Apple
has nearly $100 billion in cash just sitting on its balance sheet, earning nothing more than a market rate of return. As the cash hoard grows ever larger, shareholders have grown increasingly more vocal about getting hold of it.
This poses the question: Do Apple shareholders have a legal right to the cash, and could they sue Apple to get it?
Some have mentioned the vs. Ford Motor case as setting a legal precedent.
Apple
In 1916, the Dodge Brothers sued Henry Ford for keeping the company’s cash, nearly $60 million (remember when $60 million was a lot of money?) and not distributing it to shareholders. Ultimately, the Michigan Supreme Court ruled in favor of the Dodge brothers and forced Ford to declare a dividend.
The major difference, however, between Apple in 2012 and Ford in 1916 is that Ford was a closely held company, says Lynn Stout, visiting professor of corporate law at Cornell Law School.
“Essentially, corporate law reserves the right to say that if the board doesn’t want to pay a dividend, the only recourse shareholders have is to replace the board or get them to change their mind,” Stout noted. “Dodge v. Ford Motor still applied to closely held companies, but Apple is a public company.”
She also explained that the Dodge v. Ford case is not applicable in this case.
“When you look at Dodge versus Ford, it’s not about the company obligation to pay a dividend, it’s about the ability of a majority shareholder abusing the minority shareholders,” said Nicholas Rogers, associate attorney at Gaskins Bennett Birrell Schupp.
Shareholders continue to press CEO Tim Cook and his team about what Apple’s intentions are for its massive cash hoard.
Cook has said before he is “not religious” about holding cash, potentially setting the stage for a dividend later this year. During Apple’s first-quarter conference call, CFO Peter Oppenheimer said the company was “actively discussing the uses of its cash,” but that it had nothing to announce at the time.
Channing Smith, portfolio manager of Capital Advisors Growth Fund said that he wants to see a dividend sometime this year.
“When you look at the cash position, obviously we would like to see a healthy mix between a dividend, acquisitions, and a buyback, but we wouldn’t be surprised to see a dividend initiated sometime this year,” Smith said. “Right now, the cash is an asset that's not really working for investors today.”
Even though there’s growing pressure for Apple to start paying a dividend again, the board does not have an obligation to pay, despite investors’ cries for something to be done.
“Apple has every right to its cash holdings and to reinvest as the company sees fit,” said Dr. Margaret M. Blair, Professor of Law at Vanderbilt University Law School over the phone. “If the board was doing a terrible job of reinvesting its cash, that might be a different story, but it looks like they are doing a great job of it.”
Corporations are not charities, say lawyers, and are designed to earn a profit, which they can’t do effectively if shareholders are demanding financial capital back. “Otherwise, corporations would have problems,” Stout noted.
At the end of the first quarter of 2012, Apple had $97.6 billion in cash and cash-equivalents on its balance sheet. The tech giant has presumably passed the $100 billion mark by now, assuming the company is generating over $3 billion in free cash flow per month. (Apple had cash flow from operations of $17.5 billion in its most recent quarter).
Apple is set to hold a shareholder meeting next week, where Cook and his team will undoubtedly be pressed again about the issue. Cook recently said Apple has more cash than it needs, but he asked that shareholders be patient with the decision-making process.
This could signal a dividend is coming sooner rather than later, but like all things Apple, it will come when they are good and ready — and not a moment too soon for many investors.
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