* Preliminary injunction issued on vote on proposal
* Judge says Einhorn "likely to succeed" on merits of case
* Vote was to be held at Apple's annual meeting on Feb. 27
By Nate Raymond
NEW YORK, Feb 22 A U.S. judge handed outspoken
hedge fund manager David Einhorn a victory in his battle with
Apple Inc on Friday, blocking the iPhone maker from
moving forward with a shareholder vote on a controversial
proposal to limit the company's ability to issue preferred
U.S. District Judge Richard Sullivan in Manhattan granted a
motion by Einhorn's Greenlight Capital for a preliminary
injunction stopping a vote on that proposal, scheduled for the
company's Feb. 27 stockholders' meeting.
The decision could hand Einhorn more leverage as he pursues
his pitch for Apple to issue what he has called the "iPref":
preferred stock with a perpetual dividend that he contends would
reward investors and help boost the company's share price.
Greenlight sued Apple on Feb. 7 as part of a broader pitch
to unlock more of its $137 billion in cash. The hedge fund
manager has lobbied Apple to issue preferred stock with a
perpetual 4 percent dividend, and on Thursday made a direct
appeal to shareholders on a teleconference.
Apple Chief Executive Tim Cook last week dismissed the
lawsuit as a "silly sideshow."
The lawsuit itself challenged a measure called Proposal No.
2 that Apple put forward, which would eliminate its power to
issue preferred shares without a shareholder vote.
At issue is Apple's "bundling" of that measure with two
other unrelated matters into a single proxy
Greenlight said it supported two of the proposed amendments,
but not the one on preferred shares.
In his ruling, Sullivan said Greenlight and another investor
who also sued Apple "are likely to succeed on the merits and
face irreparable harm if the vote on Proposal No. 2 is permitted
"We are disappointed with the court's ruling. Proposal No. 2
is part of our efforts to further enhance corporate governance
and serve our shareholders' best interests," Apple spokesman
Steve Dowling said. "Unfortunately, due to today's decision,
shareholders will not be able to vote on Proposal No. 2 at our
annual meeting next week."
A spokesman for Greenlight called the ruling a "significant
win for all Apple shareholders and for good corporate
But not all shareholders were happy. California pension fund
Calpers, a major Apple investor and public supporter of Apple's
proposal, said implementation of "majority voting and
shareholder approval for the issuance of new stock - preferred
or otherwise - is worth waiting for."
"We encourage Apple to reintroduce these measures as soon as
is practical so that all investors can be heard," Anne Simpson,
Calpers' director of global governance, said in a statement.
The ruling could be a warning for other companies when
issuing proxy proposals, said James Cox, a professor at Duke
University School of Law.
"It's going to make managers reluctant to bundle things
together, because you're never going to know when you send them
out if there's an Einhorn out there," he said.
The lawsuit was centered on a narrow issue of whether Apple
violated U.S. Securities and Exchange Commission rules by
"bundling" the preferred shares item with two other unrelated
matters into one proxy proposal.
Greenlight's lawyers contended the SEC rules were intended
to protect shareholders from being forced to vote for a proxy
proposal involving materially different issues that the
investors might not entirely support.
Apple had argued Proposal No. 2, which only dealt with
amendments to its charter, constitute a single matter and wasn't
bundled. Sullivan called the company's arguments "unavailing."
"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," Sullivan wrote.
Judge Sullivan also found that Greenlight would be
irreparably harmed without the injunction, since it would be
forced to vote against its own interests. Denying Greenlight's
motion would prevent it and other investors from exercising
their rights to a fair vote, Sullivan said.
Sullivan separately declined to block a vote from going
forward on a separate proxy proposal, Proposal No. 4, which
sought an advisory "say on pay" vote on Apple executives'
The proposal had been challenged by investor Brian Gralnick
of Pennsylvania, who contends Apple did not disclose enough
details about how it made its compensation decisions.
Sullivan rejected that argument, saying Apple's disclosures
were "plainly sufficient under SEC rules."
Arnold Gershon, a lawyer for Gralnick at Barrack, Rodos &
Bacine, said he was "very pleased" with Sullivan's decision to
the extent it enjoined the Proposal No. 2 vote, though said he
would have to decide what to do next with regard to the
Sullivan directed the parties to submit a joint letter by
March 1 outlining the next contemplated steps in this case.
Apple shares closed up 1.1 percent at $450.81 on Friday.
The case is Greenlight Capital LP, et al., v. Apple Inc.,
U.S. District Court, Southern District of New York, 13-900.