Apple for the day

Michael De La Merced has an article in The New York Times about Apple:

A Federal judge has ordered Apple to halt collecting shareholder votes on a contentious proposal to change some of its corporate charter, handing a victory to the hedge fund manager David Einhorn (photo).
The ruling touches on a fairly narrow legal point, but it signals a clear victory for Einhorn  who has taken up a fight with Apple over using some of its $137 billion cash hoard to make additional payouts to shareholders.
Einhorn’s hedge fund firm, Greenlight Capital, had sued Apple in Federal District Court in Manhattan, arguing that the company improperly tied together several shareholder issues to be put for a vote into one proposal. Such bundling, lawyers for the hedge fund argued, violated rules set by the Securities and Exchange Commission.
At the heart of the hedge fund’s complaint was that Apple combined a plan to eliminate its ability to issue preferred stock without shareholder approval with two other initiatives that Greenlight favored. By allowing the vote to proceed, lawyers for the firm argued, Greenlight was being forced to vote against its own interests.
The judge overseeing the case, Richard Sullivan, firmly agreed with that interpretation.
“Given the language and purpose of the rules, it is plain to the court that Proposal Number Two impermissibly bundles ‘separate matters’ for shareholder consideration,” Judge Sullivan wrote in his order. The judge said at a recent hearing that he was leaning toward Einhorn’s point of view on the matter.
His ruling comes just days before the company’s shareholder meeting next Wednesday. It will also prevent Apple from accepting shareholder votes on Proposal Number Two, which had included Apple’s plans to eliminate its preferred shares. Some shareholder rights advocates have contended that preferred shares have been used as an anti-takeover tactic by boards and have pushed for their elimination.
Einhorn’s bigger goal has been to persuade Apple to return some of its billions sitting in cash to shareholders as a way to unlock the company’s value. Greenlight Capital has contended that the company has far more cash than it will ever need, and that preferred shares could provide additional payouts worth about $61 a share, while still leaving the company with an enormous war chest.
“We know they embrace innovation and can recognize it when they see it, even if it isn’t the kind of innovation people usually think of when they think of Apple,” Einhorn said in a conference call with analysts.
Einhorn said that Apple should issue preferred shares— upon which he bestowed the cutesy name iPrefs— that would augment a stock dividend and buyback program that the company already has in place.
Although Apple was once the stock market darling for its meteoric rise, in recent months, share prices have sagged. Apple’s shares are down 36 percent since they hit a 52-week high on 21 September.
In a statement, Greenlight praised the judge’s ruling. “This is a significant win for all Apple shareholders and for good corporate governance,” the firm said. “We are pleased the court has recognized that Apple’s proxy is not compliant with the SEC’s rules.”
A representative for Apple wasn’t immediately available for comment.
Apple will now most likely have to break Proposal Number Two into its separate elements and resubmit them to a vote. The timing of that move is not clear.
Apple had argued that the plan in its entirety was actually shareholder-friendly, and enjoyed the backing of prominent investors like the California Public Employees’ Retirement System. Anne Simpson, the Calpers director of global governance, said in a statement: “We continue to support Apple in their efforts, and believe that the implementation of majority voting and shareholder approval for the issuance of new stock— preferred or otherwise— is worth waiting for.”

Rico says that Proposal Number Two is now, it seems, Number Two...