Apple: activist holding investors ‘hostage’ with costly proposals

Einhorn’s demand to unbundle proposal number two would delay shareholder meeting and cost millions, says Apple

Apple accused activist investor David Einhorn of holding other shareholders `hostage’ in an effort to obtain financial advantages for his hedge fund in the lead up to the tech giant’s February 27 annual shareholder meeting.

The accusation comes in response to a suit by Einhorn, president of the Greenlight Capital hedge fund, that would force Apple to unbundle three governance initiatives from proposal number two on the agenda for its annual meeting. The proposal would eliminate preferred stock, establish a par value for Apple stock and institute majority voting for directors.

Greenlight Capital initiated the suit last week in an attempt to force Apple to hold a separate vote on its planned elimination of preferred stock. Greenlight Capital, which owns more than 1.3 mn Apple shares, has been pressing the company to issue dividend-paying preferred stock to pay out some of its $137 bn cash.

`Shareholders should not be held hostage to plaintiffs’ attempts to coerce Apple into an agreement that serves plaintiffs’ financial interests,’ Apple says in a filing to a Manhattan court in response to the Greenlight legal move. `Apple would face a substantial financial burden if it were required to postpone a vote on proposal number 2 because it would reduce the benefit of the par value change reducing Apple’s expenses.’

The suggestion that Apple unbundle the three sections of the proposal `is also unworkable because it would impose significant administrative costs,’ adds the company. `Apple would have to send a supplementary proxy to all shareholders, an exercise costing millions of dollars, and delay its annual shareholders’ meeting, thereby postponing shareholder voting of several important matters.’

At the heart of the dispute is Einhorn’s claim that Apple is operating with a ‘depression-era mentality’ and holding on to a `hoard’ of $137 bn cash. Einhorn wants some of the cash distributed through preferred stock, which Apple would eliminate in proposal number two.

‘We believe Apple must examine all of its options to unlock the growing value of its balance sheet for all shareholders,’ Einhorn said in its initial filing to the SEC. ‘Over the past several months, we have had an ongoing dialogue with Apple regarding one option to do so, namely the creation of a new security, a perpetual preferred stock that would be distributed at no cost to Apple’s existing shareholders, and would provide an attractive, sustainable dividend while preserving Apple’s financial resources to pursue its business strategy.’

Apple responded saying it had announced a plan early last year to distribute $45 bn to shareholders over a three-year period and $10 bn of that will have been distributed by the end of next week.

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