Apple's shareholder meeting is today. Expect fireworks. In fact, they may already have started.
Yesterday investment manager Doug Kass started a rumour that Apple will announce a stock split. He tweeted: "High above the Alps my Gnome is hearing a rumor that Apple will announce a stock split at tomorrow's shareholder meeting."
This set of rumour and speculation, and sent Apple's share price up, eventually closing at $448.97 (up from $442.80 the day before, and a low of $437.66 during the day's trading). However, now it is being suggested that Kass was manipulating the stock, especially since, shortly after tweeting his gnome-lead rumour, he tweeted that: "Apple is now trading near $449, up from the day's low at $437.65." Prudence dictates that I sell off some of this outsized position"
He later retracted his share-split claims, tweeting: "Apple continues to climb - now up by over $8. I continue to pare back as the rumor seems to be baseless based on current share authorization". A quick look at his tweets since suggests that he is fighting off claims that he has been "unethical" or "insider trading", however.
He went on to claim that he sold having realised that Apple would require a shareholder vote to split the stock, as the company only has authorisation to split the stock 2:1 without shareholder approval.
Has there been AAPL manipulation?
AAPL has had a rocky ride in recent months. It recently emerged that just four hedge funds were responsible for the decline in Apple's share price at the end of last year. Omega Advisors, Eton Park Capital Management (Goldman Sachs?), Jana Partners and Farallon Capital unloaded 796,000 Apple shares between September 30 and December 31, according to quarterly disclosure documents filed with the Securities and Exchange Commission.
There was also the unprecedented last second decline in Apple's share price on Friday 25 January. The spot on $500 closure on Friday 19 January, the day that call options expired. And of course the 'Flawed' WSJ report that causes Apple's value to fall.
It may be the case that no manipulation is going on with AAPL, simply that until last September it was popular with big fund managers, but now it is not so popular.
What is a stock split?
Apple would increase the number of shares by issuing existing shares of outstanding stock to current shareholders, explains Cult of Mac. If the stock was split 2:1 each share would become two, and the share price would be halved.
The last time Apple split its stock was February 28, 2005.
Normally stock would be split because it was considered expensive – this is why a few months ago there were calls for Apple to split its stock. However, right now the stock is worth a fraction of what it was then.
Why would Apple consider a stock split?
Actually, Apple couldn't split its stock. As Forbes explains: "Based on the number of shares issued at about 940 million and only having authorization to issue 1.8 billion shares the company could not even execute a 2 for 1 split."
"If Apple does split the shares it would have to get a much higher share authorization from the shareholders," suggests Forbes.
A stock split can have a positive psychological impact on a company's stock. However, it's geared more at small shareholders. As Seeking Alpha explains: "While some will argue psychological effects drive a stock's value higher after a split, this really is not a factor for institutional investors which own 64% of the shares."
It could actually be bad news for big time investors as: "A split will actually increase the costs for these institutional investors because they must now buy more shares to invest the same amount of money," adds Seeking Alpha.
The only way a stock split could benefit investors is if they were buying call options – which have to be bought in packs of 100. "After a rumored 10-to-1 stock split though, a 100 share block of Apple would only cost $4,489 before collecting the premium on the covered calls," notes Seeking Alpha.
So what can we expect at the shareholder meeting
It seems unlikely that Apple will announce a stock split. Forbes suggests that what is more likely is "a bigger share buyback" of "$25 billion or more".
Forbes certainly don't expect an announcement that Apple will be taking up Einhorn's iPrefs proposal.
Endpoint Technologies Associates analyst Roger Kay told The Mercury News: "There's this tension going into the meeting between Apple and the investors Einhorn represents. Tim Cook can't avoid talking about it. This is a huge subject and it's right there on the table for everyone to see."
We'll bring you coverage of the shareholder meeting later today.