Southeastern Asset Management to Fight Dell\'s Takeover

One of Dell‘s biggest investors is girding for battle against the struggling tech company’s plans to go private.

Southeastern Asset Management, whose 8.5 percent stake makes it the biggest outside shareholder in Dell, said in a regulatory filing on Friday that it planned to oppose its $24.4 billion sale to its founder and the investment firm Silver Lake.

In its filing, Southeastern argues that the management-led buyout is too low and essentially robs shareholders. The asset management firm is threatening to wage a protracted and hostile campaign to kill the deal.

“We retain and intend to avail ourselves of all options at our disposal to oppose the proposed transaction, including but not limited to a proxy fight, litigation claims and any available Delaware statutory appraisal rights,” the firm said.

Southeastern is not opposed toother moves that would have returned value to shareholders, including borrowing money to pay out a special dividend or a leveraged buyout that would have allowed for limited trading of shares by public investors.

What emerged from Dell’s six months of negotiations with its founder, Michael S. Dell, however, fell far short of what Southeastern contends is full value to other investors.

“Unfortunately, the proposed Silver Lake transaction falls significantly short of that, and instead appears to be an effort to acquire Dell at a substantial discount to intrinsic value at the expense of public shareholders,” the firm said.

David Frink, a Dell spokesman, declined immediate comment on the letter.

Though it currently manages nearly $33 billion, Southeastern has generally kept a low profile. It is base! d in Memphis, Tenn., and its chief executive, O. Mason Hawkins, generally shuns the press.

But the firm stepped into the spotlight last year when it called on Chesapeake Energy to entertain takeover offers, after the oil and gas driller ran into financial difficulties and took criticism for an unusual compensation plan bestowed on its cofounder, Aubrey McClendon.

Week in Review: Just CC the Justice Department on Those E-Mails

David Einhorn sues Apple over its plan for stocks. | E-mails imply JPMorgan knew some mortgage deals were bad. | A guilty plea and a big fine for the Royal Bank of Scotland in the rate-rigging case. | Big law firms are backing away from trusts and estates. | S.&P. e-mails on the mortgage crisis show alarm and gallows humor. | Taking Dell private is the biggest challenge yet for its founder. | Investors seek Herbalife’s elusive sales data.

A look back on our reporting of the past week’s highs and lows in finance.

Taking Dell Private Is the Biggest Challenge Yet for Its Founder | Michael S. Dell is gambling that he can respond to rapid change in technology by taking his company private, Michael J. de la Merced and Quentin Hardy reported. DealBook Â'

• Dell Takeover by Its Founder and Partners | The deal, for more than $23 billion, includes financial muscl from Microsoft and the investment firm Silver Lake. DealBook Â'

Deal Professor: Corporate Forces Endangered the Twinkie, but May Save It | Steven M. Davidoff says that while questionable management helped bring down Hostess Brands, bankruptcy may be the salvation of one of its most prominent brands. DealBook Â'

Liberty Global Reaches Deal for Virgin Media That May Inflame Old Rivalry | John Malone’s cable company has agreed to to take over a British cable company that competes with British Sky Broadcasting, Mark Scott and Eric Pfanner reported. DealBook Â'

Credit Suisse Returns to Profit and Plans to Cut More Costs | Switze! rland’s second-biggest bank said it would increase its cost-cutting target by $440 million, to $4.83 billion, by the end of 2015, Julia Werdigier reported. DealBook Â'

UBS Posts $2 Billion Loss Tied to Legal Settlements | The Swiss bank reported a loss of 1.9 billion Swiss francs for the fourth quarter of 2012, compared with a profit of 323 million francs in the period a year earlier, Ms. Werdigier reported. DealBook Â'

Barclays Sets Aside $1.6 Billion More for Legal Costs | British politicians sharply questioned senior Barclays executives about the culture and past failures at the British bank, Mr. Scott and Ms. Werdigier reported. DealBook Â'

| The chief financial officer and general counsel are the latest departures after the British bank’s involvement in a series of scandals, Ms. Werdigier reported. DealBook Â'

Investor Sues Apple Over Plan for Stocks | A surprising declaration by the billionaire hedge fund manager David Einhorn adds to the growing dissatisfaction with Apple and its once-soaring stock, Mr. de la Merced reported. DealBook Â'

• Einhorn’s Apple Suit Fits a History of Public Calls | Mr. Einhorn made his name publicly challenging big companies like Lehman Brothers. William Alden looks at some of his moments in the spotlight. Deal! Book Â'

Seeking a Company’s Elusive Sales Data | Uncertainty over who buys Herbalife products has left shares of the company vulnerable to wild market swings in recent months, Peter Eavis reported. DealBook Â'

Helping Start-Ups With Local Support and National Networks | Startup America Partnership, a nonprofit organization started in January 2011, seeks to offer entrepreneurs practical help, like brainstorming and connecting with clients in other states, Sarah Max reported. DealBook Â'

Court Hears Arguments Over Rejected Citigroup Settlement | Lawyers for the Securities and Exchange Commission and Citigroup argued that Judge Jed S. Rakoff exceeded his authority in rejecting a settlement, Mr. Lattman reported. DealBook Â'

4 Years After Crisis, Ireland Strikes Deal to Ease a Huge Debt Load | The Irish government reached an agreement with the European Central Bank to give the country more time to repay some of those loans, Mr. Scott reported. DealBook Â'

E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad | E-mails and employee interviews filed as part of a lawsuit show that JPMorgan Chase flouted quality controls as it bundled mortgages into complex financial instruments, Jessica Silver-Greenberg reported. DealBook Â'

Guilty Plea and Big Fine for Bank in Rate Case | American and British authorities struck a combined $612 millio! n settlem! ent with the Royal Bank of Scotland and the Justice Department forced its Japanese unit to plead guilty to criminal wrongdoing, Ben Protess and Mr. Scott reported. DealBook Â'

• R.B.S. Fine a Burden for the Bank’s Majority Owner, British Taxpayers | The Financial Services Authority’s share of the fine is expected not to come from bonuses. DealBook Â'

The Trade: The 0.03% Solution to Washington’s Budget Problems | Jesse Eisinger of ProPublica says that a financial transactions tax would take a 3-cent nip out of every $100 traded, and raise billions. DealBook Â'

Cravath Hires Former Director of the Patent Office | In hiring te departing director of the patent office, Cravath, Swaine & Moore signaled the importance of government policy to powerful law firms, Peter Lattman reported. DealBook Â'

S.&P. E-Mails on Mortgage Crisis Show Alarm and Gallows Humor | Correspondence made public in court documents provides a glimpse at the inner workings of an institution that the Justice Department says fraudulently inflated credit ratings, Mary Williams Walsh and Ron Nixon reported. DealBook Â'

• U.S. Contends S.&P. Purposely Used Faulty Models | The Justice Department’s suit says computer programs assessing risk were manipulated to ensure high ratings and big profits, Peter Eavis reported. DealBook Â'
• U.S. Accuses S.&P. of Fraud in Suit on Loan Bundles | The Justice Department accused the firm of inflating the ratings of mortgage investments and setting them up for a crash, Ms. Walsh and Andrew Ross Sorkin reported. DealBook Â'

Big Firms Back Away From Trusts and Estates | Debevoise & Plimpton’s move to get out of trusts and estates comes as the legal industry continues to emphasize more profitable practices, Mr. Lattman reported. DealBook Â'

Plan Could Allow Forced Splits of British Banks | The chancellor of the Exchequer said that regulators would be able to forcibly separate firms that failed to maintain a division between retail banking and risky trading, Mr. Scott reporte.. DealBook Â'

New Details Suggest a Defense in SAC Case | Internal records could cast doubt on the way a trade involving a former portfolio manager has been portrayed by authorities, Mr. Sorkin and Mr. Lattman reported. DealBook Â'

“Private Eyes” by Hall and Oates

Financial Advice From Hall and Oates | Wall Street bankers, before you write that hilarious e-mail about the housing crisis or send that instant message about cows remember that “private eyes they’re watching you. They see your every move.”

Appeals Court Hears Arguments Over Judge Rakoff\'s Rejection of Citigroup Settlement

Judge Jed S. Rakoff has been an outspoken critic of the Securities and Exchange Commission, chiding its practice of allowing companies to settle fraud cases without being required to admit that they had done anything wrong.

On Friday, it was the S.E.C.’s turn to criticize him in court.

In an unusual hearing before the federal appeals court in Manhattan, lawyers for the S.E.C. - along with lawyers for Citigroup - tried to convince a three-judge panl that Judge Rakoff, a district court judge, exceeded his authority in rejecting the settlement that allowed Citigroup to avoid an admission of wrongdoing.

“The court failed to give the S.E.C. any deference in this case,” said Michael A. Conley, the S.E.C’s deputy general counsel.

Judge Rakoff, who was represented by a court-appointed lawyer in the case, did not attend the argument, which took place before a packed courtroom at the United States Court of Appeals for the Second Circuit in Manhattan.

“A judge is not limited to approve automatically whatever consent decree the S.E.C. brings him and assume that it is in the public’s interest,” said John R. Wing, the lawyer for Judge Rakoff.

The judges did not indicate how they would rule, but the argument came almost a year after different appeals court panel, in a mostly procedural decision, indicated that it believed that Judge Rakoff had overstepped the bounds.

The decision by the Second Circuit, an influentia! l appellate court, could have broad legal ramifications. A ruling in Judge Rakoff’s favor could embolden the federal judiciary to refuse to approve S.E.C. settlements in which defendants do not admit wrongdoing.

Other government bodies including the Federal Communications Commission and the Justice Department’s antitrust division also routinely use the “neither admit nor deny wrongdoing” boilerplate language in settling enforcement cases with corporate defendants.

That, according to the government, would overburden federal agencies that are already constrained. If the S.E.C. were required to extract an admission of wrongdoing from a corporation there would likely be fewer settlements and more trials, which are costly.

Brad S. Karp, a lawyer for Citigroup, higlighted this concern, emphasizing the potential repercussions of judges overriding government agencies and forcing them to require defendants to acknowledge wrongdoing.

“Many corporations will decide to not settle matters if a requirement is to admit liability,” Mr. Karp said. “The federal regulatory enforcement regime would screech to a grinding halt.”

In court papers, Judge Rakoff’s lawyers dismissed such a claim as “needlessly alarmist.”

The S.E.C.’s civil fraud action against Citigroup in question rejected related to the sale of a complex $1 billion mortgage bond deal during the waning days of the housing boom. Citigroup was accused of deceiving its customers by selling them pools of risky mortgages that the bank knew would decline in value. Clients suffered more than $600 million in losses.

Citigroup agreed to play $285 million to settle the complaint brought by the S.E.C., but Judge Rakoff rejected the settlement. He derided the amount of money that Citig! roup had ! agreed to pay, calling it “pocket change” for the bank. And in settling the case without proving that Citigroup committed fraud, the parties deprived the public “of ever knowing the truth in a matter of obvious public importance,” Judge Rakoff wrote.

He ordered the parties to prepare for trial, but that was postponed after the S.E.C. and Citigroup appealed Judge Rakoff’s rejection of their deal.

Historically, judges have rubber-stamped S.E.C. settlements with banks and other defendants accused of civil fraud. Such settlements require court approval, and the judge is charged with finding that the settlement is “fair, reasonable, adequate and in the public interest.”

But Judge Rakoff, who in his two decades on the bench has earned a reputation as an iconoclastic jurist, bucked that longstanding practice. In 2009, he scuttled what he viewed as a sweetheart settlement between the commission and Bank of America related to the bank’s troubled acquisition of Merrill Lynch. And in 2011, he rejected the S.E.C.-Citigroup deal.

The rulings became a cause célèbre in the wake of the financial crisis - a time when the S.E.C. and other federal authorities were being criticized for failing to hold large banks accountable for their conduct.

Following Judge Rakoff’s lead, federal judges in Brooklyn, Colorado and Wisconsin have demanded greater accountability from defendants, or more information, before signing off on settlements struck with the S.E.C. and other government agencies. Judge Richard J. Leon, a federal judge in the Distri! ct of Col! umbia, recently refused to approve a settlement between the S.E.C. and I.B.M. on without more data about the allegations.

But on Friday, the S.E.C. argued that Judge Rakoff’s ruling conflicted with a century of judicial practice. Courts have given substantial deference to federal agencies’ decision to settle cases, approving thousands of previous settlements, the commission said in its court papers.

Citigroup agreed, writing in its brief that especially when a federal agency is involved, “the scope of a court’s authority to second-guess an agency’s discretionary and policy-based decision to settle is at best minimal.”

Mr. Wing, a lawyer for Judge Rakoff, told the three-judge panel - Rosemary S. Pooler, Raymond J. Lohier Jr. and Susan L. Carney - that the S.E.C. and Citigroup had mischaracterized the jdge’s ruling. All Judge Rakoff wanted, Mr. Wing said, was additional evidence from the two parties so he could exercise his independent judgment.

“The S.E.C.’s and Citigroup’s concept of deference - in which courts would be effectively reduced to potted plants - would surely undermine the independence of the federal judiciary,” Judge Rakoff’s lawyers wrote in their court papers.

Judge Lohier alluded to this concern when he posed a hypothetical question to Mr. Conley, the lawyer for S.E.C. What if, he asked, the S.E.C. had settled with Citigroup for only $100,000, when clients had lost hundreds of millions of dollars Would a judge then have the authority to reject that deal

“It’s very unlikely that the S.E.C. would ever settle with Citigroup for that amount,” Mr. Conley replied.

Judge Lohier cut Mr. Conley off. “That’s why it’s called a hypothetical,” he said.

How Dell Tried to Avoid Potential Buyout Pitfalls

If a runner is the only person in a race and runs really hard, can there still a winner That’s the feeling I had reading through the acquisition agreement for Dell filed late Wednesday.

No doubt mindful of the poor history of management-led buyouts, the lawyers for Dell’s special committee of independent directors, led by Jeff Rosen and William Regner at Debevoise Plimpton, appear to have put in every contractual mechanism ever invented to address this problem. But does it really matter when there is only one real possible buyer, namely Michael S. Dell and Silver Lake

Before we get all cynical, let’s walk through the provisions Dell has negotiated.

Management-led buyouts live under a cloud that management is trying to buy the company at a bargain-basement price by crowding out other bidders. To deal with this, Dell’s acquisition agreement contains a so-called go-shop period. Dell will now have 45 days to solicit potential buyers willing to outbid Silver Lake and Mr. Dell. And under the agreement, Dell appears to be able to elect to reimburse potential buyers for their expenses in preparing a bid. This provides any potential bidder a huge incentive to enter the process, since it has no real downside in terms of costs.

And if a potential second bidder actually steps up during this 45-day period and its proposal is qualified as being one reasonably likely to lead to a bid superior than the one by Mr. Dell and Silver Lake, the termination fee that would be p! aid by Dell if that bid is accepted is $180 million, less than 1 percent of the transaction value. This is true even if the bid is subsequently accepted after the go-shop period expires. For all other bids that are accepted, the termination fee is $450 million.

JPMorgan Chase was the principal investment bank advising Dell’s special committee led by bankers Jimmy Lee, James Woolery and Kurt Simon. But to further enhance the go-shop period in this situation, the investment bank Evercore, led by Eric Mandl, was hired primarily to run this process.

According to people close to Dell, Evercore’s fee is based significantly on its ability to find a higher bid through the go-shop period. Finally, to further minimize conflicts, JPMorgan is not providing financing for the transaction, though it has the ability to provide financing to a higher idder approved by the Dell board.

A second concern in any transaction, let alone a conflict-ridden management-led buyout, are the rights given to the initial buyer and whether they can act to frustrate a competing bid. Here, the rights of Mr. Dell and Silver Lake in this regard are more limited than usual.

The buyers have matching rights, the contractual requirement that Dell give the two buyers the final right to match any competing offer. But these matching rights can be exercised only one time under the terms of the acquisition agreement. (We have seen this limitation appear more frequently of late, including the acquisition of Duff & Phelps announced at the end of last year.) This is an important concession as bidders today often have reset matching rights that give them an unlimited number of chances to match a competing bid! . This ca! n deter competing bidders because reset matching rights allow the original bidder to repeatedly bid just above the competing bid to ensure that they do not overpay.

Indeed, Dell used matching rights to its advantage when it got in a bidding war with Hewlett-Packard over 3Par a few years ago. Dell, as the initial bidder, could bid only a few cents above H. P.’s offer while H. P. was forced to raise its offer by dollars a share each time. While H.P. won the bidding, Dell used its matching rights to force its rival  to pay top price. The limitation in Dell’s acquisition agreement is certainly a win that would help any competing bidder.

As for concerns about whether the price is appropriate, the transaction must be approved by a majority of the shreholders other than Mr. Dell. In other words, his shares will not count in approving or rejecting the transaction.

Mr. Dell has also committed to vote his shares for any competing bid that is accepted by the board in proportion to how other shareholders vote. Indeed, the price negotiations were largely handled by Silver Lake, and Mr. Dell took a backseat, people close to the negotiations say.

In terms of certainty that this transaction will complete, there is no financing condition to the deal and Dell and Silver Lake have committed financing from four banks. Instead, the agreement allows Dell to  enforce the agreement. That is, the company can sue to force the buyers to provide the necessary equity to finance the deal. Dell can also sue in such instances to force the buyers to sue the banks to draw on the debt. If for any reason this litigation fails - and such attempts weren’t successful during the financial crisis â€"  the buyers must pay to Dell a reverse termination fee of $750! million.!

This about a 3 percent of the transaction value and while on the low end of the standard range these days, it is quite a large dollar amount. These are important rights because in past management-led buyouts, executives have scrambled to line up financing, sometimes failing miserably with little consequence. In this case, Dell’s shareholders will bear less of the financing risk on the transaction.

Nonetheless, Dell has also committed to repatriate at least $7.1 billion held offshore. If Dell is unable to do so, then the buyers have a right to terminate the deal. In fact, if the failure to do so is because of a change in the law - in other words - the politicians act to prevent the transfer - Dell has to pay the buyers $250 million. If the transaction is not completed by Nov. 5, 2013, either party can terminate the deal.

All told, while the full facts still need to be disclosed, it appears that Dell has gone out of its way to address problems that have arisen in previous management buyous.

While credit must be given for going the extra mile, in many ways, this is all an easy thing for Mr. Dell to give. In normal times, it is quite unusual for a competing bid to emerge during a go-shop period when management is part of the bidding party with a private equity firm.

But in this case, it is highly unlikely that another bidder will emerge, period. Most private equity firms don’t do technology and Kohlberg Kravis Roberts and TPG have already dropped out. The rest are likely to be scared away by the size of the deal and their inability to get aroun! d the pro! blem that Dell is a bit of a melting ice cube. And there appears no strategic bidder on the horizon willing to bid.

And as for price, while there is a premium here, shareholders would be extremely unlikely to reject this transaction even without counting Mr. Dell’s shares. Most shareholders simply prefer a bird in the hand rather than risk Dell’s uncertain future.

So, the actual decision to sell here may be the one that is most controversial despite these procedural protections.

Ultimately, though, even if it is a hollow victory for Dell’s shareholders to win all these protections, one hopes that its terms become the standard in management-led buyouts. No doubt, this standard is likely to have prevented at least one or two deal from hell in years past.

Apollo\'s Profit Nearly Doubles in 4th Quarter on Investment Gains

The markets have been kind to private equity firms, and Apollo Global Management is no exception.

On Friday, the alternative investment firm reported a 95 percent rise in its fourth-quarter profit from a year ago, to $697 million, as improvements in its private equity holdings offset weaker performance in other operations.

The profit amounted to $1.69 a share, matching the average estimate of analysts surveyed by Capital IQ.

The earnings were reported as economic net income, a metric popularly used among buyout shops because it includes unrealized gains. Using generally accepted accounting principles, the firm earned $172 million, up from $11 million in the year-ago period.

Apollo’s positive results follow similar good earnings reports from two of its major rivals, the Blackstone Group and Kohlberg Kravis Roberts. Private equity executives expect steadying stock markets and the availability of cheap financing to continue supporting their businesses.

“Our results for the fourth quarter of 2012 completed an outstanding year for Apollo and we believe further demonstrate the significant earnings and cash generating power inherent in our integrated global investment platform,” Leon Black, Apollo’s chairman and chief executive, said in a statement.

Apollo’s performance was driven by its private equity group, where earnings nearly tripled during the quarter, to $609 million. Because its holdings were valued so highly, the firm was able to harvest signif! icant amounts of carried interest, the single biggest source of fees for the industry.

That performance more than compensated for a 36 percent drop in income from its credit investment arm, to $90 million. The firm’s real estate division narrowed its loss during the quarter, to $2.1 million. Apollo’s assets under management grew by half in the quarter, to $113 billion.

In Actions, S.&P. Risked Andersen\'s Fate

In Actions, S.&P. Risked Andersen’s Fate

They were the gatekeepers, with a clear conflict of interest â€" the people they were supposed to check up on were also the ones who hired and paid them. The need to protect their reputation was supposed to assure that the conflict would not lead to bad behavior.

David Duncan, the Arthur Andersen partner who led the Enron audit, at a 2002 House hearing.

But it did not. Those within the firm who wanted to be tough found themselves outmaneuvered by those who wanted to make compromises to keep business that might otherwise be lost to competitors â€" competitors who were not above making compromises themselves. It was not that they wanted to act badly, only that they did not want to offend important customers. They had no idea that the corners they were cutting would blow up into a scandal that would dominate the news, shock the nation and lead to the demise of the firm.

That is a description of what happened to Arthur Andersen, the accounting firm, more than a decade ago.

It may turn out to be a description of what will happen to Standard & Poor’s, the ratings agency, as a result of its behavior during the housing boom.

The good news for S.& P. is that it faces only civil liability from the suit filed this week by the Justice Department. It was the criminal complaint against Andersen that sealed the firm’s fate.

But the allegations in the suit are reminiscent of what happened at Andersen, whose image had previously been of being the most independent, and most committed to quality accounting, of the major firms.

Until now, the role of the credit ratings agencies in the financial crisis had seemed â€" to me, at least â€" to be defensible. They may have been foolish or even stupid, but they were not venal. They applied their models in good faith in rating mortgage-backed securities. Their models proved to be overly optimistic, but the housing collapse was an unprecedented event. Being wrong is not a crime.

The Justice Department suit offers a different sequence of events. As the housing bubble grew, and the revenue from rating the deals skyrocketed, S.& P. was determined to stay competitive with other agencies â€" Moody’s and Fitch â€" in getting the business. That led to tinkering with models and ignoring inconvenient evidence so as to produce the ratings that were desired by the banks putting together the deals. Even when it became clear that new deals did not deserve the ratings they were getting, S.& P. chose to issue high ratings.

By not filing criminal charges, the government got a lower burden of proof â€" preponderance of the evidence rather than beyond a reasonable doubt â€" while the potential for a $5 billion fine provides punishment as severe as any criminal case against a corporation could.

It is important to understand the financial alchemy that was involved in rating mortgage securitizations.

In the corporate world, to get a top rating a company has to have a sterling balance sheet and good prospects. But not in the world of securitizations. The logic was that a lot of clearly risky subprime mortgages could be put together and â€" presto, become mostly AAA in a residential mortgage-backed security, or R.M.B.S. Since it was extremely unlikely that more than, say, 20 percent of the mortgages would default, 80 percent of the money that financed them could be raised by issuing AAA-rated securities.

And the agencies took that one step further. Put together junior securities from a bunch of such deals and issue a new securitization, called a collateralized debt obligation, or C.D.O., and most of it was AAA too.

The result was that the boom in subprime lending was financed by investors who were told they had supersafe securities. The bubble would not have happened without S.& P. and its peers.

The Justice Department has evidently been through every memo, e-mail and text message sent out by S.& P. analysts and executives from 2004 through 2007, and found some that sound as if bosses were putting the short-term commercial interests of S.& P. â€" both the fees it got and the need to maintain good will with the investment bankers who chose which rating firm to use â€" ahead of truth.

The most recent events the government complains about happened in 2007, and there are five-year statutes of limitations in some fraud laws. So the government turned to a 1989 law that makes it illegal to defraud a bank â€" a law passed during the savings and loan scandals â€" that has a 10-year statute of limitation, and cites case after case where banks bought the securities S.& P. rated, and lost money. Some of those cases sound real, but as Jonathan Weil of Bloomberg News has pointed out, in some cases the bank that S.& P. is supposed to have defrauded is the very same bank that put together the securitization, and kept part of it. It seems like a stretch.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

A version of this article appeared in print on February 8, 2013, on page B1 of the New York edition with the headline: In Actions, S.&P. Risked Andersen’s Fate.

Einhorn Vs. Apple

EINHORN VS. APPLE  |  David Einhorn says he still loves Apple. But the company needs to change, the hedge fund manager says. Mr. Einhorn, head of Greenlight Capital, filed a lawsuit on Thursday to block a plan by Apple to eliminate preferred shares and urged fellow shareholders to join him. “The standoff sets up an unusual clash between two sides who can each claim a huge following on Wall Street,” DealBook’s Michael J. de la Merced writes.

“We own more Apple today than we ever have before,” Mr. Einhorn said in a telephone interview. “We’re optimistic about the company’s prospects, and think too much bad news has been priced in.”

Apple responded diplomatically to Mr. Einhorn’s declarations. After the hedge fund manager insisted Appe should return some of its $137 billion cash pile to investors, the company released a statement saying it had been “in active discussions” about doing so. “We will thoroughly evaluate Greenlight Capital’s current proposal to issue some form of preferred stock. We welcome Greenlight’s views and the views of all of our shareholders,” Apple said in the statement.

Since at least 2005, no shareholder of Apple has formally waged a campaign against a management proposal, according to the data provider FactSet, Mr. de la Merced writes. “The spat underlines recent hand-wringing over Apple, whose stock has proved vulnerable in recent weeks.” After reaching a high of more than $700, Apple’s stock price has tumbled almost 33 percent since Sept. 21, closing on Thursday at $468.22. The stock was up almost 3 percent on Thursday after the company responded to Mr. Einhor! n.

Though Mr. Einhorn’s latest target is unusually prominent, the investor has a history of making public calls. Beginning with a bet against Allied Capital in 2002, he has attracted a cult following on Wall Street, with pronouncements that can move stock prices. Mr. Einhorn on Thursday compared Apple to his grandmother, who became extremely reluctant to spend money after surviving the Great Depression.

THE FED’S BUBBLE COP  |  The Federal Reserve may be increasing its effort to spot bubbles on Wall Street. An official at the central bank, Jeremy C. Stein, warned in a speech on Thursday about parts of the financial markets that showed signs of overheating, particularly junk bonds and mortgage-backed securities, DealBook’s Peter Eavis writes. Some market participants, like Gary D. Cohn of Goldman Sachs, have been issuing similar warnings about bonds.

While he gave no indication that Fed officials were considering any change in the policy of low interest rates, Mr. Stein described an emerging trend that might require a response if it intensified over the next 18 months, The New York Times’s Binyamin Appelbaum writes. “We are seeing a fairly significant pattern of reaching-for-yield behavior emerging in corporate credit,” Mr. Stein said.

Still, Mr. Stein didn’t say whether there was frothiness in United States Treasuries, an asset class that the Fed itself has been buying. One critic, Kevin Duffy, a portfolio manager at! Bearing ! Asset Management, asked, “Where is the mention of debt buildups at the government level that the central banks are enabling”

S.&P. CASE RECALLS ANDERSEN SCANDAL  |  The allegations in the government’s lawsuit against Standard & Poor’s this week are reminiscent of what happened at Arthur Andersen, the accounting firm, leading up to the collapse of Enron more than a decade ago, Floyd Norris, a columnist for The New York Times, writes. “S.& P., like Andersen, issued opinions that turned out to be disastrously wrong,” Mr. Norris writes. “The firm needs to prove those were honestly held opinions, not ones motivated by greed. If the government can prove otherwise, S.& P.’s future may be bleak.”

ON THE AGENDA  |  Moody’s and AOL report earnings before the market opens. The trade deficit for December is announced at 8:30 a.m. Tim Armstrong, AOL’s chief executive, is on CNBC at 10:15 a.m.

BLOOMBERG’S BRITISH EMPIRE  |  In London, “Bloomberg Place, roughly the size of a Manhattan city block, is the future European home of Michael R. Bloomberg’s company and charity. But it is only one piece of the New York City mayor’s growing British empire,” The New York Times’s Michael M. Grynbaum reports. “As he imagines a more global life for himself after City Hall, unshackled from the 24/7 needs of running New York, Mr. Bloomberg â€" an Anglophile with a taste for English Regency style â€" is e! xporting ! his vast quantities of financial, social and political capital to this ancient city, where he has long yearned for influence.”

Mergers & Acquisitions Â'

Creditors of AMR Scheduled to Meet  |  Creditors of AMR “plan to meet on Monday and could vote on a potential merger agreement between the bankrupt parent of American Airlines, and US Airways Group Inc, several people familiar with the matter said,” Reuters reports.
REUTERS

Warner Music Group Agrees to Buy EMI Assets for $765 Million  |  The Media Decoder blog reports: “The WarnerMusic Group, the smallest of the three remaining major record companies, said on Thursday that it had reached an agreement to pay $765 million for the Parlophone Label Group, a collection of EMI assets that includes artists like Coldplay, Pink Floyd and the Beach Boys.”
NEW YORK TIMES MEDIA DECODER

H.P. Directs Suppliers in China to Limit Student Labor  |  The New York Times reports that Hewlett-Packard “is imposing new limits on the employment of students and temporary agency workers at factories across China. The move, following recent efforts by Apple to increase scrutiny of student workers, reflects a significant shift in how electronics companies view problematic labor practices in China.”
NEW YORK TIMES

Don’t Make Poison Pills More Deadly  |  The Securities and Exchange Commission should avoid any changes that would make it easier to adopt poison pills that cap ownership at low levels, Lucian A. Bebchuk writes in his column, The Rules.
DealBook Â'

Buffett’s Son Prepares for Role at Berkshire  | 
BLOOMBERG NEWS

INVESTMENT BANKING Â'

Goldman Prepares Fund Business for New Restrictions  |  Traditionally, Goldman Sachs has attracted clients to its private equity funds “with the security blanket that the bank and its partners went along for the same ride,” but with the advent of the Volcker Rule, the firm “likely will have to shrink the size of its own investment in its funds to just 3 percent from as much as 37 percent,” The Wall Street Journal reports.
WALL STREET JOURNAL

Lazard’s Profit Surges as Deal Assignments Pick Up  |  The independent investment bank said on Thursday that its adjusted profit rose to $81.6 million in! the four! th quarter, up from $1.4 million the period a year earlier, as deal-making improved.
DealBook Â'

Among the Fixed-Income Also Rans  |  Credit Suisse’s fourth-quarter results contain bad news for fixed-income wannabes, Dominic Elliott, a columnist at Reuters Breakingviews, writes.
DealBook Â'

Meredith Whitney, Banking Analyst, Is ‘Uninspired’ by Citi’s New C.E.O.  | 
BLOOMBERG NEWS

Deutsche Bank Said to Fire Energy Traders in London  | 
BLOOMBERG NEWS