4:24 p.m. | Updated
A federal judge on Friday ordered Apple to halt collecting shareholder votes on a contentious proposal to change some of its corporate charter, handing a victory to the hedge fund manager David Einhorn.
The ruling issued Friday touches on a fairly narrow legal point. But it signals a clear win by Mr. Einhorn, who has taken up a fight with Apple over using some of its $137 billion cash hoard to make additional payouts to shareholders.
Mr. Einhorn’s firm, Greenlight Capital, has sued the iPad maker in federal district court in Manhattan, arguing that the company improperly tied together several shareholder in one voting matter. Such “bundling,” lawyers for the hedge fund argued, violated rules set y the Securities and Exchange Commission.
By allowing the vote to proceed, lawyers for the firm argued, Greenlight was being forced to vote against its own interests.
The judge overseeing the case, Richard Sullivan, firmly agreed with that interpretation.
“Given the language and purpose of the rules, it is plain to the court that Proposal No. 2 impermissibly bundles ‘separate matters’ for shareholder consideration,” Judge Sullivan wrote in his order.
His ruling orders Apple to stop accepting shareholder votes on Proposal No. 2, and comes just days before the company’s shareholder meeting next Wednesday. In a court hearing on Tuesday, Judge Sullivan candidly admitted that he believed Greenlight’s argument had legal merit.
Greenlight said in a statement: “This is a significant win for all Apple shareholders and for good corporate governance. We are pleased the Court has recognized that Apple’s proxy is not compliant with the S.E.C.’s rules because it bundles different matters in Proposal 2.”
A representative for Apple wasn’t immediately available for comment.
The company will now likely have to break up Proposal No. 2 into its separate elements and resubmit them to a vote. The timing of that move isn’t clear.
Apple had argued that the plan in its entirety was actually shareholder-friendly, and enjoyed the backing of prominent investors like the California Public Employees Retirement System.
Anne Simpson, Calpers’ director of global governance, said in a statement: “”We continue to support Apple in their efforts, and believe that the implementation of majority voting and shareholder approval for the issuance of new stock – preferred or otherwise – is worth waiting for.”
At the heart of the hedge fund’s complaint was that Apple combined a plan to eliminate its ability to issue preferred stock without shareholder approval with two other initiatives that Greenlight favored.
Behind the lawsuit is a call by Mr. Einhorn for Apple to issue preferred shares — upon which he bestowed the cutesy name “iPrefs” — that will augment an existing stock dividend and buyback program.
The hedge fund has contended that the company has far more cash than it will ever need, and that preferred shares could provide additional payouts worth about $61 a share, while still leaving the company with an enormous war chest.
“We know they embrace innovation and can recognize it when they see it, even if it isn’t the kind of innovation people usually think of when they think of Apple,” Mr. Einhorn said on a conference call with analysts on Thursday.
Ruling for Greenlight Capital in Battle With Apple
DealBook: Judge Sides With Einhorn and Halts an Apple Shareholder Vote
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DealBook: Judge Sides With Einhorn and Halts an Apple Shareholder Vote
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DealBook: Judge Sides With Einhorn and Halts an Apple Shareholder Vote
