February 21, 2013 12:02 am

Einhorn under fire from Greenlight investor

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David Einhorn has been attacked by one of his own investors for the tactics used by his $9bn hedge fund in its battle with Apple over the iPhone maker’s use of cash and changes to its corporate governance.

In a letter to Mr Einhorn, founder of Greenlight Capital, the Nathan Cummings Foundation said: “By threatening to disenfranchise Apple shareholders, Greenlight Capital has acted in a manner that is not consistent with our understanding of Greenlight Capital’s own orientation and investment philosophy.”

The letter, viewed by the Financial Times, comes as Calpers, the largest US public pension fund, said the “overwhelming majority” of 100 large investors it has contacted support “proposal two”, which Mr Einhorn has challenged in court ahead of Apple’s annual meeting next week. The Californian Public Employee’s Retirement System said that it had now spoken to half of Apple’s 200 largest shareholders.

Anne Simpson, head of corporate governance for Calpers, said that shareholder support for Apple’s proposed changes reflected a fundamental difference in approach between activists and long term shareholders. “Do you throw a brick through the window, or do you walk smartly up to the front door and ring the doorbell?”

Mr Einhorn is seeking an injunction to block the vote, which would eliminate Apple’s ability to issue a new class of high-yielding stock without shareholder approval. The move is part of his wider campaign to force the company to return more cash to shareholders.

Simon Greer, president of the Nathan Cummings Foundation, said the group had not taken a position on whether or not to back Mr Einhorn’s idea that Apple issue preferred shares.

However Mr Greer said that adopting proposal two would “ensure that your plan would only be put into action if it enjoyed genuine support from all shareholders.” The letter also said “by insisting that the company retain the ability to issue preferred shares – for whatever purpose – without a shareholder vote, you undermine shareholders rights, to no end whatsoever”.

“Our goal is to send a message to all hedge funds that they need to pay attention to shareholders”, said a spokesman for Nathan Cummings. “This is about who decides what happens at a public company.”

It comes after a Federal Judge on Tuesday said he would need more time to consider the arguments from Greenlight and Apple before deciding if an injunction was appropriate.

He said he supported the merits of Greenlight’s argument that Apple should not have bundled the proposal to eliminate its right to issue preferred shares with other corporate governance changes. However, he also said he was unsure that allowing the vote to proceed would constitute “irreparable harm” to shareholders, as Mr Einhorn has argued.

The endowment is an investor in Greenlight through a third-party vehicle, according to a person familiar with its investments. It was also a direct investor in the fund, but redeemed that capital last year, the person said.

A spokesman for Greenlight said “this is a former investor who redeemed. We wish them well.”

Apple declined to comment.

Greenlight has announced that it will hold a conference call on Friday to urge shareholders to vote against proposal two.

Additional reporting by Tim Bradshaw.

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