David Einhorn’s Greenlight Capital Inc winning a court order blocking an upcoming Apple Inc shareholder vote increases pressure on the iPhone maker to return some of its growing cash hoard to investors.
US District Judge Richard Sullivan in Manhattan on Friday granted Greenlight’s request to stop a vote on Wednesday this week that would require shareholder approval before the company could issue a new class of preferred shares.
Following the ruling, Apple said it would pull the proposal from its shareholder meeting.
Einhorn has used the lawsuit to drum up support among fellow investors to get Apple to return some of its US$137.1 billion in cash and investments back to shareholders.
The push comes as Apple’s stock has declined 36 percent from a record in September last year on concern that growth is slowing.
“It’s a shame that you have to go through the legal system, but we’re happy that there is a real message being sent to management that they should consider an alternative strategy” for the cash, said Keith Goddard, president of Capital Advisors Inc, an Apple investor who supported Einhorn’s lawsuit.
Greenlight, which says it holds more than 1.3 million Apple shares, claimed that grouping the provisions violates US Securities and Exchange Commission rules.
The New York-based hedge fund and its founder have urged Apple to issue high-yielding preferred stock to carve out more cash for investors.
The proposal would eliminate the power of Apple’s board power to issue preferred stock, Greenlight alleged in its complaint.
Apple said the change would only prevent the company from offering the stock without consent of investors.
The court ruled Apple improperly bundled the vote, called Proposal No. 2, with other unrelated issues.
“We are disappointed with the court’s ruling,” Apple said on Friday in a statement. “Proposal No. 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 No. 2 at our annual meeting.”
Apple chief executive officer Tim Cook said on Feb. 12 that Apple has more cash than it needs to operate the business, calling the legal tussle with Einhorn a “silly sideshow” and “distraction.”
Greenlight commended the court for its ruling.
“This is a significant win for all Apple shareholders and for good corporate governance,” Jonathan Doorley, a spokesman for Greenlight, said in an e-mailed statement.
Erik Gordon, a business professor at the University of Michigan at Ann Arbor, said the ruling is “a small win that keeps Einhorn in the game and his preferred stock proposal on the table.”
“The Apple board won’t be able to hide behind a supposed stockholder prohibition against issuing the preferred,” he said in an e-mail. “The board will have to face its responsibility to consider the proposal and approve or decline it.”