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Friday, 29 August 2014

Bitten Apple

Apple's halo loses shine in investor fight

No one looks too good in Apple’s fight with David Einhorn. The Greenlight Capital founder scored a legal point, but better governance wasn’t his main objective. Apple comes off amateurish. The California Public Employees’ Retirement System, despite worthy shareholder-friendly aims, seems careless. The Securities and Exchange Commission also missed a trick.

The general bumbling leaves Einhorn least blemished. He wants Apple to issue preferred stock to his own specifications, and doesn’t like a provision the company planned to put to shareholders at Wednesday’s annual meeting that would have made it impossible for the board to do so, at least without shareholder approval. So he sued to block the vote based on Apple’s combining of the issue with several others. He won – but not on the merits of his “iPref” idea.

Apple, presumably thanks in part to its lawyers, ends up the worst for wear. Chief Executive Tim Cook called Einhorn’s lawsuit a “silly sideshow,” but the SEC’s rules make clear companies can’t combine separate matters into one vote. Even without legal certainty – the judge acknowledged the issue has received scant court attention – the simple and safe, not to mention gracious, move would have been to untether the proposed changes when the issue came up, even if it meant delaying them. Other companies are now surely scouring their proxy statements for similar transgressions.

Then there’s Calpers, which gave full-throated support to Apple. That’s understandable in a sense because the package of measures included majority voting for directors as well as ending the board’s ability to issue preferred stock without shareholder approval. Good governance could be threatened, however, if companies bundle dodgy proposals with sound ones – not to mention the questionable message sent by neglecting SEC rules.

The regulator perhaps isn’t blameless either. Apple filed its proxy statement in December. As the judge noted, SEC inaction doesn’t mean it has approved anything. Yet Apple, with its $420 billion market value, is the largest company under the watchdog’s jurisdiction, so a degree of scrutiny is merited.

Either way, the end result is a distraction for shareholders, who now must wait to vote on desirable changes and figure out how to unbundle, in a different sense, Einhorn’s legal victory from his preferred stock idea. It all takes more shine off Apple’s halo.

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Context News

A U.S. judge on Feb. 22 ruled in favor of hedge fund manager David Einhorn in his battle against Apple, blocking the iPhone maker from moving forward with a shareholder vote on a proposal to limit the company’s ability to issue preferred stock.

U.S. District Judge Richard Sullivan in Manhattan granted a motion by Einhorn’s Greenlight Capital for a preliminary injunction stopping a vote on that proposal, scheduled for the company’s Feb. 27 annual stockholders’ meeting.

Greenlight sued Apple on Feb. 7 as part of a broader attempt to unlock more of its $137 billion in cash. Einhorn has lobbied Apple to issue preferred stock with a perpetual 4 percent dividend, and on Feb. 21 made a direct appeal to shareholders on a teleconference.

The lawsuit challenged an Apple proposal that would eliminate its power to issue preferred shares without a shareholder vote. At issue is the company’s “bundling” of that measure with two other unrelated matters into a single proxy proposal. The judge said the bundling was impermissible under Securities and Exchange Commission rules and found the consequences to be serious enough to warrant a preliminary injunction.

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