Greenlight's management is obviously unhappy with the pace at which Apple has been doling out dividends, and wants the company to accelerate the payout rate by issuing perpetual preferred stock. This kind of stock would be issued gratis to existing shareholders; it would come with a fixed dividend, which the fund pegs at 4 percent; and it would not carry a specific redemption date on which the company could force its holders to sell their shares back to it.
Because the new preferred stock would be tradeable just like any other stock, Greenlight's reasoning is that it would very quickly take on significant value at a relatively low cost to existing shareholders. After all, a preferred stock that carries a fixed dividend backed by a company of Apple's size and prestige is as close to a sure thing as you can get these days, and it's likely that its price would very quickly outpace the amount of money that the company would have to pay out in order to meet its dividend obligations, unlocking--in Greenlight's words--a significant amount of value for those who already own Apple's stock.
As things stand now, Apple's board could enact Greenlight's plan without having to seek the approval of all shareholders; if, however, the charter is modified at the upcoming annual meeting, it would be much harder (and probably more expensive) for the company to issue preferred shares, because it would have to take a vote of all common stockowners before doing so.
The bundling conundrum
And this brings us to the lawsuit at hand, which, ironically, has nothing to do with preferred shares--at least not directly.
The Securities Exchange Act, which regulates all stock markets in the United States, mandates that each matter put up for a shareholder vote be kept clearly separate from the others in an attempt to ensure that each issue is given the appropriate consideration, and to make it harder to bundle several proposals in a single vote in an attempt to bury an unpopular provision inside a package of more acceptable ones.
Greenlight claims that the proposal put forth by Apple's board runs afoul of the law by grouping together three different matters--the elimination of preferred shares from the charter, the changes to the way board members are elected, and the assignment of a nominal value to common stock--into a single vote, thus making it harder for opponents of one measure to make their views heard. As an example, the fund points out that it supports the issues related to the board and to share value, and yet it cannot vote in favor of them because its management is squarely against the disappearance of preferred shares.
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