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Old Feb 22, 2013, 02:54 PM   #1
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Judge Blocks Vote on Proposal 2 at Next Week's Apple Shareholder Meeting




A judge has decided to block a vote on Question 2 at Apple's annual shareholder's meeting next week, according to a report from Reuters.

Hedge fund Greenlight Capital, a major shareholder of Apple stock, filed a lawsuit earlier this month asking that Apple be prevented from bundling a number of proposals into one ballot question at the shareholders meeting. The firm argued that the bundling of three separate corporate governance proposals into one question was in violation of SEC rules.
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A judge handed hedge fund star David Einhorn a victory in his court battle with Apple Inc on Friday, blocking the iPhone maker from moving forward with a shareholder vote on a controversial proposal to limit the company's ability to issue preferred stock.
Proposal 2 contains language relating to the term of office of the board of directors, language about the board's ability to issue preferred shares of AAPL stock without shareholder approval, and the establishment of a par value for the company's common stock.

Apple CEO Tim Cook called the lawsuit a "silly sideshow" and "a waste of money for all involved", but the judge presiding over the case disagreed. Apple issued a statement in early January saying it was in "active discussions" about ways to return cash to shareholders as Greenlight head David Einhorn has requested.

Update: AllThingsD has the text of the judge's ruling.

Update 2: Apple has withdrawn Proposal No. 2 from its proxy statement, issuing this statement:
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We are disappointed with the court's ruling. Proposal #2 is part of our efforts to further enhance corporate governance and serve our shareholders' best interests. Unfortunately, due to today's decision, shareholders will not be able to vote on Proposal #2 at our annual meeting next week.
Article Link: Judge Blocks Vote on Proposal 2 at Next Week's Apple Shareholder Meeting
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Old Feb 22, 2013, 02:56 PM   #2
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can someone explain to me like a 9 year old on what the hell is going on?

how about explain it to me like a 5 year old?
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Old Feb 22, 2013, 03:00 PM   #3
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Originally Posted by komodrone View Post
can someone explain to me like a 9 year old on what the hell is going on?

how about explain it to me like a 5 year old?
In as simple of wording as possible - Apple tried to use some trickery on a shareholders vote. A judge deemed it a no go, as it violated rules of the securities and exchanges commission (SEC).
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Old Feb 22, 2013, 03:05 PM   #4
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This is what I got from reading the article.
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Old Feb 22, 2013, 03:05 PM   #5
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Time for a serious share buyback.
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Old Feb 22, 2013, 03:07 PM   #6
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Time for a serious share buyback.
as someone who understands nothing about this kind of system, what would it take for apple to become private? could it do it legally within the next 5 years? 10?
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Old Feb 22, 2013, 03:11 PM   #7
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Einhorn sticking it where it doesn't belong again....
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Old Feb 22, 2013, 03:12 PM   #8
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as someone who understands nothing about this kind of system, what would it take for apple to become private? could it do it legally within the next 5 years? 10?
It would take a lot more cash and securities than Apple has.
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Old Feb 22, 2013, 03:12 PM   #9
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as someone who understands nothing about this kind of system, what would it take for apple to become private? could it do it legally within the next 5 years? 10?

It would generally take a large private equity group who was able to raise roughly 20-40% MORE than the current market value of the company they wanted to take private. In this case, the group would have to come up with 500 to 600 billion dollars based on today's closing price.
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Old Feb 22, 2013, 03:13 PM   #10
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Originally Posted by spoonie1972 View Post
as someone who understands nothing about this kind of system, what would it take for apple to become private? could it do it legally within the next 5 years? 10?
Apple would have to come up with enough money to buy it out of the stock market. This typically comes at a premium as well.

AAPL currently has a market valuation of 425 billion dollars. Therefore, one could postulate that Apple would need to come up with over 500 billion in raw cash in order to take it private (assuming AAPL's market cap falls tremendously as well).

Over the next 5 or 10 years, it is tough to tell. If Apple can continually bank 50 billion per year while having it's stock grown 0% YOY (close to where we are at today), than certainly.

Remember though, Apple is at a low cycle in it's P/E valuation. It has dipped into the 10/11 range before, but has always rebounded back into the low 14s. At this point in time, it seems unlikely, but anything is possible.

Last edited by MTL18; Feb 22, 2013 at 03:15 PM. Reason: Adding more content
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Old Feb 22, 2013, 03:05 PM   #11
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Originally Posted by komodrone View Post
can someone explain to me like a 9 year old on what the hell is going on?

how about explain it to me like a 5 year old?
http://dealbreaker.com/2013/02/david...-in-the-world/

Quote:
Einhorn wants Apple to issue two hundred thirty-six billion dollars of iPrefs, or five $50-par, 4%-coupon iPref shares per common share. That’s more than half of Apple’s market cap, but Apple’s market cap is the wrong denominator. If Apple took Einhorn’s advice and issued $236 billion of listed preferred, it would be issuing more than the entire market cap of all the publicly traded preferred stock in America, combined
basically Einhorn thinks Apple should worth much more than it is right now. In order to reflect that he wants Apple to issue a ton of prefer stocks. Apple thinks that is crazy.
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Old Feb 22, 2013, 03:17 PM   #12
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Originally Posted by Benjamins View Post
http://dealbreaker.com/2013/02/david...-in-the-world/



basically Einhorn thinks Apple should worth much more than it is right now. In order to reflect that he wants Apple to issue a ton of prefer stocks. Apple thinks that is crazy.
I found this report interesting. The investors and banksters that sent us into 2008 now want to tell the most valuable company in the world (that built it's value during their recession) what to do? And a judge says .... sure...

What a piece of junk system! My 0.02
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Old Feb 22, 2013, 07:49 PM   #13
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Originally Posted by MTL18 View Post
I found this report interesting. The investors and banksters that sent us into 2008 now want to tell the most valuable company in the world (that built it's value during their recession) what to do? And a judge says .... sure...

What a piece of junk system! My 0.02
Nonsense. The judge didn't rule on the merits of Proposal 2. Rather, he simply held that the three provisions therein had to be voted on separately.
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Old Feb 22, 2013, 07:57 PM   #14
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I found this report interesting. The investors and banksters that sent us into 2008 now want to tell the most valuable company in the world (that built it's value during their recession) what to do? And a judge says .... sure...

What a piece of junk system! My 0.02
You don't know what you're talking about.
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Old Feb 22, 2013, 03:40 PM   #15
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I don't know whether Greenlight is right about the preferred stock (and I don't much care) but it certainly sounds like they're right about the inappropriate bundling.

Follow the rules!

I say, keep the cash and use it in future when the strategic moment comes. Rather than giving it to Greenlight OR lawyers!

Anyone worried about the stock price should be worried about stock manipulation (and media ad-baiting) affecting the perception of the company's very real success. They shouldn't be worried about counter-manipulating the stock. Get the facts out there--be a voice of reason. That shouldn't be as rare as it is.

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Originally Posted by komodrone View Post
can someone explain to me like a 9 year old on what the hell is going on?

how about explain it to me like a 5 year old?
Here on an Internet forum, is there really any other way?
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Old Feb 22, 2013, 04:06 PM   #16
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I don't know whether Greenlight is right about the preferred stock (and I don't much care)
Their reasoning for issuing preferred stock with a perpetual dividend, provided to each shareholder, is to provide one more pipeline of capital and income to shareholders.

The Apple BoD has determined a common stock dividend is sufficient, stock buy backs are sufficient, and the capital they have in the form of cash is serving a valuable purpose to protect from catastrophie, to invest in supply chain which shockingly few companies do at all, and buying firms on a regular basis. Apple currently only has common stock.

In this "recession", companies and investors generally have a high cash position, so why not Apple too? It is to scale.

Apple's recent high water mark was about $700B in market cap so the $137B in cash is only 20%. What percentage of your overall assets are in something you can sell in 30 days or less? Assume you can sell a house or building at "some price" within that time frame.

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Old Feb 22, 2013, 04:43 PM   #17
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Their reasoning for issuing preferred stock with a perpetual dividend, provided to each shareholder, is to provide one more pipeline of capital and income to shareholders.

The Apple BoD has determined a common stock dividend is sufficient, stock buy backs are sufficient, and the capital they have in the form of cash is serving a valuable purpose to protect from catastrophie, to invest in supply chain which shockingly few companies do at all, and buying firms on a regular basis. Apple currently only has common stock.
This brings up an interesting question about the best way for a company to reward its shareholders. If it pays a dividend then the shareholders will be taxed on it at their standard tax rate, which varies based on your income.

If it does a buyback of shares then the stock price may go up and the shareholders will have a larger unrealized gain (assuming they bought in low). In this situation there would be no taxable event until the shareholder sells his shares, which could be years from now (capital gain). The tax rate will depend on what the long term or short term rates are, which changes all the time with new presidents and congress. But I believe those rates are lower than the standard rate that would be taxed for dividend income.

A rule of finance is to always defer taxes, so I would think that a buyback/capital appreciation would be better than a larger dividend now.

Just my $0.02 but what Einhorn did is great for shareholder rights. You fanboys who are complaining about this shouldn't be playing in the stock market if you can't appreciate the core issue of the lawsuit.
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Old Feb 22, 2013, 09:11 PM   #18
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Originally Posted by nagromme View Post
Anyone worried about the stock price should be worried about stock manipulation (and media ad-baiting) affecting the perception of the company's very real success. They shouldn't be worried about counter-manipulating the stock. Get the facts out there--be a voice of reason. That shouldn't be as rare as it is.
It is astonishing how much apple bashing occurs from investor news sites. I'm guessing you're right that it's "Click Bait" to gain ad revenue for their sites.

One headline i saw today was something like "Google's pixel has more pixels than Apple's Macbook" Another was "Apple is loosing its cool factor to Microsoft."
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Old Feb 22, 2013, 04:43 PM   #19
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Originally Posted by komodrone View Post
can someone explain to me like a 9 year old on what the hell is going on?

how about explain it to me like a 5 year old?
I'll take a stab...
- Einhorn wanted Apple to issue preferred stock.
- Apple tried to bundle a rule into some proposals that are coming up for shareholder voting that would hamper the issuing of preferred stock. eg Preferred stock will unlikely ever be issued.
- Einhorn got mad that they're taking away the *OPTION* to ever issue preferred stock so he sued to block the proposal.

From Einhorn's perspective, taking away this option lowers the value of the stock. It would be like having a stock where the company says that they not only don't issue dividends, it's a written rule that they will never be issued. Some people/hedge funds will be less likely to invest in it. eg Stock value gets lowered.

A preferred stock is a hybrid investment instrument. It's issued and purchased like an equity, but it pays out a higher *guaranteed* dividend, sort of like a bond. It's less volatile than the common stock and so while your chances of making a lot more are less, so is your risk of losing a lot. The plus side is that you would get something like say 4% dividends, guaranteed. So let's say they issue preferred stock at $50. You would then get $2 per share/year ($0.50 per quarter). It takes higher priority than common stock dividends. Thus, if Apple were ever running short on cash (haha), they would have to pay preferred stock dividends first before figuring how much to pay on common stock dividends. The only instrument that takes higher priority than a preferred stock is a bond, which is irrelevant here.

Common stock dividends are not guaranteed. They are there at the pleasure of the board. So if the board suddenly decides they don't want to give out dividends or wants to lower it, they simply do it. Preferred stock's dividends are guaranteed. They are paid whether the board wants to or not. It functions more like a bond. Thus, it's a "hybrid" instrument.

The big idea behind Einhorn's scheme is that it doesn't affect Apple's cash hoard or flow while paying out a dividend they can easily afford, and simultaneously, it attracts investors to the stock. Preferred stock can be converted to common stock though I'm not familiar with the rules on this. I think the companies make the rules.

Last edited by flux73; Feb 22, 2013 at 07:51 PM.
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Old Feb 22, 2013, 04:48 PM   #20
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Some people/hedge funds will be less likely to invest in it. eg Stock value gets lowered.
Once Apple issued a dividend, which it has not done in many years, it added an entire class of institutional investor that requires income to consider the stock. AAPL yields about 2.4% right now. A 10 year treasury (assumed 100% safe) yields only 1.9%. Goal already accomplished. Recently.

Also issuing Preferred stock AND ALSO declaring it to have a PERPETUAL dividend is just greedy and unlikely and bad policy given the political turmoil we are going through right now.
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Old Feb 22, 2013, 04:54 PM   #21
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Once Apple issued a dividend, which it has not done in many years, it added an entire class of institutional investor that requires income to consider the stock. AAPL yields about 2.4% right now. A 10 year treasury (assumed 100% safe) yields only 1.9%. Goal already accomplished. Recently.
Keep in mind that while Einhorn would like them to issue preferred stock, it's just a proposal. What he's actually suing about is that Apple is trying to take away that option, not because Apple won't issue preferred stock.

Your argument is true, but the 2.3% is clearly not enough to move the stock price. His proposal is that since the preferred stock would issue higher dividends - something like 4% - it would attract a lot more investors. Which would in turn boost the common stock price. All without touching Apple's cash hoard. It's actually a fairly clever idea.

Quote:
Also issuing Preferred stock AND ALSO declaring it to have a PERPETUAL dividend is just greedy and unlikely and bad policy given the political turmoil we are going through right now.
How so? It simultaneously provides investors peace of mind and stabilizes the stock. People are more likely to let their investment sit and take a chance on Apple's future if their money is going to earn 4%.
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Old Feb 22, 2013, 05:04 PM   #22
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Your argument is true, but the 2.3% is clearly not enough to move the stock price.
It puts a floor on the price since it is inverse to yield.

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His proposal is that since the preferred stock would issue higher dividends - something like 4% - it would attract a lot more investors. Which would in turn boost the common stock price. All without touching Apple's cash hoard. It's actually a fairly clever idea.
Nope. Any dividend would reduce net cash. Any stock issue would dilute shareholder value. Issuing a Preferred offering is a special case of diluting shareholder value with securities that have superior claim to assets! If nothing else, Apple has enough capital and does not need to issue more stock to get capital. Therefore any interest to motivate such an effort would be literally a waste of money.

I can understand why Einhorn wishes Apple issues Preferred stock and a perpetual dividend, but AAPL BoD would have to be very stupid to do it.

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Old Feb 23, 2013, 09:01 AM   #23
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Keep in mind that while Einhorn would like them to issue preferred stock, it's just a proposal. What he's actually suing about is that Apple is trying to take away that option, not because Apple won't issue preferred stock.
Not exactly. The current BOD process for preferred stock is to *not* issue it without getting approval from the shareholders. The main point of Issue 2 was to make that official, so that preferred stock *couldn't* be issued without a shareholder vote. This Einhorn fellow doesn't seem to like that for some reason. (Probably because he thinks it will be easier to convince the BOD to make a 'special exception' to their standard policy (just for him) than it would be to get the shareholders to vote in his favor.)

What confuses me is that the SEC had already approved the paperwork as being fine according to its rules, but the judge seems to have decided that the paperwork was too confusing according to SEC rules.
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Old Feb 22, 2013, 06:39 PM   #24
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Originally Posted by Rocketman View Post
Once Apple issued a dividend, which it has not done in many years, it added an entire class of institutional investor that requires income to consider the stock. AAPL yields about 2.4% right now. A 10 year treasury (assumed 100% safe) yields only 1.9%. Goal already accomplished. Recently.
Just imagine how much AAPL could yield if it fell to $300 (that would be 3.5% for the calculator challenged). Mission doubly accomplished!

And people gripe about Einhorn's reasoning.
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Old Feb 22, 2013, 06:51 PM   #25
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Apple CEO Tim Cook called the lawsuit a "silly sideshow" and "a waste of money for all involved",
Aren't most lawsuits?

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When I think of hedge funds I think of Jim Cramer and its not pretty thoughts. Amazing he still has a high profile job on CNBC.
Makes me sick. My father was an investment banker with Bear Stearns back in the day, the people he knew/knows, the things I learned growing up. Future traders, hedge fundies, I could tell you stories on the power trips, playing with derivatives, betting against defaults, the truckloads of money. "People with money, make money," sad but true.
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