The Star Online: Business
The Star Online: Business |
- Wall Street Week Ahead: Strong start to 2013 could be tested
- Einhorn case against Apple rests on unusual legal tactic
- Calpers, proxy firm support Apple on preferred stock proposal
| Wall Street Week Ahead: Strong start to 2013 could be tested Posted: 09 Feb 2013 12:27 AM PST NEW YORK: The stock market is no stranger to strong performances in January, only to see the lofty gains early in the year transition into months of grinding action that goes nowhere. That's what happened in 2011 and 2012, and some analysts think 2013 could follow the same routine. Markets are up this year in the face of Washington's debates over fiscal policy, but a looming deadline on spending reductions could test the gains. "This is almost a carbon copy of last year," said Alan Lancz, president of Alan B. Lancz & Associates Inc in Toledo, Ohio. The mentality is "ride the wave as far as you can and try not to be the last one off," Lancz said. Major indexes recently crossed psychologically important milestones - 1,500 for the S&P 500 and 14,000 for the Dow industrials. The S&P is at its highest level in five years, while the Nasdaq finished on Friday at its highest close since November 2000, the tail end of the Internet bubble. The current levels are more significant than Wall Street's usual fixation on round numbers. This is only the second time the Dow has reached 14,000, and the third time the S&P has hit 1,500. That could leave the market churning as investors test whether there's enough support to reach new highs, or if a pullback is needed. The sharp gains and overall bullishness on Wall Street leave stocks vulnerable to sudden shocks, such as a flare-up of the financial crisis in the euro zone, which momentarily sidetracked the market earlier this week. WAY APART One significant hurdle is the automatic federal spending cuts that will go into effect as of March. So far, the equity market has largely ignored the back-and-forth related to delaying the so-called sequester that would trigger $85 billion in automatic spending cuts, which would hit the defense industry particularly hard. If the cuts go ahead unchanged, that could slow economic growth this year due to the swiftness of the cuts, according to the Congressional Budget Office. While that's not as dire as the immediate threat of default presented by a possible failure to raise the debt ceiling, it isn't positive for markets. "I don't see any grand compromise coming, largely because the markets are so complacent," said Greg Valliere, chief political strategist at Potomac Research Group in Washington. With the economic calendar light next week, investors could start to focus more on the political jockeying. President Barack Obama's State of the Union address on Tuesday may also provide some insight into how the talks may shape up. Valliere put a 60 percent chance on the sequester coming into effect next month while Washington scrambles to come up with a solution to alter it over the spring. "They are way, way apart on a deal," said Valliere. Markets may also be ignoring the political deal making because the spending cuts would go towards reducing the United States' high debt level. The CBO report, which included the cuts as they are, forecast the budget deficit will drop below $1 trillion a year after four years above that level. But analysts are worried about the broader implications of slower growth. "Across-the-board cuts will really be more damaging than strategic cuts," said Lancz. "If we go into recession, all cards are off the table." The economy already unexpectedly contracted in the fourth quarter of last year, but more recent data suggests subsequent revisions will show the economy did in fact grow, though at a weak pace. "JACK-RABBIT START" The future path of monetary policy will be in focus next week as several members of the Federal Reserve are scheduled to speak on the economy and policy. The central bank is currently buying $85 billion worth of assets a month as it tries to bolster the economy. A growing number of policymakers say the Fed should taper its bond-buying when the time is right rather than bring the stimulus to an abrupt end and investors will be looking for signs of what the central bank's exit strategy may be. The S&P 500 closed above 1,500 on Friday, though it likely faces resistance getting above 1,523.57, which would be its highest intraday level since November 2007. Analysts say the index could ultimately make a run for the all-time high of 1,576.09. Jeff Kleintop, chief market strategist at LPL Financial in Boston, expects the market will see a pullback in the 5 percent range, though that should present a better buying opportunity. Kleintop suggests using the dips to buy stocks in sectors such as homebuilders and transportation. "When you're in a trading range, you want to buy what's working." For now, analysts are taking the market's sideways direction as a healthy move as it tries to establish a stronger base to push higher. "To be stuck in a trading range for a period of time after having a jack-rabbit start to the year is probably a positive sign," said Art Hogan, managing director of Lazard Capital Markets in New York. - Reuters |
| Einhorn case against Apple rests on unusual legal tactic Posted: 09 Feb 2013 12:22 AM PST NEW YORK: Hedge fund star David Einhorn wants to force Apple Inc to share some of its huge cash reserves with investors, but his lawsuit rests on a U.S. securities rule that has little legal precedent. Einhorn's Greenlight Capital sued the iPad and iPhone maker in U.S. District Court in Manhattan on Thursday to try to prevent Apple from eliminating preferred stock from its charter. The suit is part of Einhorn's bid to pressure Apple to use some of its $137 billion in cash to issue perpetual preferred shares that pay dividends to existing shareholders. The suit contends Apple violated Securities and Exchange Commission rules that prohibit companies from "bundling" unrelated matters into a single proposal for a shareholder vote. Establishing that Apple violated the rules could be tricky. Little to no case law exists on the question and the SEC's own rule is relatively general with little guidance, legal experts said. Still, James Cox, a professor at Duke University School of Law, thinks Einhorn "has a hell of good case." "I think he's got Apple in the crosshairs," he added, saying that it "strikes me as a fairly dramatic case of bundling." The hedge fund manager is seeking an injunction to block a February 27 shareholder vote on the proposal, saying Apple violated Section 14 of the Securities Exchange Act of 1934. Arguments are to be heard before U.S. District Judge Richard Sullivan on February 22. Apple has until February 15 to file a response with the court. The proxy proposal at issue, Proposal No. 2, seeks to amend Apple's articles of incorporation in three ways: by providing for majority voting for directors, establishing a par value for Apple stock and eliminating its ability to issue preferred stock. Einhorn is represented by law firm Akin Gump Strauss Hauer & Feld, Greenlight's long-time outside counsel. No lawyer for Apple is yet listed on the court docket and a representative declined to say who would represent Apple in the case. On Friday, the California Public Employees Retirement System, the biggest U.S. public pension fund and owner of 2.7 million Apple shares, and influential proxy voting firm ISS Proxy Advisory Services both urged investors to vote in favor of the shareholder proposal in question. "All shareholders should have a vote," Anne Simpson, CalPERS Senior Portfolio Manager and Director for Corporate Governance said on CNBC. "We don't want the board cutting a deal on the side with a hedge fund out of fear of a lawsuit that will cancel the annual meeting. "This is a big issue that needs to be thought through carefully and we want the board to come to all shareholders and give a chance to have their voice heard. ISS, which issues recommendations on how shareholders should vote on proxy proposals, generally believes the "bundling" of proposals was not in the best interest of shareholders, but supported the elimination of "blank check" preferred shares due to their potential to be misused as a takeover defense. "Though many investors have viewed Apple's cash holdings as excessive and wanted to see more of it returned to shareholders, that view may not be universally held: other investors may prefer to see the cash (or at least a large portion of it) deployed for investments and acquisitions," it said in its Friday statement. HOW WILL APPLE RESPOND? It is unclear how Apple will respond in its formal reply to the lawsuits. On Thursday, Apple said Einhorn's lawsuit was misguided and that adoption of Proposal No. 2 would not preclude preferred share issuances in future. "Currently, Apple's articles of incorporation provide for the issuance of 'blank check' preferred stock by the Board of Directors without shareholder approval," Apple said. "If Proposal #2 is adopted, our shareholders would have the right to approve the issuance of preferred stock." Einhorn, a well-known short-seller and Apple gadget fan, said in an interview with CNBC the company harbored a "Depression-era" mentality that led it to hoard cash and invest only in the safest, lowest-yielding securities. Apple nearly went broke in the 1990s before Steve Jobs returned and engineered a sensational turnaround, with products such as the iPhone and iPad that became must-haves for consumers around the world. The company's near-death experience has led Apple to be exceptionally conservative with its cash. Greenlight in its complaint said it supports two of the proposals, but not getting rid of preferred stock. Einhorn deems preferred stock superior to dividends or share buybacks and has separately put forward a proposal for an issuance of Apple preferred stock with a perpetual 4 percent dividend. But as Apple's proxy proposal is structured, Greenlight said, shareholders have "no choice but to either vote in favor of an amendment they oppose, or against an amendment they support." Few lawsuits have ever been filed challenging proposals under the rules, a situation some legal experts attributed to the normally passive nature of shareholders. "In most cases you're not going to get a lot of complaining about bundling," said Brian Slipakoff, special counsel at law firm Duane Morris in Philadelphia. In one of the few related lawsuits, the 2nd U.S. Circuit Court of Appeals in New York in 1999 recognized an implied private right of action by shareholders suing over alleged anti-bundling rule violations. That precedent could back Einhorn in his legal standing to bring the case. The appeals court ruling was cited by Greenlight in additional court papers filed late on Thursday. Francis Vasquez, a lawyer with the law firm White & Case who is not involved in the case, said Apple might argue that because the stockholder proposals in Proposal 2 are all amendments to the charter, they are properly related. The California company has another five proposals up for a vote, which are not being challenged by Einhorn and do not involve amending Apple's charter. Those measures focus on matters such as director elections and executive compensation. "Apple's first argument likely is going to be, 'Look, these are all amendments we put in one place, they don't have to do with the other items,'" Vasquez said. The anti-bundling rules date from 1992. John Coffee, a professor at Columbia Law School, said the idea was to "prevent managements from bribing shareholders with a sweetener into voting for a proposal they would otherwise reject." The case is Greenlight Capital LP, et al., v. Apple Inc., U.S. District Court, Southern District of New York, 13-900. - Reuters |
| Calpers, proxy firm support Apple on preferred stock proposal Posted: 09 Feb 2013 12:18 AM PST SAN FRANCISCO: Apple Inc's move to eliminate from its charter the ability to issue preferred shares without first getting shareholder approval has received the support of the largest public pension fund in the United States, and an influential proxy firm. Hedge Fund manager David Einhorn's Greenlight Capital is suing Apple to get it to deploy its $137.1 billion cash pile more effectively by issuing preferred stock, which he says is superior to dividends or share buybacks. His lawsuit, filed in U.S. District Court in Manhattan on Thursday, targets the proposal by Apple to remove from its charter "blank check" preferred stock. That particular proposal is "bundled" with two other unrelated proposals, but will be collectively decided in a single vote, which Einhorn objected to. The California Public Employees Retirement System, the owner of 2.7 million Apple shares, and proxy voting firm ISS Proxy Advisory Services, recommended on Friday that investors vote for Apple's proposal. Calpers had indicated its support for the proposal in a filing earlier this week, but reiterated its backing after Einhorn filed his suit. All shareholders should have a vote," Anne Simpson, Calpers Senior Portfolio Manager and Director for Corporate Governance said on CNBC. "We don't want the board cutting a deal on the side with a hedge fund out of fear of a lawsuit that will cancel the annual meeting." "This is a big issue that needs to be thought through carefully, and we want the board to come to all shareholders and give a chance to have their voice heard," she added. Apple is asking shareholders at its annual meeting on February 27 to vote on the proposal. ISS said its policy supported the elimination of "blank check" preferred shares due to their potential to be misused as a takeover defense because they can be issued at the company's discretion. "Moreover, should the board decide at some future date that an issuance such as Greenlight has proposed makes sense, and can demonstrate the benefit to shareholders, obtaining the requisite shareholder support to reinstate the provision is not likely to be an insurmountable obstacle," ISS said in a research note. But the firm, which issues recommendations on how shareholders should vote on proxy proposals, also believes the "bundling" of proposals is not in the best interest of shareholders. Einhorn wants Apple to separate the three issues that are part of Proposal 2, which includes the "blank check" proposal. He holds 1.3 million Apple shares worth about $600 million at current values. Greenlight Capital said it was disappointed ISS did not recognize the unique circumstances surrounding Apple, which has $137 billion in cash and marketable securities. Einhorn and other investors have accused Apple of not managing the cash and marketable securities effectively, limiting returns to shareholders. Greenlight also reiterated on Friday its call to Apple shareholders to vote against the proposal. - Reuters |
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