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Returning to our hypothetical…

We return to our top story in business news this evening.  As pressure mounts on Apple, Inc. CEO Tim Cook surrounding the unclear nature of Apple’s upcoming dividend policy, new information has recently revealed that Cook may find himself in the middle of a bona fide international incident over the matter.  Notwithstanding the impact that this infirm dividend policy position will have on Apple’s share price in the markets, many commentators have indicated that Cook may be in breach of his fiduciary duty to Apple’s shareholders by not issuing the dividend and thereby risking a potential individual or shareholder derivative action to compel the dividend.  

The recent revelation that the Chinese government has taken large but fractionally divided interests in Apple, Inc. throughout the past year (through numerous Sovereign Wealth Fund vehicles and the use of depository receipts) has rocketed this otherwise benign story about corporate dividend policy from the business page to headline news.  Cook, and the rest of Apple, Inc.’s directors have since become embroiled in a highly politicized dispute about whether to issue to dividend to the benefit of the Chinese government (and in contravention to US interests) or to withhold the dividend and risk the legal ramifications of violating Apple’s corporate fiduciary duty to its shareholders.  While our own team of expert legal commentators have indicated that Cook’s best legal position is to move forward in issuing the dividend to avoid future litigation against the company, numerous congressional representatives from California, New York and other states have held press conferences in the past week decrying what they call Cook’s attempts to “enrich the enemy”. These Sovereign Wealth Funds – the investment vehicles through which the Chinese government is operating – are poised to reap over $100 billion dollars for their sovereign controllers from the dividend, according to some recent estimates.  

Given the rapid deterioration of diplomatic relations between these two nations over the past year, one particularly zealous representative from New York went as far as to call Cook’s proposed act as “bordering on treason” should he go through with the proposed dividend payment.  The fact that so many politicians have spoken publicly about this issue, and done so vehemently, may be the result of their limited traditional options for opposing this transaction.  Unlike the Dubai Ports World or Unocal transactions from ten years ago that were directly interrupted by congressional and/or executive branch intervention, China’s investment in Apple, Inc. does not rise to the level of CFIUS review because no one Chinese entity owns more than 10% of Apple, Inc. stock.  It appears, therefore, that the only way stop this so-called “enrichment of the enemy” is through increasing public pressure on Cook and the rest of his Apple, Inc. directors.

These strong public statements have yet to garner an official response by Cook or any of Apple’s representatives, but sources close to the company have indicated that Cook is “seriously considering all options in light of his legal obligations as the loyal director of a US based corporation”.   Barring any other valid business reason – such as China’s recent purchasing spree of rare earth metals used in the production of various technological devices –  it is unclear if the strained state of US/Chinese relations will be sufficient ammunition for Cook to withhold the dividend to all Apple, Inc. shareholders.  One thing is clear, however, Apple’s legal department will be working overtime this week.  

We’ll keep you posted on any details as this breaking story develops…