Greenlight Company Presentation

(6 In theory there is no difference between theory and practice. In practice there is. Greenlight Capital, Inc. - Yogi Berra 47 Some have wondered if this isn't just financial engineering, if you don't change Apple's profits, how can you unlock value? Let me clear about what our idea does and doesn't do. Of course iPrefs would not increase what academics refer to as the intrinsic value of Apple. This is because the concept of intrinsic value presumes that the cash flows generated by the enterprise are optimally financed so as to minimize the firm's cost of capital. It presumes that the company will access all available financing sources - equity, fixed income, or otherwise to minimize its cost of capital, and therefore maximize the valuation of its cash flows. In practice, most publicly traded companies are appropriately capitalized, and consequently trade at market valuations commensurate with their so called intrinsic values. This particular idea would not help most companies. But Apple is different. Apple is not appropriately capitalized. It is not minimizing its cost of capital. This is one reason why we believe Apple's shares trade at a valuation well below its intrinsic value. Apple has now established itself as a phenomenal franchise, with a sustainable earnings stream that generates cash every day. The fixed income capital markets are quite available to Apple if it simply chooses to access them. By creating iPrefs, Apple will immediately reduce its cost of capital from the top quartile of the market, where it sits today, to the bottom quartile of the market, where it deserves to be. This would allow Apple's shares, practice, to appreciate towards their intrinsic value. And what does Apple's management give up? Nothing. They would just be making explicit a promise that we believe they are already making implicitly, which is that all of Apple's cash is to be used in a disciplined fashion and none of it is to be "played" with. By making this promise explicit, we suspect Apple management would be doing nothing new, except now they would get credit for it in the capital markets. 47

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