Both Apple and David Einhorn could use some of the iPhone maker’s famed simplicity.
Apple, the $430 billion technology company, has combined three governance fixes better considered separately. Also a bit unwieldy is an idea from the boss of the hedge fund 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 pnsion 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. Mr. 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 federal rules governing public companies require this.
Legalities aside, the cleanest response would be for Apple to comply. Greenlight says the company has ruled that out. Either way, Mr. Einhorn could also streamline his own approach. He’s right that Apple shares look cheap, particularly considering its $137 billion cash pile and more than $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 pus! h 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 Mr. 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, Timothy D. Cook, and shareholders like Mr. Einhorn might benefit from a similar mind-set in the boardroom.
Richard Beales is assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
