A New York federal judge on Friday blocked Apple's plan to hold a vote next week to change the way it issues a special class of stock.
The decision was a victory for David Einhorn of Greenlight Capital, a dissident shareholder who has been lobbying Apple for the last year to issue the special stock to shareholders as a way to make better use of the $120 billion in cash on its balance sheet.
Judge Richard Sullivan agreed with Einhorn's argument that Apple had illegally included the proposed change with other reforms in a single measure known as Proposal 2. Sullivan said this amounted to "bundling," which is prohibited by the U.S. Securities and Exchange Commission.
"It is plain to the Court that Proposal No. 2 impermissibly bundles 'separate matters' for shareholder consideration," Sullivan wrote in his ruling. "Having carefully reviewed the record before it, the court finds that [plaintiffs] face irreparable harm if they are compelled to vote on Proposal No. 2 in violation of SEC rules."
The judge said Apple could still hold its annual shareholder meeting Wednesday. However, the company can't count votes related to the proposal in question.
The legal feud started this year after Apple submitted a proposal on its annual proxy that, if passed, would require shareholders to vote on any plan to issue the stock Einhorn wanted. It was included in a proposal with two other measures, so Einhorn filed a lawsuit in the U.S. District Court in the Southern District of New York.
"This is a significant win for all Apple shareholders and for good corporate governance," Greenlight said in a statement issued after the ruling. "We are pleased the court has recognized that Apple’s proxy is not compliant with the SEC’s rules because it bundles different matters in Proposal 2. We look forward to Apple’s evaluation of our [special stock] idea and we encourage fellow shareholders to urge Apple to unlock the significant value residing on its balance sheet."
[Updated 5:10 p.m.]In a statement, Apple said it was "disappointed" with the court's ruling.
"Proposal #2 is part of our efforts to further enhance corporate governance and serve our shareholders' best interests," Apple said. " Unfortunately, due to today's decision, shareholders will not be able to vote on Proposal #2 at our annual meeting next week."
In previous comments, Chief Executive Tim Cook has called the lawsuit a "silly sideshow." The company has also said it continues to study Einhorn's request to issue the stock, and would ask shareholders to vote on the matter even if it was not required to do so.
On Friday, the California Public Employees' Retirement System renewed its support for the measure, which the pension fund argues is a pro-shareholder reform.
"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," Anne Simpson, CalPERS' senior portfolio manager and director of global governance. "We encourage Apple to reintroduce these measures as soon as is practical so that all investors can be heard. We applaud the company’s commitment to strengthening shareholder rights."
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