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Apple weighs dividend boost, stock buyback to appease investors

Apple reveals it has been in "active discussions about returning additional cash to shareholders" after influential shareholder Greenlight Capital sued the company.

February 08, 2013|By Chris O'Brien, Los Angeles Times
  • David Einhorn, president of Greenlight Capital, has been pushing Apple for the last year to distribute a special class of stock to shareholders to enhance the value of their holdings.
David Einhorn, president of Greenlight Capital, has been pushing Apple… (Scott Eells, Bloomberg )

SAN FRANCISCO — Apple Inc. is considering boosting dividends or buying back more stock in a move that could appease investors who have been stung by the sharp drop in the stock price.

The company revealed it is mulling over such actions after an influential shareholder sued the Cupertino, Calf., technology giant Thursday.

In a statement, Apple acknowledged that it had been in "active discussions about returning additional cash to shareholders" beyond the $45 billion in dividends and stock buybacks it announced last year.

As part of that review, the company said it would consider a proposal by Greenlight Capital to issue a new type of preferred stock to current shareholders.

"We will thoroughly evaluate Greenlight Capital's current proposal to issue some form of preferred stock," Apple said. "We welcome Greenlight's views and the views of all of our shareholders."

News that such plans were under consideration bolstered Apple's stock, which closed Thursday at $468.22, up $13.52, or 2.97%. In September, Apple shares reached a high of $702.10.

While Apple's statement seemed to somewhat quell investor worries, it is not expected to thwart a shareholder lawsuit filed by Greenlight. A dramatic showdown is still likely later this month at Apple's annual shareholder meeting scheduled for Feb. 27 in Cupertino.

On one side will be Greenlight, a hedge fund run by notable short seller David Einhorn. In a letter to Apple shareholders Thursday, Einhorn revealed that his firm had been pushing Apple for the last year to distribute a special class of stock to shareholders to enhance the value of their holdings.

In particular, Einhorn doesn't like a proposal placed by Apple on its annual proxy that would eliminate management's ability to issue the special class of stock without shareholder approval. Besides announcing a proxy challenge, Greenlight has filed suit in federal court in New York to block it.

"Like many other shareholders, Greenlight is dissatisfied with Apple's capital allocation strategy," Einhorn wrote. "The combination of Apple's low (and shrinking) price to earnings multiple and $137 billion (and growing) hoard of cash on the balance sheet supports Greenlight's contention that Apple has an obligation to examine all options to create and unlock additional value."

The revelation from Greenlight shed new light on a surprising announcement earlier this week that CalPERS, or the California Public Employees' Retirement System, had teamed up with Apple to support the tech giant's proposal. CalPERS has been a longtime critic of Apple's corporate governance practices but seemed to have been attracted by a provision in the proposal that called for majority election of directors.

But CalPERS said it does support the proposal to require shareholder approval on issuing preferred stock. Anne Simpson, CalPERS senior portfolio manager and director of corporate governance, confirmed the pension fund's backing of Apple's proposal in a statement Thursday: "CalPERS fully supports Apple's proposal to implement majority voting for the election of directors and to require shareholder approval for the issuance of blank check preferred stock."

Apple clarified that if its proposal passes, the company could still seek to issue the preferred shares that Greenlight has requested. The main difference would be that shareholders would have to approve such a move.

"These changes were recommended independently of Greenlight's proposal and would not preclude Apple from adopting their concept," Apple said in its statement. "Contrary to Greenlight's statements, adoption of Proposal #2 would not prevent the issuance of preferred stock," Apple said, referring to its proxy proposal.

chris.obrien@latimes.com

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