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Greenlight Sues Apple, Has Eye on Cash Pile

Feb. 7, 2013
Greenlight said in a letter to shareholders it wants Apple to issue "perpetual preferred stock" to distribute a bounty from the $137 billion cash the company is holding.

NEW YORK -- U.S. hedge fund Greenlight Capital filed suit against Apple (IW 500/9) Thursday as part of efforts to compel the tech giant to give shareholders more of its huge cash stockpile.

Apple responded by saying it has been "in active discussions about returning additional cash to shareholders."

Greenlight sued the maker of iPhones and iPads to block a shareholder vote that includes a proposal supported by management to make it impossible for the Apple board to decide to issue preferred stock without shareholder approval.

Greenlight said in a letter to shareholders it wants Apple to issue "perpetual preferred stock" to distribute a bounty from the $137 billion cash the company is holding.

Apple, which has reclaimed the title of largest U.S. company by market capitalization and which rose nearly 3% Thursday, pledged to evaluate the Greenlight proposal.

"As part of our review, we will thoroughly evaluate Greenlight Capital's current proposal to issue some form of preferred stock," Apple said in a statement.

"We welcome Greenlight's views and the views of all our shareholders."

SEC Rule Violation is Alleged

The hedge fund alleged that Apple violated U.S. securities policies by "bundling" the proposal on preferred stock with two other shareholder-friendly measures.

Doing so forces shareholders to accept or reject all three measures together, rather than separately, which Greenlight says violates a Securities and Exchange Commission rule.

Apple's statement characterizes its proposal on preferred stock as a shareholder-friendly measure. Current policy allows Apple's board of directors to issue preferred stock without shareholder approval.

Greenlight argues that Apple's stance of preferred shares exemplifies the company's resistance to returning value to shareholders.

"Like many other shareholders, Greenlight is dissatisfied with Apple's capital allocation strategy," Einhorn wrote in a letter to Apple shareholders.

"The combination of Apple's low [and shrinking] price-to-earnings multiple and $137 billion [and growing] hoard of cash on the balance sheet supports Greenlight's contention that Apple has an obligation to examine all options to create and unlock additional value," Einhorn said.

Greenlight is seeking to build support for its proposal that Apple issue a "perpetual preferred stock" that could carry, in Einhorn's suggestion, a 4% dividend, allowing shareholders to better share in its idle cash pile.

Such a "more shareholder-friendly capital allocation policy," Einhorn said in the letter, "would unlock hundreds of dollars of value per share."

Copyright Agence France-Presse, 2013

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