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| Source: Reuters |
UPDATED: Expect lawsuits over Apple CEO Steve Jobs’ news yesterday that he is taking a leave of absence due to health complications.
That’s a given, experts say. But what’s not so clear is whether the lawsuits would prevail, no matter how misleading the iconic CEO’s statements have appeared in recent weeks. Plus, haven’t investors already factored Jobs’ health into the share price in recent weeks?
It’s hard to say, given the overall sentiment in markets with a global recession in bloom. However, a week ago, shares of Apple rose by about 3.4 percent after Jobs said a hormone imbalance had been behind his recent weight loss — without delving into detail about whether his condition related to surgery in 2004 for pancreatic cancer. Bloggers and the tech press kept raising questions about his health, concerns about which Apple and Jobs had routinely downplayed.
As Apple’s (NASDAQ: AAPL) stock continues to slide by 4 percent (following a 10 percent drop in after-hours trading late Wednesday) with the revelation that Jobs’ health issues were “more complicated” than thought, corporate experts are left shaking their heads over Apple’s credibility with investors.
“That announcement was more like a Facebook status line,” Nell Minnow, founder of The Corporate Library, a research firm specializing in corporate governance, told InternetNews.com. “This is the ultimate, alpha example of a problem [with disclosure] we see at a lot of big companies but in this case Steve Jobs is the brand, the asset.”
Minnow has no problem with the appointment of Tim Cook, Apple’s chief operating officer who will run the company until Jobs returns, expected in June. But she does take issue that the announcement came from Jobs and not the board, which she thinks is an indication they’re simply rubber-stamping his decisions.
“I’m not saying they need to release X-rays and lab tests, but the board has to show it’s up to speed on the issues of his health and the prognosis and that they’re prepared for whatever might come next. This board has repeatedly shown an inability to carry out oversight” of issue related to Steve Jobs.
While she expects shareholder lawsuits and perhaps some state action, Minnow thinks the SEC is too busy with matters related to the country’s financial crisis to go after Apple. Her own prescription is that the Apple board appoint a director as a point person on Jobs’ status and make decisions on who should be in charge.
“This board needs to demonstrate for the first time ever that it has a mind of its own and a spine of its own,” she said.
Others agreed Apple needs to be more forthcoming.
“It’s tragic that he’s sick,” said Joe Capobianco, a business attorney with Reisman, Peirez, Reisman, a New York law firm specializing in corporate law. “But I think it’s a matter of fact that [Apple] withheld information” and perhaps intentionally misled investors about how ill Jobs really is.
Six months ago, when he appeared gaunt during his public launch of the new iPhone, Apple said it was a result of a common bug, he added. “To me, that’s a little less than candid, if those [health] problems were festering then.”
Prof. John Coffee, who teaches business law at Columbia University’s School of Business, said it’s almost a certainty that there could be class action lawsuits by investors over the way the news was handled.
“I don’t know what his medical condition is, but if it’s revealed that he had a recurrence, when the statement said ‘hormone imbalance’ then [investors] could claim that was materially misleading,” he told
InternetNews.com. But the real issue is the affirmative obligation, he added. Securities law is gray in this area.
“What is clear is that you can’t have a materially misleading statement. But on the affirmative side, what are you required [to tell investors]?”
That’s the question, agreed Tom Taulli of BizEquity.com, an online valuation service for small businesses. Shareholder lawsuits are easy to file, especially these days in the aftermath of major banking failures, he noted. “It’s also real easy to take Apple’s public comments and compare those to what really happened.”
But whether investors would prevail is another question. Then again, he added, some of these cases that do stick will probably be settled. “Directors and corporate officers have insurance that takes care of that kind of stuff,” said Taulli, author of The Complete M&A Handbook.
But overall, it’s hard to know whether the drop in Apple’s price was because investors didn’t realize he was as sick as he is, or larger macro issues impacting all stocks lately. “If investors have factored in that he’s as sick as he looks in recent pictures,” then it’s harder to show material losses in these lawsuits, he added.
“Is the stock coming down because of these statements, or the recession?”
Apple shares ended up down 2.29 percent for the day at $83.38 on the first full day of trading after Jobs disclosed his six-month leave of absence, and on an overall down day in markets.
While Apple’s stock drop may continue, Broadpoint AmTech analyst Brian Marshall upgraded the stock to a buy Thursday, calling it a “compelling valuation,” written when shares were below $80.
In a later interview with InternetNews.com, Marshall said he expects Jobs to hand over the reins of the company to Cook should he perform well over the next five months. “Investors are already factoring that in,” said Marshall. “I’m not saying the stock is going back to $100 overnight, but you’ll see it beginning to get back to those levels,” he said.
Marshall thinks this year Apple will enter a new phase of broadening its product lineup with lower end offerings. “I expect to see an iPhone Nano in the first half of this year and a netbook in the second half of the year. With the economy in the state it’s in, I can’t think of a better time to hit the market with less expensive products.”
He also thinks Cook can handle the transition to new product lines.
Apple was not immediately available to comment.
Capobianco, who is not representing any clients in connection with Apple-related lawsuits, said no matter how tragic Jobs’ health condition, he has an obligation to investors. As concerned as they are about his health, “I think that’s why investors find [the news] galling.”
Update includes additional analyst comments by Nell Minnow and Brian Marshall. David Needle contributed to this story.
