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Thursday, February 07, 2013, 12:55 pm PT (03:55 pm ET)

Apple responds to Greenlight lawsuit, says preferred stock won't be barred

Apple on Thursday issued a public statement in response to a lawsuit from hedge fund Greenlight Capital, revealing that the company has been holding "active discussions" on what to do with its $137 billion in cash, while also disputing the assertion that the company hopes to prevent the issuance of preferred stock.

Cash

Apple added $38 billion in cash in 2012. Chart by Asymco.


The statement made by Apple comes in response to a high-profile lawsuit filed earlier in the day by Greenlight and the fund's manager, David Einhorn. That complaint accused Apple of having a "problem" of hoarding cash in a manner that is a disservice to investors.

For its part, Apple said it welcomes Greenlight's views, though it disagrees with the fund's take on "Proposal 2," an item up for vote at the company's annual shareholder meeting later this month.Apple says Greenlight is wrong: The passage of Proposal 2 would give shareholders the right to approve the issuance of preferred stock, but won't ban it entirely.

"Contrary to Greenlight's statements, the adoption of Proposal #2 would not prevent the issuance of preferred stock," Apple's statement reads. "Currently, Apple's articles of incorporation provide for the issuance of 'blank check' preferred stock by the Board of Directors without Shareholder approval."

Apple contends that the passage of Proposal 2 would give shareholders the right to approve the issuance of preferred stock.

Earlier Thursday, Greenlight and Einhorn said they believe Apple should give away perpetual preferred stock with a 4 percent yield. Einhorn advised investors to vote against Proposal 2, which Apple is recommending, because he believes it would eliminate preferred stock from Apple's charter.

Greenlight


But Apple's statement made on Thursday refutes the claims by Einhorn, suggesting that his idea of preferred stock could still be on the table. Einhorn believes that by distributing preferred stock, Apple could tap into new value for shareholders while leaving its massive cash hoard largely untouched.

Apple was questioned about its cash and reserves during the company's quarterly earnings report last month, and Chief Financial Officer Peter Oppenheimer responded by saying Apple "continuously" assesses opportunities for its growing cash, which totaled $137 billion as of the conclusion of the December quarter.

"Combined with our dividend, we returned about $4.5 billion of cash this quarter, and we started the buyback program and expect to return about $45 billion over three years to our shareholders," Oppenheimer said. "We do consider increasing these programs and we'll do what we think is in the best interest of our shareholders."

Apple's statement issued Thursday afternoon follows in its entirety:

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.