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.
For its part, Apple has issued a statement in which it claims that its proposal does not prevent the creation of preferred stock, but simply requires a shareholders' vote to do so. Thus, the change is to the benefit of all common shareholders, who would be directly affected by the existence of preferred stock and who therefore deserve a say in whether the company issues it or not. Implicitly, the company's position seems to also be that the proposal does not need to be unbundled because it pertains to a single action--changing the wording in its charter--and not three different ones.
What it all means for customers
It will be up to U.S. District Judge Richard Sullivan to decide who's right on the technical question of whether the proposal meets regulatory requirements--and, ultimately, up to the shareholders themselves as far as the underlying issues are concerned.
Nevertheless, it seems that the financial community is no longer as happy about Apple as it once was. This lawsuit feels like an opening salvo of a battle that could pit activist investors against the company's management and possibly distract Apple's brain trust from its central focus of helping to create the hardware and software that we all love.