News Column

Apple Activist Investor David Einhorn Wins a Round

Feb. 23, 2013

John Boudreau, San Jose Mercury News

Apple inc, activist investor

Feb. 23--A federal judge in Manhattan ruled Friday in favor of activist hedge fund investor David Einhorn's effort to stop an upcoming Apple-sponsored proxy proposal that would require shareholder approval to create a special class of stock.

The ruling, a temporary injunction, did not focus on the merits of Apple's proposal -- an amendment to the company's articles of incorporation scheduled to go before shareholders during the company's annual meeting Wednesday. Rather, the ruling focused on the company's decision to bundle that measure with a number of other issues in one proposal.

Einhorn, founder of Greenlight Capital and a major investor in Apple, has called on the Cupertino company to create a class of preferred

stock with a 4 percent annual cash dividend paid quarterly as a way to return money to shareholders from Apple's growing cash reserves. As of the end of the December quarter, the company reported $137.1 billion in cash, roughly two-thirds of which is held overseas.

Federal District Judge Richard Sullivan ruled that "it is probable that Apple has improperly bundled four 'separate matters' for a single vote."

Apple said its Proposal No. 2 was designed to make it more difficult to create preferred stock but would not prevent it from issuing special shares in the future. But the judge said bundling the contested issue with other proposals would force some shareholders to "cast an unrepresentative and illegal vote."

Even if

Apple's proposal failed, Sullivan said, shareholders such as Greenlight "will still have been denied their legal right to an unbundled vote. More importantly, they will have been denied the opportunity to communicate to management the true depth of Proposal No. 2's unpopularity."

Apple issued a statement expressing disappointment with the ruling.

"Proposal No. 2 is part of our efforts to further enhance corporate governance and serve our shareholders' best interests," it said. "Unfortunately, due to today's decision, shareholders will not be able to vote on Proposal No. 2 at our annual meeting next week."

While its dispute with Einhorn has created shareholder drama leading up to the annual meeting, the ruling will have little impact on the company, said Needham analyst Charles Wolf. He, like other analysts, believes Apple could announce a dividend increase or company stock buyback to boost the value of shares as early as next week. Last year, the company announced its first quarterly dividend since 1995 -- $2.65 a share beginning in August -- as shareholders called on Apple to reward investors with a slice of its cash.

During a Goldman Sachs technology conference earlier this month, Apple CEO Tim Cook indicated such a move is coming. "It's an incredible privilege for us to be in this position that we can seriously consider returning additional cash to shareholders," he said.

He also referred to the Greenlight suit as "a silly sideshow."

Shares of Apple have plunged about 35 percent since September on concerns of stronger competition in the smartphone and tablet market from rivals such as Samsung and Google, lower gross margins and whether the company can still create breakthrough products. Apple stock edged up 1.1 percent to $450.81 Friday.

"I can't explain why the stock is cheap," said Wolf, who remains bullish about Apple. "It's obviously in a funk. It's not rallying at all."

Contact John Boudreau at 408-278-3496; follow him at


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