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February 22, 2013 9:01 pm
A federal judge blocked Apple from holding a shareholder vote on corporate governance changes at its annual meeting next week, granting an injunction on Friday to Greenlight Capital, David Einhorn’s activist hedge fund.
Mr Einhorn launched the legal action against the iPhone maker this month, arguing that “bundling” a vote on several changes to its articles of incorporation broke Securities and Exchange Commission rules.
His legal victory comes as he tries to persuade Apple to return more of its $137bn cash pile to shareholders. He has suggested that the company could issue a new form of high-yielding preferred stock that he has dubbed “iPrefs”.
Apple had bundled several changes to its corporate charter into one vote, called proposal number two, asking investors to approve both the introduction of majority voting, and the elimination of its right to issue preferred stock.
Judge Richard Sullivan sided with the hedge fund, issuing a preliminary injunction. He ruled that Apple was enjoined “from certifying or accepting proxy votes cast in connection with proposal No. 2”, or “amending its Articles based on such votes”.
The Apple annual meeting in Cupertino, California, on February 27 may still go ahead, Judge Sullivan said.
Apple released a statement several hours after the ruling to say that it was disappointed with the outcome.
“Proposal #2 is part of our efforts to further enhance corporate governance and serve our shareholders’ best interests. Unfortunately, due to today’s decision, shareholders will not be able to vote on Proposal #2 at our annual meeting next week,” the company said.
According to a person familiar with the process, as of Friday votes representing around 40 per cent of outstanding Apple shares had been cast, 97 per cent of which backed proposal two.
Apple chief executive Tim Cook last week described the legal case as a “silly sideshow”. The company’s legal team had argued that Greenlight’s action did not serve the “public interest” and said that even without shareholder approval for the proposed changes, it would still ask them to vote before issuing preferred stock.
Apple’s options are to call a special meeting after its annual meeting, hold another vote at next year’s annual meeting, or adjourn the meeting to a later date..
A person familiar with the company’s thinking said that Apple was considering its options and, given the support shown so far, it might hold a vote on the unbundled proposals 45 days after the annual meeting. Other options include holding another vote at next year’s annual meeting, or adjourning the meeting to a later date.
In a statement, Greenlight called the ruling “a significant win for all Apple shareholders and for good corporate governance”.
“We are pleased the court has recognised that Apple’s proxy is not compliant with the SEC’s rules because it bundles different matters in Proposal 2,” Greenlight said. “We look forward to Apple’s evaluation of our iPref idea and we encourage fellow shareholders to urge Apple to unlock the significant value residing on its balance sheet.”
Some Apple shareholders, including Calpers, the largest US public pension fund, have argued that the proposal, if approved, would have marked an improvement in Apple’s corporate governance. Shareholder advisory groups Glass Lewis and ISS had recommended that Apple investors back its proposal, but voiced concerns about combining several changes into a single vote.
“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,” said Anne Simpson, Calpers head of corporate governance.
“We encourage Apple to reintroduce these measures as soon as is practical so that all investors can be heard.”
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