Today, Judge Sullivan granted Greenlight’s motion to preliminarily enjoin the Apple shareholder vote on “Proposal Number No. 2.” That proposal sought to amend Apple’s Articles of Incorporation to make four changes, including to eliminate Apple’s “blank check” authority to issue preferred stock. Prior posts on the cases are here.
At the outset, Judge Sullivan noted that the history of the Proposal is “a contentious one:”
The dimensions of this dispute extend well beyond the SEC rules invoked in the Complaints: billionaire hedge fund manager Einhorn is at odds with Apple over the future of the company’s capital allocation strategy.
“Blank check” authority “has been derided by shareholder rights advocates given its potential use as an anti-takeover tactic” but prior to Apple’s moving forward with Proposal No. 2, Einhorn had approached Apple and encouraged them to “issue perpetual preferred shares to its existing shareholders in a bid to return value to Apple investors.” Despite the “sweep of the parties’ disagreement”, however, with respect to the narrow question before the court, Judge Sullivan found that Greenlight would likely succeed on the merits of its claim that Proposal No. 2 violated the SEC’s “unbundling” rules:
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. Even ignoring the mere formulation of Proposal No. 2 as four distinct changes, which “alone suggests the[ir] separability,” Koppel, 167 F.3d at 138, the present bundling of items forces shareholders, including Greenlight and Gralnick, to “approve or disapprove a package of items and thus approve [or disapprove] matters they [would] not if presented independently,” Securities Exchange Act Rel. No. 34-30849, 1992 WL 151037, at *6 (Jun. 23, 1992).
Judge Sullivan also found that the balance of hardships tips in Greenlight’s favor. In the same order, Judge Sullivan denied Apple shareholder Brian Gralnick’s motion (which had been consolidated with Greenlight’s) to bar Apple from giving effect to a shareholder vote on Proposal No. 4, which seeks an “advisory vote to approve the compensation of [Apple’s] named executive officers.”