... a legal action brought against Apple by Greenlight Capital, a hedge fund run by David Einhorn, a high-profile financier, has now become something of an embarrassment for the tech giant. On February 22nd a judge ruled in favour of Greenlight, which has a stake in Apple, giving Mr Einhorn a symbolic victory in his battle to get the company to return more of its $137 billion cash mountain to shareholders.
The legal tussle revolves around Apple’s plan to have its shareholders vote on a proposal that critics such as Mr Einhorn fear will make it harder for the company to issue preferred shares in the future. Greenlight’s boss has been urging Apple to issue such shares with a perpetual 4% dividend as a way to hand back more of the computer maker's Croesus-like stash of cash.
Greenlight has won this round on a technicality: issuing a preliminary injunction, the judge handling the case said that a vote on Apple’s proposed move could not go ahead as planned at its annual shareholder meeting on February 27th because the firm had bundledthe preference-share matter together with other, unrelated ones in a single proxy. However, he also added that Greenlight was likely to succeed in its challenge to Apple's proposed move "on the merits of the case". The hedge fund was quick to hail the decision as “a significant win for all Apple shareholders and for good corporate governance”.
But it's really not all tha big a deal, as Larry Cunnigham explains:
The substantive fight is about how Apple should allocate substantial accumulated cash, running to some $140 billion. The board wishes to retain it; the shareholder wants it distributed to shareholders. Einhorn envisions using a specific approach to distributing the cash that would involve the issuance of a new class of preferred stock to existing shareholders with a stated cash dividend. Einhorn has no right to direct the board on such a matter and any claim challenging the board’s decision would be decisively dismissed. In fact, I cannot imagine any reputable attorney filing such a suit. Boards, not shareholders, set dividend policy. ...
Einhorn won this technical round but the substantive power about the dividend policy remains firmly in the board’s hands.