Apple Responds To Lawsuit By Greenlight Capital

Posted Feb 8, 2013

Apple Inc. has responded to a shareholder lawsuit filed by David Einhorn over at Greenlight Capital.  Einhorn insists that Apple has not done enough to distribute their $137 billion cash file and even compared the company to his grandmother, who survived the Great Depression and holds on to all of her cash instead of putting it into productive investments.  In Apple’s statement, the company suggested that Greenlight and Einhorn is misrepresenting an important governance proposal that the company is presenting to shareholders at their annual meeting on February 27th.

Greenlight said that they are voting against Proposal 2 in Apple’s proxy that would “eliminate preferred stock from Apple’s charter and thus restrict the Board’s ability to unlock the value on Apple’s balance sheet.”  Greenlight has been asking Apple to issue perpetual preferred stock to shareholders with a larger dividend since May 2012.  In July 2012, Apple started to issue a dividend of $2.65 per share, but they rejected Greenlight’s proposal in September 2012.  The lawsuit is seeking to force Apple to divide Proposal 2 into three separate proposals.

Last year Apple announced that they would be returning $45 billion to shareholders over 3 years as they buy back stock and issue a substantial cash dividend for the first time.  “As of next week we will have executed $10 billion of that plan,” said Apple in their response.

Below is the letter that Apple sent out:

By early last year, Apple?s cash balance had built to a point beyond what we needed to run our business and maintain flexibility to take advantage of strategic opportunities, so we announced a plan to return $45 billion to shareholders over three years. As of next week we will have executed $10 billion of that plan.

We find ourselves in the fortunate position of continuing to generate large amounts of cash, including $23 billion in cash flow from operations in the last quarter alone.

Apple?s management team and Board of Directors have been in active discussions about returning additional cash to shareholders. As part of our review, we will thoroughly evaluate Greenlight Capital?s current proposal to issue some form of preferred stock. We welcome Greenlight?s views and the views of all of our shareholders.

As a part of our efforts to further enhance corporate governance and serve our shareholders? best interests, Proposal #2 in our proxy includes some recommended changes to our articles of incorporation. These changes were recommended independently of Greenlight?s proposal and would not preclude Apple from adopting their concept. Contrary to Greenlight?s statements, adoption of Proposal #2 would not prevent the issuance of preferred stock. Currently, Apple?s articles of incorporation provide for the issuance of ?blank check? preferred stock by the Board of Directors without shareholder approval. If Proposal #2 is adopted, our shareholders would have the right to approve the issuance of preferred stock. As such, Proposal #2 has the support of many of our shareholders.

We remain committed to having an ongoing dialogue with our shareholders to get perspectives around return of capital and driving shareholder value.