Apple sued by Einhorn over stock proposal
Activist says firm should not eliminate ‘blank check’ preferred stock
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Feb. 7, 2013, 11:50 a.m. EST
By Dan Gallagher, MarketWatch
SAN FRANCISCO (MarketWatch) — Apple Inc. saw a fresh challenge emerge on
Thursday, in the form of investor activist David Einhorn opposing the
company’s plan to eliminate the use of so-called “blank-check” preferred
stock.
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Einhorn’s Greenlight Capital filed papers with the Securities and Exchange Commission, urging Apple
AAPL
-0.06%
shareholders to oppose the proposal on the company’s proxy statement
that will be up for vote at its annual meeting on Feb. 27.
Einhorn also filed suit against Apple in the U.S. Federal District Court
for the Southern District of New York. The firm says that case is
targeted on the fact that Apple has bundled the “blank-check” item with
others into a single proposal on its proxy statement. The proposals,
Einhorn said, “need to be unbundled and voted on separately as required
by Securities and Exchange Commission rules.”
Apple shares were last trading up a fraction at $456 by midday Thursday.
A representative for the company could not be immediately reached for
comment.
In the company’s proxy statement filed last month, it proposed to change
its existing bylaws that currently allow it to issue shares of
preferred stock that have voting, conversion and other rights without
the approval of shareholders. It noted that it has not issued preferred
shares since 1997.
“The Board does not intend to issue preferred stock in the future and
believes that it is appropriate to eliminate this provision from the
Articles,” the proxy read. “If the proposed amendment of the Articles is
approved by the Company’s shareholders, any future issuances of
preferred stock would require shareholder approval.”
In his filing on Thursday, Einhorn said Apple’s move “unnecessarily
limits the Board’s flexibility to distribute preferred stock as a means
of unlocking shareholder value.” He said his firm has been in discussion
with Apple “over the past several months” about the possibility of
creating a “perpetual preferred stock.” Einhorn floated the idea
publicly at an investment conference in May of last year.
“A shareholder since 2010, Greenlight believes Apple is a phenomenal
company filled with talented people creating iconic products that
consumers around the world love,” Einhorn wrote. “However, like many
other shareholders, Greenlight is dissatisfied with Apple’s capital
allocation strategy.”
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Apple is considered one of the richest corporations in the world, with
more than $137 billion in cash, short-and-long term investments on its
balance sheet as of the end of 2012. The company initiated its first
dividend and share buybacks last year following months of calls from
shareholders to start returning more cash.
See: Apple to start quarterly dividend, buybacks
But the company’s stock has taken a hard hit over the past few months,
having peaked around $700 at the launch of the iPhone 5 in late
September. Investors have become concerned about the sustainability of
the company’s margins and its flagship iPhone business in the face of
growing competition. The stock has crumbled by about 35% since hitting
its peak.
“The recent, severe under-performance of Apple’s shares, which are down
approximately 35% from their peak valuation, underscores the need for
the company to apply the same level of creativity used to develop
revolutionary technology for its consumers to unlock the value of its
strong balance sheet for its shareholders,” Einhorn wrote.
The California Public Employee Retirement System, or CALPERS, said in a
Feb. 4 filing that it is supporting Apple in eliminating “blank check”
preferred stock. The fund owns about 2.7 million of the company’s
shares.
Dan Gallagher is MarketWatch's technology editor, based in San Francisco. Follow him on Twitter @MWDanGallagher.
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