Apple Investor Sues Company to Unlock Cash Pile for Shareholders

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An Apple shareholder Greenlight Capital is suing the company to block changes to its shareholder structure that the investor claims would stop it from returning cash to its shareholders.

The company is sitting on cash and equivalents worth around USD137 billion.

Greenlight Capital is also urging fellow shareholders to oppose the company's attempt to amend its corporate charter. Greenlight is voting against Proposal 2 in Apple's proxy, which would eliminate preferred stock from Apple's charter and thus, Greenlight claims, would restrict the Board's ability to unlock the value on Apple's balance sheet.

Greenlight estimates that Apple has US$145 per share of cash on its balance sheet. However, a large percentage of that is held outside the USA to avoid repatriation taxes.

In a letter to shareholders, Greenlight said that Apple could initially distribute to existing shareholders $50 billion of perpetual preferred stock, with a 4% annual cash dividend paid quarterly at preferential tax rates. They estimate that every $50 billion of perpetual preferred stock that Apple distributes would unlock about $30 billion, or $32 per share in value.

"We believe Apple must examine all of its options to unlock the growing value of its balance sheet for all shareholders," said David Einhorn, President of Greenlight. "Over the past several months, we have had an ongoing dialogue with Apple regarding one option to do so, namely the creation of a new security, a perpetual preferred stock that would be distributed at no cost to Apple's existing shareholders, and would provide an attractive, sustainable dividend while preserving Apple's financial resources to pursue its business strategy."

Greenlight first described the concept at a May 2012 investment conference, where Mr. Einhorn claimed that Apple could unlock several hundred billion dollars of shareholder value by distributing, to existing shareholders, a perpetual preferred stock. Since May, Greenlight syas that it has had discussions with Apple on this value creation idea, but Apple rejected it outright in September 2012.

Greenlight also said that it considers the proposal to be against SEC rules, and is suing the company in the U.S. Federal District Court for the Southern District of New York seeking to have the proposal amended, or dropped entirely.

Apple shareholders are due to vote on the amendement to its charter to block the preferential shares at the upcoming Annual Meeting of Shareholders to be held on February 27, 2013.

Greenlight currently holds over 1.3 million Apple shares.

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