Apple and Einhorn could both use cleaner design

February 7, 2013

By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Apple and David Einhorn could both use some of the iPhone maker’s famed simplicity. The $430 billion technology company has combined three governance fixes better considered separately. Also a bit unwieldy is an idea from the boss of hedge fund firm Greenlight Capital to unlock value at Apple. A sleeker approach makes more sense.

Preferred stock lies at the heart of the spat uncorked on Thursday. Apple has proposed several changes to its articles of incorporation ahead of its shareholder meeting later this month. One is a clearly positive shift to majority voting for directors. Another is a largely administrative, though sensible, move to attach a par value to Apple’s common stock.

The third change would prevent Apple’s board from issuing preferred stock without shareholder approval. Calpers, the $243 billion California pension fund and governance champion, supports the whole package. That’s no surprise, since governance advocates worry that directors can use a blank check for pref issuance to deter takeovers. Einhorn, though, wants Apple to consider issuing preferred stock. He has initiated a legal effort to force Apple to break the package into three separate shareholder votes, claiming U.S. public company rules require this.

Legalities aside, the cleanest response would be for Apple to comply. Greenlight says the company has ruled that out. Either way, Einhorn could also streamline his own approach. He’s right that Apple shares look cheap, particularly considering its $137 billion cash pile and over $40 billion of annual cash accumulation. But his idea, floated last year, of distributing preferred shares carrying a fixed dividend yield as a way to crystallize more value may not be the most user-friendly place to start.

A more straightforward initial effort could be to push Apple to pay a much larger regular stock dividend than the smallish payout it has started making. If that doesn’t enhance the company’s value, other ideas could be considered. If Einhorn’s preferred shares then looked attractive enough, shareholders could still vote for them even if Apple’s proposed changes are all enacted.

The company’s design guru, Jony Ive, keeps busy masterminding the uncluttered look and feel of Apple’s gadgets and software. His boss Tim Cook and shareholders like Einhorn might benefit from a similar mindset in the boardroom.

 

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