Greenlight Capital sues Apple to force greater payouts to shareholders

Suit seeks to prevent Apple from requiring shareholder approval for issuance of dividend-paying preferred stock

Hedge fund manager and shareholder activist David Einhorn is suing Apple in an attempt to force the tech giant to start paying out more of its ‘hoard’ of cash and sink the firm’s plan to make it more difficult to issue dividend-paying preference shares.

Einhorn, president of the Greenlight Capital hedge fund, filed the case in federal court in New York arguing against Apple’s move that would require shareholder approval before the issuance of preferred stock. The move is part of a package of governance measures proposed by Apple ahead of its February 27 annual shareholders meeting.

Greenlight Capital, which owns more than 1.3 mn Apple shares, has been pressing the company to issue dividend-paying preferred shares to pay out some of its $137 bn cash, while accusing the tech giant of adopting a ‘Depression-era mentality’.

‘We believe Apple must examine all of its options to unlock the growing value of its balance sheet for all shareholders,’ Einhorn says in a 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.’

Greenlight’s court case seeks to overturn proposal two of Apple’s plan for the shareholder meeting, alleging that the proposal unfairly bundles together three separate governance proposals: a proposal to eliminate preferred stock, to establish a par value for Apple stock and to institute majority voting for directors. Greenlight argues that proposal two violates SEC rules against bundling proposals.

‘Apple’s management team and board of directors have been in active discussions about returning additional cash to shareholders,’ Apple says in response to Greenlight in a filing with the SEC yesterday. ‘As part of our review, we will thoroughly evaluate Greenlight Capital’s current proposal to issue some form of preferred stock. We welcome Greenlight’s views and the views of all of our shareholders.’

Apple also argues that its proposal to be submitted to a vote at the shareholder meeting this month would not prevent the issuance of preferred stock. ‘Currently, Apple’s articles of incorporation provide for the issuance of ‘blank check’ preferred stock by the board of directors without shareholder approval,’ the company says. ‘If the proposal is adopted, our shareholders would have the right to approve the issuance of preferred stock.’

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

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