Apple iPrefs: David Einhorn Will Win Because Steve Jobs Is Dead

NEW YORK (TheStreet) -- David Einhorn executed a smart move Thursday.

By making a completely sane and logical, clear and accessible presentation on his plans for Apple's ( AAPL) cash, he, ironically, crafted his own version of Steve Jobs' reality distortion field.

Watch Einhorn's Webcast. It's well worth your time. It not only clears up confusion surrounding his preferred shares (iPrefs) proposal, it makes the idea seem so benign, so rational that you would have to be an unreasonable hard-ass like Steve Jobs to be against it.

Every word of his pitch lays out the straightforward case that there's absolutely nothing bad that can happen to Apple by issuing preferred shares and the accompanying dividend. Inaction, in Einhorn's world, portends damage.

It's all so simple. For every share of AAPL common stock you own, you receive one iPref (face value of $50) at no cost to you. It pays 4% -- that's a $2 annual dividend. You can keep your iPrefs or sell them back to the market. Again, there's no risk to Apple, according to Einhorn. The company keeps its cash -- all $137 billion -- using free cash flow to cover the preferred offering.

From a practical standpoint, it's difficult to argue with anything Einhorn says. A crystal clear, almost airtight and sound case. To the pragmatist, this is a no-brainer.

That's the beauty of Einhorn's reality distortion field. Most people will have no objections because, at the end of the day on matters such as these (ones few of us fully understand), it's difficult to effectively articulate the risk of changing Apple's standard operating procedure.

Folks such as myself (who were also against the dividend on the common stock, the MappleGate apology and any culturally significant departure from acting in Steve Jobs' legacy) make a largely abstract case against Einhorn's thought process and others like his.

Take it from a social science guy. It's not easy to make theoretical and philosophical arguments against the people from business school and come out looking good. The MBAs contend that that's because the social science argument has no merit. The social science cats have a tendency to get all uppity and ridicule the business school folks as intellectually inferior. (I don't do that anymore.)

Einhorn hit a couple areas that tread a bit closer to the theoretical. For instance, he makes the case that, contrary to the popular belief in tech that returning capital to shareholders tells the world we can no longer innovate, sitting on an idle pile of cash not only looks worse, it also has detrimental material effects.

All else equal and taken literally, it's tough to push back on Einhorn's logic. In fact, he won on Thursday. Apple will end up, one way or another, doing exactly what he suggests or some variation of it.

That's because Tim Cook, while no stranger to Apple's renegade image, falls, quite obviously, much closer to the pragmatic end of the spectrum than Steve Jobs did. If things even got to this point, Steve Jobs would have told Einhorn to go to hell or complete ignoring the issue. Simply put, it would not be an issue because Jobs would not have let it become one and, presumably, Einhorn would have felt a lot less opportunistic and confident with Jobs manning the controls.

During an email conversation we had Thursday night, Einhorn said this for the record: "Proper capital management is not in conflict with an innovative product culture, which we believe will continue to persist under Tim Cook."

Can Einhorn prove this? No way.

For as solid as his presentation was -- and as effective as I think it will ultimately be -- he loses me when he cites examples of how some companies properly manage their cash and others do not. He uses these case studies to argue that to truly "Think Different" about capital allocation, Apple should do what every other company in the same or a similar situation should do. In other words, he wants Apple to follow pages from a standard MBA textbook.

Just as Einhorn cannot prove that, "Proper capital management is not in conflict with an innovative product culture," I cannot show beyond a doubt that Apple's history of not doing what the MBA textbook says correlates with its otherworldly success. But that's where the risk lies ... in not seeing the qualitative and admittedly abstract connection between Apple's tendency to act in seemingly irrational ways and its disruptive and game-changing achievements.

-- Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.

More from Opinion

These 5 Tech Giants Still Aren't That Expensive

These 5 Tech Giants Still Aren't That Expensive

Intel CEO Brian Krzanich's Ouster Proves CEOs Aren't Above the Rules

Intel CEO Brian Krzanich's Ouster Proves CEOs Aren't Above the Rules

Red Hat CFO Tells TheStreet: Tech Trends Are Still in Our Favor

Red Hat CFO Tells TheStreet: Tech Trends Are Still in Our Favor

Throwback Thursday: Intel Edition

Throwback Thursday: Intel Edition

Intel's Next CEO Should Try Harder to Protect Its Flanks Against AMD and Others

Intel's Next CEO Should Try Harder to Protect Its Flanks Against AMD and Others