Court Grants Einhorn Injunction Blocking Apple Shareholder Vote

| Analysis

iCelebrateA federal court issued an injunction blocking a vote on an Apple shareholder proposal originally scheduled to take place on February 27th, according to Reuters. The proposal would have prevented Apple from issued preferred stocks without shareholder approval.

Apple's management backed the shareholder proposal, arguing that it empowered the company's shareholders by giving them say so on how Apple handled such matters. Wall Street, especially Greenlight Capital head David Einhorn, believes that issuing a preferred stock with a permanent dividend represents the best way for Apple to return more of its astonishing cash hoard of more than US$137 billion to shareholders.

Greenlight Capital sued Apple to block the proposal arguing that its structure violates Apple's own bylaws. He further argued to shareholders that giving shareholders oversight on such things represented an unnecessary impediment to Apple unlocking more of its profits and getting the results to the shareholders to whom it belongs.

On Thursday, Mr. Einhorn went on the offensive with shareholders, coining the term iPrefs as the name for the preferred stock he wants Apple to issue. "Here's the product that Apple doesn't yet know it needs," he said as part of a presentation he made on the subject.

Greenlight Capital owns some 1.3 million shares of $AAPL, a stake he increased in the 4th quarter of 2012 as the stock declined. He also owns some 275,000 $AAPL call options.

As noted above, Apple's management backs the proposal. Apple CEO Tim Cook has argued that it is pro-shareholder, and has expressed dismay over why anyone would want to prevent such a pro-shareholder move.

"We decided to eliminate the ability to issue blank check shares ourselves. We could still do it, but would have to go to shareholders for approval," Mr. Cook said publicly about the kerfuffle. "So frankly, this seems bizarre to me that we're being sued over something that's good for shareholders."

Judge Richard Sullivan, who is overseeing the lawsuit, apparently agrees with Mr. Einhorn that the proposal violates Apple's bylaws. His ruling on Friday will prevent a vote on the measure.

$AAPL closed higher on Friday at $450.81, a gain of $4.75 (+1.06 percent), on very light volume of 11.8 million shares trading hands.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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It’s my understanding that the ruling was based on bundling of three parts of the proposal. I wonder if Apple could just unbundle the three changes and let shareholders vote on them separately.

Lee Dronick

“Mr. Cook said publicly about the kerfuffle. “So frankly, this seems bizarre to me that we’re being sued over something that’s good for shareholders.”

There are shareholder and then there are shareholders.

John Dingler, artist

I had a bad feeling when Tim Cook brushed off the suit as a side show that minimizing it was a premature gambit, hence unwise. He talks too much and, in this case, spoke before he examined all angles to the issue, thus making his leadership look weak. Could the board have helped? What about legal counsel?

(Comments are normally displayed immediately but sometimes, like in my previous attempt to post, my comment did not, so this is my second attempt. This seems to occur when I write the comment and then sign in.)


“There are shareholder and then there are shareholder”

And if Einhorn has his sway, thats EXACTLY what will happen. Their will be a caste system for AAPL ownership as he milks AAPL for all the cash they can and leaves them in worse position for competition then when he opened his smug mouth

Lee Dronick

“as he milks AAPL for all the cash they can and leaves them in worse position for competition then when he opened his smug mouth”

Which maybe someone’s plan, Messrs. Sam and Sung perhaps.

John Dingler, artist

Hi Lee,
No, the smart focus should not be on cash or performance; It should be on why Cook or Apple’s PR dept. has allowed Einhorn, an insider who seems to be working against Apple long term interest, to hijack the narrative that Jobs and Apple seemed to always have at the forefront. And subtext is about how E. is turning Apple to be less than together.

John Dingler, artist

Public perception now is that Apple has a leadership competition. This is not good. Jobs would have cut this off in some way, probably with pointed jabs to reestablish that there is only one boss.

Lee Dronick

It can be more than one thing John. Einhorn was fined millions for stock manipulation in the UK.

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