updated 02:30 am EST, Thu February 14, 2013
Claims 'roadblock' action designed to benefit only Greenlight
Apple filed its formal response to the lawsuit initiated by Greenlight Capital's David Einhorn and blasted the complaint as being without merit and nothing less than an attempt to hold shareholders "hostage" by forcing Apple to acquiesce to a specific plan for the issuing of preferred shares that would primarily benefit Greenlight Capital. Having promised to review Einhorn's plan, the company found that Greenlight's proposal was self-serving, and that Einhorn himself referred to it as a "roadblock."
The Greenlight lawsuit stems from a desire -- mostly among financial-industry holders of AAPL stock -- for the iPhone maker to "unlock" (meaning distribute) more of its sizable cash hoard, and more quickly than the company is already doing. Although Apple will distribute some $10 billion in dividends across the year (in the top five percent of corporate payouts), its ability to sell record quantities of consumer electronics means that it is still adding to its cash reserves faster than it can distribute the money.
While some investors would like to see Apple raise its dividends or take other measures to whittle down its windfall, Einhorn offered a specific proposal calling for the issuance of "perpetual" preferred shares that would likely pay a higher dividend than common stock. He also claimed that a proposal backed by Apple to be presented in two weeks at the company's annual general meeting would prevent such an issuance, and asked shareholders to vote "no" on the proposal.
Apple fired back, pointing out what initially seemed like a misinterpretation of the proposal. The move, it said, would simply shift the ability to issue preferred stock -- if the company decided to do so -- away from being an exclusive power of the Board of Directors and would now require majority shareholder approval. Apple CEO Tim Cook recently referred to the lawsuit as a "silly sideshow" in remarks to investment bankers at a Goldman Sachs conference.
Apple's response claims that the specific plan Einhorn proposed would have little benefit to shareholders and would mostly enrich Greenlight Capital, as it calls for the preferred shares to be called "Greenlight Opportunistic Use of Preferreds" (GO-UPs). "Plaintiffs’ ultimate goal, as their principal David Einhorn made clear in a letter to Apple shareholders, is to induce Apple to issue a novel form of perpetual preferred stock that plaintiffs believe would benefit them substantially," Apple told the court.
Einhorn also attempted to claim that Apple's proposal was a "bundled" or multi-faceted item, which would be illegal under SEC rules. In its response, Apple addresses this by saying that the SEC has already reviewed both the overall ballot and the specific proposal in question and raised no concerns about either. Apple's attorneys added that the vote is a simple request to approve a change in the company's charter -- to remove the ability of the board to issue "blank check" preferred stock and instead require shareholder approval before doing so.
CFO Peter Oppenheimer, in a declaration to the court, added that in conversation with Einhorn, he specifically referred to his lawsuit as a "roadblock," suggesting that Greenlight Capital is deliberately using the proposal to prevent shareholders from gaining approval power, probably due to the unlikelihood of them approving the preferred-stock plan put forth by Einhorn. "In short," Apple wrote in its conclusion, "plaintiffs cannot show any hardship of not obtaining injunctive relief, much less hardship that is greater than the financial harm to Apple and its shareholders of not having Proposal No. 2 put to a vote."
Apple calls for the suit to be dismissed for any one of four reasons it outlines. Greenlight will file its response to Apple's claims by Friday of this week, with the first hearings on the matter now scheduled for February 19. Apple's annual shareholder meeting is set for February 27.