS RELEASE AND LETTER THAT YOU'VE SENT OUT URGING SHAREHOLDERS TO VOTE AGAINST THE COMPANY'S PROPOSAL TO ELIMINATE PREFERRED SHARES. WHY DON'T YOU GO BACK AND GIVE A LITTLE BIT OF HISTORY TO EXPLAIN WHAT THIS MEANS WHY APPLE IS TRYING TO DO THIS AND WHAT YOU THINK COULD HAPPEN. EINHORN: ALRIGHT EXCELLENT LET ME TELL YOU WHAT I THINK IS GOING ON HERE. APPLE IS A PHENOMENAL COMPANY ITS FILLED WITH TALENTED PEOPLE CREATING ICONIC PRODUCTS CONSUMERS AROUND THE WORLD LOVE. BUT APPLE HAS A PROBLEM WE THINK WHICH IS IT HAS A CASH PROBLEM. IT HAS SORT OF A MENTALITY OF A DEPRESSION. IN OTHER WORDS PEOPLE WHO HAVE GONE THROUGH TRAUMAS THEY SOMETIMES AND APPLE HAS GONE THROUGH A COUPLE OF TRAUMAS IN ITS HISTORY THEY SOMETIMES FEEL LIKE THEY CAN NEVER HAVE ENOUGH CASH. I MEAN I REMEMBER MY GRANDMA ROZ SHE WAS A DEPRESSION ERA WOMAN FROM HER CHILDHOOD, AND SHE WOULDN'T EVEN LEAVE ME A MESSAGE ON MY ANSWERING MACHINE SO I COULD CALL HER BACK BECAUSE SHE DIDN'T WANT TO GET CHARGED FOR THE PHONE CALL. AND THAT'S KIND OF THE WAY PEOPLE'S ATTITUDES SOMETIMES ARE ONCE THEY'VE BEEN THROUGH THIS. SO WE'VE BEEN THINKING ABOUT APPLE CAREFULLY. AND WE RECOGNIZE THAT THE COMPANY WANTS TO HAVE A VERY LARGE CASH FORWARD. THEY WANT TO HAVE IT IN CASE BAD THINGS HAPPEN. THEY WANT TO HAVE IT SO THAT THEY CAN BE STRATEGIC. THEY WANT TO HAVE IT SO THAT THEY CAN DO ACQUISITIONS IF THEY WANT TO DO IT. AND THIS HAS BEEN BUILDING UP TO A LARGE NUMBER, OVER QUITE SOME TIME. AND WHAT WE THOUGHT ABOUT WAS WE CAME UP WITH WHAT WE THINK IS A SOLUTION, WHERE APPLE CAN MAINTAIN ITS CASH, AND ITS STRATEGIC FLEXIBILITY, AND ITS COMFORT MONEY, AND ITS WAR CHEST, AND AT THE SAME TIME, SHAREHOLDERS CAN RECEIVE THE VALUE THAT IS EMBEDDED WITHIN THE BALANCE SHEET. AND THE WAY THAT THIS WOULD HAPPEN WOULD BE, IF APPLE DISTRIBUTED, NOT SOLD, BUT DISTRIBUTED TO EXISTING SHAREHOLDERS HIGH YIELDING PREFERRED STOCK. AND THEY COULD DO THIS IN SOME SIZE. APPLE IS A PHENOMENAL CREDIT -- SORKIN: DAVID, YOU WENT TO THEM, FROM MY UNDERSTANDING OF THIS, YOU WENT TO APPLE AND SUGGESTED THIS, NOT ONLY DID THEY SAY NO, THEY NOW APPEAR TO BE TRYING TO ELIMINATE THIS POSSIBILITY BY TAKING IT OFF THE BALLOT FOR THIS PROXY SEASON. EINHORN: RIGHT. SO LET'S TALK ABOUT BOTH HALVES OF IT. WE THINK THAT APPLE'S A TERRIFIC CREDIT. AND PEOPLE WHO WOULD OWN THIS PREFERRED WOULD BE HAPPY TO HAVE IT AT ABOUT A 4% YIELD PLUS OR MINUS. SOMETHING IN THAT BALL PARK. WHEN WE WENT TO APPLE, WE SUGGESTED THIS IDEA, THEY WENT TO THEIR ADVISERS, AND THEIR ADVISERS CAME BACK AND SAID GEEZ, IT WILL PROBABLY BE ABOUT AN 8% YIELD WHICH MAKES THE IDEA NOT ALL THAT ATTRACTIVE. THAT'S SOMETHING THAT WE AGREE TO DISAGREE ABOUT. LONG-TERM MICROSOFT BONDS YIELD UNDER 4%. WE THINK APPLE IS AN EVEN BETTER CREDIT THAN THAT. HERE WE'RE LOOKING AT SAYING JUST START WITH $50 BILLION, WHICH WOULD BE $2 BILLION OF DIVIDENDS. WHICH, YOU KNOW, APPLE HAS $140 BILLION OF CASH ON THE BALANCE SHEET SO THEY COULD PAY 70 YEARS OF DIVIDENDS RIGHT OUT OF THE BALANCE SHEET. SORKIN: WHY NOT BUYBACKS, DAVID? EINHORN: OH, THIS IS BETTER. THIS IS WAY BETTER BECAUSE THIS DOESN'T ACTUALLY REQUIRE THEM TO USE ANY OF THE CASH RIGHT AWAY. THEY'D BE ABLE AWAY. THEY HAVE BEEN ABLE TO MAINTAIN THEIR CASH CHEST AND ALL OF THEIR STRATEGIC IDEAS AND AT THE SAME TIME, SHAREHOLDERS WOULD BE REWARDED WITH SOMETHING THAT GIVES THEM CREDIT FOR APPLE'S PHENOMENAL BALANCE SHEET AND FRANCHISE VALUE. DRURY: WHY NOT HIKE THE DIVIDEND, AS WAS THE SPECULATION JUST YESTERDAY, DAVID? EINHORN: IT'S REALLY, AGAIN, THE SAME ISSUE. THE DIVIDEND GETS CAPITALIZED IN WITH THE EARNINGS IN A COMMON EQUITY SECURITY AND THE COMMON EQUITY SECURITY IS A SECURE THAT HAS THE VOLATILITY RELATED TO THE EARNINGS. IN TODAY'S ENVIRONMENT, THERE'S A TREMENDOUS DEMAND FOR HIGH-QUALITY, INTEREST INCOME OR CASH FLOW INCOMES FOR INDIVIDUALS, FOR INSTITUTIONS, FOR PENSIONS, FOR INSURANCE COMPANIES. SO WE THINK THAT IF THEY DISTRIBUTED PREFERRED STOCK WITH SAY A 4% YIELD THERE WOULD BE ENORMOUS DEMAND. SHARE HOLDERS THAT WANT THAT STABLE INCOME COULD KEEP IT AND SHAREHOLDERS THAT WANT TO OWN APPLE FOR THE UPSIDE WITHIN THE OPERATIONS WOULD CONTINUE TO SIMPLY OWN THE COMMON AND THEY WOULD GET A -- BE ABLE TO TAKE A LOT OF MONEY OFF THE TABLE BY SELLING THE PREFERRED TO INSTITUTIONS THAT WANT IT. DRURY: YOU ARE LONG APPLE, RIGHT? IS THIS ALL YOU THINK THEY NEED TO DO TO GET THIS STOCK MOVING AGAIN. THIS IS A STOCK THAT HAS HAD QUITE A FALL SINCE ITS PEAK BACK IN SEPTEMBER? EINHORN: VERY SIMPLY PUT, WE THINK FOR EVERY $50 BILLION OF PREFERRED THAT THEY ISSUE, IT WOULD UNLOCK ABOUT $32 A SHARE IN APPLE. IF APPLE USED ABOUT HALF OF THEIR EARNINGS TOWARD THIS PROGRAM, WE THINK THEY WOULD BE ABLE TO ISSUE APPROXIMATELY $500 BILLION, WHICH WOULD UNLOCK ABOUT $320 PER SHARE AND THAT ASSUMES THAT THE PE MULTIPLE DOESN'T EXPAND. SORKIN: DAVID, JUST TO NAIL IT DOWN WHAT IS YOUR POSITION ON APPLE RIGHT NOW SO THE VIEWERS UNDERSTAND? EINHORN: WE ARE LONG. SORKIN: YOU'RE LONG? YOU HAVE BEEN LONG A LONG TIME NOW? EINHORN: WE HAVE OWNED APPLE SINCE 2010. SORKIN: HAVE YOU SOLD IN BETWEEN, TAKEN ANY PROFITS? EINHORN: THERE'S BEEN A LITTLE BIT OF TRADING BUT WE OWN -- WE OWN MORE APPLE TODAY THAN WE EVER HAVE BEFORE. WAPNER: DAVID, LET ME SWITCH ATTENTION QUICKLY TO ANOTHER STOCK THAT YOU HAVE A RELATIONSHIP OR HAD A RELATIONSHIP WITH, THAT BEING HERBALIFE, WHICH YOU SAID AT ONE POINT YOU WERE SHORT AND THAT YOU ARE NO LONGER. IS THAT THE CURRENT POSITION? EINHORN: I AM VERY FOCUSED ON APPLE TODAY. WAPNER: I KNOW YOU ARE, BUT CARL ICAHN AND BILL ACKMAN WERE VERY FOCUSED ON HERBALIFE ABOUT 10 DAYS AGO. YOU MAY HAVE HEARD ABOUT THAT LITTLE AFFAIR THEY HAD ON THAT ON THE NETWORK. EINHORN: AND WE ARE GOING TO CONCENTRATE TODAY ON HELPING APPLE SHAREHOLDERS UNLOCK THE VALUE IN THEIR BALANCE SHEET. WAPNER: OKAY. EINHORN: SO LET'S GET TO THAT BECAUSE WHAT WE REALLY NEED TO DO IS WE NEED TO HAVE SHAREHOLDERS SPEAK UP FOR THEMSELVES. WAPNER: AT THE END OF THE DAY, DAVID, YOU'RE DOING THIS BECAUSE YOU'RE NOT AT ALL HAPPY WITH THE FACT THAT THEY HAVE GOT A THIRD OF THE MARKET CAP SITTING IN CASH AND YOU WANT THEM TO DO SOMETHING ABOUT IT? EINHORN: NO, NO, NO, I'M HAPPY FOR THEM TO HAVE A THIRD OF THE MARKET CAP IN CASH THIS IS A CLEVER IDEA THAT ENABLES THEM TO KEEP THE CASH FOR ALL THE REASONS THEY WANT TO KEEP IT AND YET UNLOCK THE VALUE FOR SHAREHOLDERS. SORKIN: SO CAN YOU EXPLAIN THEN EINHORN: IT'S WIN/WIN SITUATION. THEY KEEP THE CASH, WE GET THE VALUE. SORKIN: DAVID, TAKE US BEHIND THE SCENES THOUGH. BECAUSE YOU WERE TALKING TO APPLE PRIVATELY. WHY -- THIS SEEMS TO ME TO BE PAY BACK FOR THAT? RIGHT SEEMS LIKE THEY ARE TAKING THIS OFF THE TABLE PURPOSELY -- EINHORN: NO NO NO WHAT HAPPENED IS, ACCORDING TO THEM THEY DID SOME SORT OF A CORPORATE GOVERNANCE REVIEW AND THEY CAME UP WITH SOME IDEAS AS TO HOW TO IMPROVE THEIR CORPORATE GOVERNANCE AND THEY SAY THAT ABSOLUTELY NOTHING TO DO WITH OUR PREFERRED IDEA SO THEY PUT THREE IDEAS TOGETHER THAT THEY THOUGHT WERE, LIKE, FOR THE CORPORATE GOVERNANCE PEOPLE I KNOW CALPERS HAS BEEN WORKING ON THIS WITH THEM. THEY PUT IT ON A PROXY TO ELIMINATE THE ABILITY TO HAVE PREFERRED STOCK. WE THINK THAT UNFORTUNATELY THAT KIND OF RAN INTO OUR IDEA. SO, WHAT WE ARE SAYING RIGHT NOW TODAY WHAT SHAREHOLDERS NEED DO IS THEY NEED TO -- IF THEY SUPPORT THIS, THEY NEED TO VOTE AGAINST APPLE'S PROPOSAL NUMBER TWO THAT TAKES AWAY THE COMPANY'S ABILITY TO ISSUE THIS SORT OF HIGH YIELD PREFERRED FROM THEIR CHARTER. SORKIN: OKAY. EINHORN: IF THEY DO SO GET A GOOD CRITICAL MASS TO DO SO, TO SEND THAT KIND OF A MESSAGE TO APPLE'S BOARD, THEY HAVE TOLD ME THAT THEY ARE GOING TO RE-EVALUATE THIS IDEA AND I THINK IF THERE IS A LOT OF INTEREST IN SHAREHOLDER SUPPORT, I THINK WE HAVE AN OUTSTANDING OPPORTUNITY TO CREATE A WIN/WIN SITUATION WHERE APPLE GETS TO KEEP ITS BALANCE SHEET AND ITS CASH AND ALL OF ITS STRATEGIC FLEXIBILITY AND SHAREHOLDERS WILL GET THE VALUE THAT IS EMBEDDED WITHIN THAT. SORKIN: DAVID, LET ME ASK YOU AN OPERATIONAL QUESTION ABOUT APPLE. THIS IS OBVIOUSLY A LITTLE BIT ABOUT THE FINANCES OF APPLE. WHEN YOU THINK ABOUT APPLE AND INNOVATION AND THE FUTURE OF THIS COMPANY AND WHERE THE STOCK COULD GO BASED ON ACTUALLY WHAT THE COMPANY IS DOING BASED ON WHAT THEY ARE DOING WITH THEIR CASH OR BALANCE SHEET, DO YOU HAVE HOPE? DO YOU HAVE ANXIETY? WHAT ARE YOU THINKING? EINHORN: APPLE IS FANTASTIC. THEY MADE OVER $20 BILLION IN CASH LAST QUARTER, THAT'S MORE MONEY THAN AMAZON HAS MADE IN ITS ENTIRE LIFE. APPLE'S GOT 30-PLUS PERCENT MARGINS, AMAZON GOT MARGINS OF LESS THAN A PERCENT. I SHOULD LET YOU KNOW I'M NOT SHORT AMAZON, I'M JUST MAKING A COMPARISON. BOTH THE COMPANIES TRADED THE SAME PRICE THE SALES MULTIPLE. IT'S UTTERLY MISVALUED BY THE MARKET BECAUSE THERE'S JUST TOO MUCH -- THERE'S JUST TOO MUCH NOISE AT THE MOMENT. BUT I THINK THAT THE BUSINESS IS DOING VERY WELL, I'M VERY OPTIMISTIC ABOUT THEIR NEAR-TERM PROSPECTS. I THINK THAT THERE'S A LOT OF CONFUSION RELATING TO THE GUIDANCE IN THIS COMING QUARTER AND I THINK THE COMPANY, THE STOCK IS GOING TO DO VERY WELL AND I THINK IT IS GOING TO DO EXCEPTIONALLY WELL IF THEY PAY ATTENTION TO WHAT WE ARE SAYING TODAY. WAPNER: AREN'T YOU WORRIED AT ALL ABOUT MARGINS COMPRESSING THERE? IT IS PART OF A FUNDAMENTAL SHIFT, ISN'T IT AS WELL, DAVID? I KNOW THERE'S A LOT OF NOISE AROUND APPLE, BUT THE STOCK HAS GONE FROM 705 TO WHERE IT CURRENTLY SITS AT 460 AND ITS MOVING AS WE ARE HAVING THIS CONVERSATION BUT THERE SEEMS TO BE A BIT OF A FUNDAMENTAL SHIFT IN THE APPLE STORY. EINHORN: I WOULD THINK THAT MORE THAN ANY BAD NEWS HAS BEEN PRICED INTO THE DECLINE. YOU KNOW, YOU HAVE A COMPANY RIGHT HERE, I HAVE JUST EXPLAINED TO YOU HOW ESSENTIALLY THEY COULD, AT SOME POINT, DISTRIBUTE $500 PER SHARE IN PREFERRED AND STILL HAVE A COMPANY THAT HAS LOTS OF EARNINGS, $140 A SHARE OF CASH ON ITS BALANCE SHEET. I THINK THERE IS A TREMENDOUS UPSIDE TO THIS STORY. DRURY: WHEN IT WAS MARCHING TOWARD ITS RECORD HIGHS LAST YEAR, IT WAS KIND OF A STOCK THAT COULD DO NO WRONG AND STARTED TO HEAR PRICE TARGETS LIKE $1,000. DO YOU THINK THAT IS STILL FEASIBLE? EINHORN: I THINK IF THE COMPANY CONTINUES TO EXECUTE AND THE COMPANY UNLOCKS THE VALUE WITHIN ITS BALANCE SHEET, EITHER IN THE WAY I'M DESCRIBING OR IN A SIMILAR FASHION, IT STILL SEEMS VERY MUCH ON THE TABLE TO ME. WAPNER: YOU HAVE MORE THAN 1 MILLION SHARES, CORRECT? EINHORN: YES, SIR WAPNER: 1.3, IS THAT RIGHT? EINHORN: THAT IS WHAT WE HAD, I THINK, AT THE RECORD DATE. WAPNER: DO YOU HAVE COMPLETE CONFIDENCE, AS WE HAVE THIS CONVERSATION TODAY IN TIM COOK? EINHORN: I THINK MY INTERACTIONS WITH TIM COOK HAVE BEEN UNIVERSALLY POSITIVE. WAPNER: BUT THAT DOESN'T I'M NOT SURE IF THAT REALLY ANSWERS THE QUESTION. ARE YOU CONFIDENT THAT HE HAS THE ABILITY TO KEEP APPLE ON THE SORT OF TRAJECTORY THAT YOU AND OTHER SHAREHOLDERS WOULD DEMAND? EINHORN: LOOK, I DON'T THINK APPLE'S GOING TO GROW 80% A YEAR ANYMORE BUT I THINK IF VALUATION, IT DOESN'T NEED TO. I THINK THAT FROM EVERYTHING I'VE SEEN, I THINK TIM IS DOING AN EXCELLENT JOB. I'VE ENJOYED MY CONVERSATIONS WITH HIM. I THINK HE HAS THE RIGHT IDEA FOR APPLE AND I THINK APPLE IS GOING TO SUCCEED UNDER HIS LEADERSHIP. DRURY: LET ME REPHRASE WHAT SCOTT JUST ASKED YOU. DO YOU THINK THE COMPANY IS WORSE OFF WITHOUT STEVE JOBS? EINHORN: WELL, OF COURSE YOU CAN'T REPLACE STEVE JOBS BUT I THINK IN SOME PLACES, THE COMPANY, YOU KNOW, OBVIOUSLY WILL MISS HIM BUT THERE'S OTHER PLACES WHERE THERE'S OPPORTUNITY, LIKE WHAT WE'RE TALKING ABOUT TODAY. I THINK SOME OF THE DEPRESSION MENTALITY THAT I WAS TALKING ABOUT WITH APPLE, I THINK THAT CAME FROM STEVE JOBS. AND I THINK WITH HIS PASSING THERE IS AN OPPORTUNITY FOR APPLE, YOU KNOW, SHED SOME OF THAT THINKING AND TO MOVE IN A MORE FORWARD-LOOKING ATTITUDE TOWARD ITS CAPITAL ALLOCATION IN A WAY THAT COULD BE VERY REWARDING TO SHAREHOLDERS. SORKIN: DAVID, I KNOW YOU WANTED TO FOCUS ON APPLE AND I FEEL LIKE WE'VE ACTUALLY SPENT A GOOD DEAL OF TIME DOING THAT. IF YOU WOULD INDULGE US JUST FOR A MOMENT, THERE'S A LOT OF QUESTIONS THAT I'M SURE VIEWERS HAVE ABOUT YOUR TAKE ON WHERE GREEN MOUNTAIN STANDS. I KNOW YOU HAD A SHORT ON THAT. YOU MENTIONED AMAZON EARLIER. COULD YOU JUST GIVE US A LITTLE BIT OF WHERE YOU STAND ON THOSE TWO ISSUES? I LOVE YOUR THOUGHTS ON HERBALIFE, I KNOW YOU WANT TO BE HERE ON APPLE, BUT I DO THINK THAT THE AUDIENCE DESERVES A CHANCE TO HEAR WHERE YOU ARE. EINHORN: TO BE CLEAR WE DON'T HAVE ANY POSITION IN AMAZON AT ALL. I WAS JUST BRING UP AS AN ANALOGY TO APPLE BECAUSE OF THE VALUATION DISPARITY RELATIVE TO THE MARGINS, SO ON AND SO FORTH. SO, WE ARE NOT REALLY INVOLVED THERE. SORKIN: YOU HAD A SHORT POSITION AT ONE TIME THOUGH, NO? EINHORN: NO. NO. I DON'T THINK SO. CERTAINLY NOT IN THE LAST FIVE OR TEN YEARS. WAPNER: GREEN MOUNTAIN? EINHORN: GREEN MOUNTAIN. YEAH, WE ARE STILL SHORT GREEN MOUNTAIN. WE THINK YESTERDAY, THEY MANAGED TO SORT OF STUFF THE CHANNEL WITH BREWERS WE THINK IT IS A VERY LOW QUALITY EARNINGS RESULTS. WE THINK THE K-CUPS SALES CAME IN BELOW FORECAST. WE THINK THE SALES FORECAST HAD TO BE REDUCED. IT SEEMS TO US LIKE A CLASSIC CHANNEL STUFF. WHEN YOU HAVE HIGH LEVELS OF BREWERS AND LOW LEVELS OF K-CUPS IT TELLS YOU THAT PEOPLE ARE USING THE BREWERS LESS, IN OTHER WORDS, FEWER K-CUPS PER BREWER THAT KIND OF TELLS ME THAT OUR LONG-TERM THINKING THAT OUR STORY HAS PEAKED I THINK IS INTACT. SORKIN: DAVID, TRY ONE LAST TIME WITH HERBALIFE WITH BILL ACKMAN OR DAN LOEB NOW? EINHORN: WE DON'T HAVE ANY POSITION IN HERBALIFE. SORKIN: AND IF YOU WERE TO YOU WANT TO MAKE A FRIEND TODAY? YOU'RE FRIENDS WITH BOTH, I THINK? EINHORN: MY FRIEND TODAY ARE THE THOUSANDS OF APPLE SHAREHOLDERS WHO I'M HOPING WILL JOIN IN VOTING AGAINST THE PROPOSAL TO ELIMINATE THE PREFERRED SO THAT WE CAN UNLOCK THE VALUE. |
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