The “silly sideshow” around Greenlight Capital and Apple issuing preferred stock, as Apple CEO Tim Cook put it, will go on according to a ruling today by U.S. District Judge Richard Sullivan in NYC today. Sullivan sided with Greenlight Capital manager David Einhorn, blocking Apple from being able to proceed with a shareholder vote on whether or not the company can issue preferred stock.
In the now infamous “Proposal No. 2,” Apple would have taken away its ability to directly issue any preferred stock, instead putting that power in the hands of shareholders via a vote. Einhorn’s lawsuit challenged the proposal on the grounds that it violated SEC rules by packing in the preferred shares issue with two other matters in a single proxy vote issue. Einhorn is angling for Apple to begin issuing preferred stock as a way to spread out more of Apple’s $137 billion stockpile to shareholders, looking for a perpetual 4 percent dividend on select shares.
For its part, Apple has been nothing but dismissive of the lawsuit spearheaded by Einhorn. In a keynote interview with Cook February 12th, the Apple CEO shared that he found the entire movement against Proposal No. 2 and a shareholder vote on preferred stock bewildering.
“[F]rankly I find it bizarre that we would find ourselves being sued for something that’s good for consumers,” Cook said. “I think it’s a … it’s a silly sideshow, honestly.” He went on to say that the entire thing was little more than a buzzing fly around Apple’s head. “We’re not going to do a mailing campaign on it,” he said. He characterized it as “a waste of shareholder money, and it’s a distraction, and it’s not a seminal issue for Apple.” Cook further added that the company would insist on a common vote from shareholders before any issuance of preferred stock, whether or not the proposal went through.
Judge Sullivan blocked the proposal from being voted on at the February 27 annual stockholders meeting, issuing a temporary injunction pending further investigation by the cour on the matter. Einhorn argues that Apple is missing out on delivering a lot of additional value to shareholders by blocking the proposal, but other shareholders don’t see the wisdom in the move.
“Our concern is that Apple’s proposal is a very pro-shareholder resolution that is being hijacked,” Rich Clayton, research director at CtW Investment Group, a company that advises funds owning some 2 million in Apple stock, told Bloomberg in a recent interview. “It’s in no way, shape or form necessary to oppose shareholder Proposal 2 for [Einhorn's plan] to happen. Greenlight’s tactics don’t make a lot of sense.”
Greenlight Capital released the following statement regarding the Judge’s ruling today:
This is a significant win for all Apple shareholders and for good corporate governance. We are pleased the Court has recognized that Apple’s proxy is not compliant with the SEC’s rules because it bundles different matters in Proposal 2. We look forward to Apple’s evaluation of our iPref idea and we encourage fellow shareholders to urge Apple to unlock the significant value residing on its balance sheet.
As mentioned, Apple clearly sees little value in making a big deal out of this case against it, but Einhorn definitely doesn’t seem as eager to let things lie low. The shareholder meeting on February 27 could be the scene of some major fireworks, depending on how things proceed.