Is Greenlight closer to winning its war with Apple?

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Last week, a federal judge handed Greenlight Capital, headed by David Einhorn, a tactical victory in the hedge fund's larger war to force Apple to part ways with some of its $137 billion in cash. The victory, however, doesn't mean the fund is any closer to its ultimate objective, to force the company to issue so-called iPrefs.

Indeed, the substance of Greenlight Capital's suit was all about good corporate governance. The fund argued that Apple improperly bundled a proposal to prevent the company from issuing preferred shares without common shareholders' approval with other proposals, including one that would facilitate majority voting for directors. The bundling effectively made it impossible for Greenlight to vote against the blank-check preferred stock proposal, while voting for the specific proposals that it favored. A judge agreed that this was improper, and Apple subsequently withdrew the controversial Proposal 2.

While Greenlight has won a clear legal victory and while Einhorn has succeeded fabulously in publicizing the issue of excess cash, it's very unclear if he is on path toward success in forcing the company to issue iPrefs, a "perpetual preferred stock solution," according to the company.

What will the company do?

It could go forth and put the same blank check preferred share provision before investors in a separate proposal, such debundling would on the surface satisfy the judge's concerns. But that might be seen as provocative, and open the company up to charges that it is continuing its efforts to thwart Greenlight in the name of corporate governance. One the other hand, the company can continue to argue that Greenlight is making a mockery of accepted best practices in corporate governance in its selfish quest for cash.

As of right now, it's been difficult for other investors to cast their lot with Greenlight Capital. CalPERS went public with its support of the company on the specific blank check preferred proposal.

It would be interesting to see if common shareholders would vote for a large issuance of preferred shares if that were put forward as a proposal at the upcoming shareholder meeting. Perhaps Greenlight should put forward such a proposal as a way to provide a direct resolution from all shareholders.  -Jim
 

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