Apple Inc. said it will fight Greenlight Capital Inc.’s bid to bar it from adopting a measure that would restrict its ability to issue preferred stock.
The maker of iPhones and MacBooks filed a response yesterday in U.S. District Court in New York to Greenlight’s request to block a shareholder vote on the matter. The hedge fund sued Apple Feb. 7 seeking an injunction.
“The proposed injunction would harm the public interest” and should be denied, Apple said in the filing. The measure “gives common shareholders greater power -- the right to approve issuance of preferred shares,” Apple said.
Greenlight founder David Einhorn has said Apple should issue high-yielding preferred stock to provide more value to shareholders from a $137 billion stockpile of cash. The measure up for vote would eliminate “Apple’s power to issue preferred stock,” according to Greenlight’s complaint.
The battle with Einhorn is the latest episode in a long-running effort by some Apple shareholders to get the iPad maker to give more of its cash back to investors in the form of a dividend or buyback. Einhorn has accused Apple of having a “mentality of depression” with respect to its cash.
At a Feb. 12 investor conference in San Francisco, Apple CEO Tim Cook called Greenlight’s suit a “silly sideshow” and a “distraction.” He said the company is considering giving more money back to shareholders.
The hedge fund claims that Cupertino, California-based Apple unfairly grouped the preferred-share measure with other matters to be voted on at a meeting Feb. 27, violating the U.S. Securities and Exchange Commission’s “unbundling” rules. U.S. District Judge Richard Sullivan in Manhattan set a hearing for Feb. 19 to consider Greenlight’s request to block the vote.
Apple said in its filing that it’s not violating SEC rules and that the measure only eliminates so-called blank check preferred-stock provisions. Without such provisions, preferred shares could still be offered as long as investors approve, according to Apple.
“Apple’s proposal only formalizes Apple’s stated commitment to seek shareholder approval if it wants to issue preferred shares,” the company said in the filing. Greenlight “will suffer no injury, much less irreparable injury, absent the preliminary injunction,” Apple said.
Stanford Law School Professor Joseph Grundfest said in a phone interview yesterday that he expects Einhorn will be “a loser in this litigation.”
“Apple is correct as a matter of law and as a matter of policy,” said Grundfest, a senior faculty member at the Arthur & Toni Rembe Rock Center for Corporate Governance. “If he’s looking to generate a great deal of publicity, this complaint has been a huge success.”
In yesterday’s filing, Apple gave details of conversations between Cook, Chief Financial Officer Peter Oppenheimer and Einhorn about the possibility of issuing preferred stock.
In a conversation this month, Einhorn told the Apple executives that a shareholder vote could pose a “roadblock that was not needed” to issuing preferred stock and that he wanted to “take the risk away,” according to the filing.
“We told Mr. Einhorn that Apple was considering his proposal, but that the board would not issue his proposed perpetual preferred shares without shareholder approval,” Oppenheimer said in a declaration filed with court.
Greenlight, which said it holds 1.3 million shares of Apple, said in an e-mailed statement in response to Cook’s Feb. 12 comments that “if Apple thinks the lawsuit is a waste of resources, it could simply end the matter by complying with existing law and filing a new proxy that unbundles the proposed changes to the charter so that shareholders can express their views on each matter separately.”
The case is Greenlight Capital LP v. Apple Inc., 13-cv-900, U.S. District Court, Southern District of New York (Manhattan).