David Einhorn's Greenlight Capital hedge fund may succeed in Apple Inc case, judge says

Feb 20 2013, 16:43 IST
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SummaryCandidly I do think the likelihood of success is in favor for Greenlight, says Richard Sullivan.

David Einhorn's hedge fund has shown a "likelihood of success" if his legal attack against Apple Inc goes forward, a U.S. judge said, though he made no immediate ruling on fund's request to block a shareholder vote on a proxy proposal next week.

U.S. District Judge Richard Sullivan on Tuesday reserved decision on a lawsuit by the fund, Greenlight Capital, to stop a Feb. 27 shareholder vote on an Apple  proposal to end the issuance of preferred stock without investor approval.

"Candidly I do think the likelihood of success is in favor for Greenlight," Sullivan said at a court hearing in New York. The hedge fund sued Apple  earlier this month as part of Einhorn's broader attempt to get the company to send a bigger chunk of its $137 billion in cash to shareholders.

The lawsuit contends Apple  improperly "bundled" three proposed amendments to its charter into one proxy proposal, a violation of regulatory rules. Sullivan did not specify when he would rule on Greenlight's injunction request, though he cited the impending date of the vote. He said he would now focus on whether Greenlight would be irreparably harmed if the vote moves forward.

Steve Dowling, a spokesman for Apple , declined comment. A spokesman for Einhorn did not immediately respond to a request for comment. The proxy proposal Einhorn has targeted, Proposal No. 2, would amend Apple 's charter to provide for majority voting for directors, establish a par value for Apple  stock and eliminate Apple 's power to issue preferred shares without shareholder approval.

Mitchell Hurley, a lawyer for Greenlight, said Apple  had violated U.S. Securities and Exchange rules that prohibit shareholders from voting for a proposal where they support only some but not all of the item. Einhorn says he supports two of those amendments but not the preferred stock amendment.

"In other words, it will result in precisely the kind of harm the rules were designed to prevent," Hurley said. Apple  contends Proposal No. 2 doesn't bundle material matters together or force shareholders into an unfair choice. "The SEC had no objection and no comment" on the proposal, said George Riley, a lawyer for Apple .

While Sullivan said Greenlight may have shown it would likely succeed on the merits of the case, the judge during the hearing questioned whether an injunction was appropriate. The proposal became public in late December, yet Einhorn didn't sue Apple  until Feb. 7.

"I'm not sure that necessarily

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