Here’s Why iPrefs Don’t Make Sense for Apple
Apple (NASDAQ:AAPL) received a planning setback when a New York district court on Friday blocked the company’s proposal on preferred stock from going to vote at its annual shareholders meeting scheduled for this week. However, even though Greenlight Capital won the first round, according to The Wall Street Journal, Apple was unlikely to take up the hedge fund’s other recommendation.
In addition to filing the court case, David Einhorn’s Greenlight asked Apple to start issuing preferred stock options called iPrefs, which have a base value of $50 and pay a dividend of $2 per year indefinitely. According to Einhorn, such an option would be a start by Apple to give some of its $137 billion in cash holdings back to its investors. iPrefs would unlock about $150 per share in additional value for shareholders, he added.
But Ronald Barusch wrote in Dealpolitik that such a system would interfere with the Apple board’s own plans for the company’s growth.
“The Apple directors will almost certainly have their own strategy [for growth],” Barusch wrote. “If they behave like a typical target board, they will decide that the long-term value of Apple makes the incremental value from issuing iPrefs look like chump change. And in my view, it is likely they will conclude that issuing the iPrefs could limit their flexibility in the future in implementing their strategic plan.”
He further explained that declining the preferred stock idea was not much different from rejecting an unsolicited takeover bid at a premium to the current market price…