In February, the Apple Company met its match in David Einhorn. Einhorn is a hedge fund manager for Greenlight Capital and filed a lawsuit against the tech firm seeking to stop the company’s proxy proposal that all preferred stock sales be stricken from the company’s charter. This does a couple of things. First, it reduces the amounts that Apple must pay to stockholders in dividends and saves the company money. Second, it frees up the nearly $137 billion dollars the company has in cash reserves to use toward other purposes.
Apple wanted to make the elimination of preferred stock a part of a package of other proposals that would receive an up or down vote by the shareholders at the annual meeting. Einhorn argues that the proxy proposal violates SEC rules, Section 14 specifically of the SEA of 1934. This section forbids companies grouping several different matters, or ‘bundling’ them together into one proposal for the shareholders to vote on. This is to prevent companies from offering up three or four good proposals that the stockholders would support with one or two that they wouldn’t.
One professor of Law at Duke’s School of Law believes that David Einhorn has a good case against the software giant. The ‘bundle’ of amendments Apple is seeking include majority rule in voting for directors, the establishment of a par value for each share of Apple stock in addition to the contentious one in eliminating preferred stock.
Einhorn believes, as do many of Apple’s other investors that the cash rich company is becoming stingy in the payouts to those who risked everything in the early 1990’s when the company was hanging by a thread. Others have voiced a concern over this proxy services type of vote. Still others want the company to reinvest their assets into creating even more ‘must have’ items for the future. The company’s extremely conservative position with investments and assets is actually a major plus for many investors.
A judge ruled that Mr. Einhorn had a reasonable argument in the case against Apple and ruled in his favor. Faced with the inevitable loss, Apple Company unbundled the proposals and David Einhorn dropped his lawsuit.
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