Earlier this month, Greenlight Capital's David Einhorn ruffled some feathers when he made headlines by suggesting Apple (NASDAQ:AAPL) issue a new class of perpetual preferred shares that boast a 4% yield. As part of his overture, the hedge fund star sued the Mac maker over a proposal listed in its shareholder proxy that's coming up for a vote at Apple's annual shareholder meeting, which is scheduled for Feb. 27 -- next Wednesday.
Appealing to those you want to overrule
At issue is that Apple is bundling three separate issues into its Proposal 2, all of which the company maintains are beneficial to shareholders and corporate-governance advocates. One of these amendments would eliminate Apple's ability to issue preferred stock solely at the board's discretion. Even if Proposal 2 were passed, Apple would still be able to issue the type of preferred stock that Einhorn is asking for, except it would need shareholder approval to do so.
That would make it seem that Einhorn is looking to bypass other fellow shareholders and have the board grant his request directly. This is why it was such an interesting move that Einhorn hosted a conference-call webcast on Thursday to appeal to said fellow shareholders (the same ones he wants to effectively overrule), which he's now referring to as "iPrefs."
Tim Cook specifically called the whole ordeal a "silly sideshow" that was a needless distraction and a waste of time and shareholder money.
Einhorn shoots, Einhorn scores
After Einhorn filed suit, the case had been fast-tracked since the annual meeting was just weeks away. On Friday, Reuters reported that U.S. District Judge Richard Sullivan has indeed decided to grant Einhorn a preliminary injunction that prevents Apple from proceeding with its shareholder vote on Proposal 2. The news isn't too surprising, since earlier in the week Sullivan had said, "Candidly, I do think the likelihood of success is in favor for Greenlight on the merits."
Of course, all of this fuss simply relates to Apple's bundling of these proposals into one vote, and the ultimate outcome of this suit has no direct bearing on what Apple investors actually care about -- returning more cash to shareholders. Even if Einhorn totally gets his way and these matters are unbundled and voted on separately, the ultimate decision of whether Apple gives more back still lies entirely with Apple's board and management.
What really matters
As an Apple investor, I very much side with Einhorn that something must be done to broaden Apple's investor base to include value-oriented investors and that Apple simply has more cash than it knows what to do with. I also wholeheartedly agree with Cook that this whole lawsuit is a waste of energy, since it's much ado about nothing. It's not unreasonable to think that it's all part of an elaborate plan to help prop up shares by heating up and further publicizing the iDividend discussion, in which case the end goal is in line with investor interests. After all, when Einhorn speaks, stocks move.
Apple has already acknowledged that the company is in "active discussions" about giving more back, which the company confirmed just hours after he made his rounds with media interviews. In that case, the mission of sparking more conversation has already been accomplished. The rest of it -- the proxy lawsuit or the specific way that Apple chooses to return more cash -- is all just noise.
Make no mistake: Apple has to increase its payout. It simply has no choice at this point, since the company has acknowledged it has more cash than it needs -- a point it reached a year and $40 billion ago. The only questions that remain are when and how, but the if was decided long ago.
With that in mind, it should be quite interesting indeed what Apple has to say at the annual meeting on Wednesday.