Greenlight Captial posted a letter to all Apple shareholders today urging them to reject Proposal 2 at the upcoming Annual Meeting of Shareholders to be held on February 27, 2013. They say that eliminating preferred stock from Apple's charter would restrict the Board’s ability to unlock the value on Apple’s balance sheet.
“We believe Apple must examine all of its options to unlock the growing value of its balance sheet for all shareholders,” said David Einhorn, President of Greenlight. “Over the past several months, we have had an ongoing dialogue with Apple regarding one option to do so, namely the creation of a new security, a perpetual preferred stock that would be distributed at no cost to Apple’s existing shareholders, and would provide an attractive, sustainable dividend while preserving Apple’s financial resources to pursue its business strategy.”
Proposal 2 actually contains three distinct corporate governance proposals and since Apple has said it won't unbundle them for separate voting, Greenlight today initiated a legal action in the U.S. Federal District Court for the Southern District of New York to force Apple to comply with Securities and Exchange Commission rules.
Here's the statement from Apple in regards to the issue.
Statement by Apple
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.
Notably, Apple's stock seems to have surged since the statement.