Home > Minority Shareholder Rights > Minority shareholder rights and takeover bids by a controlling shareholder

Minority shareholder rights and takeover bids by a controlling shareholder

Dell`s founder (owning 15% of the company) and a fund have recently launched an offer to buy the rest of shares and delist the company, at half its 2006 share price: directors have been sued. Vueling, (the result of a merge between two low cost airlines, one of them a subsidiary of Iberia, today merged with British Airways under IAG) has received an offer by IAG at a € 7 price, when it was recently priced at € 33. Mr Suescun, after selling in an IPO 40% of Corporacion Dermoestetica shares for € 160 million, has recently proposed to repurchase the stake for € 3 million.

 

All these transactions have several things in common: industrial reasons are said to be behind delisting; synergies or cost savings linked to delisting are said to be generated; sometimes certain turnaround processes are said to be easier out of the stock exchange disclosure and information requirements, and the pressure of quarterly results; and most relevantly, there is often a controlling shareholder behind the curtain, leading the transaction, and willing to purchase something he previously sold, for a huge profit against the interest of the minority shareholder.

 

Apart from avoiding companies that can suffer this delisting process, what can shareholders do to fight back these transactions?

 

  1. One of Dell minority shareholders has sued directors for having failed to comply with their legal duty to act in favor of all shareholders` interests, for several reasons: the offer is timed to buy cheap, (after a costly restructuring has been announced), but directors have not offered a large enough premium that would result of the long-term evaluation of the turnaround success probability; in particular Mr. Dell is a the Board Chairman and top executive, so he is accused of abusing his status.

 

  1. Another possibility is the one chosen by an institutional investor in the case of Vueling, which has posted a claim before the Spanish stock market regulator, for the reduced value of the premium offered to minority shareholders. The CNMV has asked IAG`s legal advisor, Uría y Menéndez, for more information. The subsidiary incorporated to launch the offer has denied to include the external valuation of Vueling to the offer, so that it will not delist the company if a higher price was necessary for that. Thus, the offer will not be mandatorily accepted by minority shareholders, as the price in the offer is not considered an “equitative” one. But the price in the market is already higher than the offer, and several funds have strongly bought shares in the hope the price offered will be finally increased. And what`s more, should a shareholder not accept the offer, and should only a very minor stake remain quoted, isn`t illiquidity a great threat to this shareholder`s wealth?

 

 

  1. A different approach would be suggesting that independent directors made the case for all shareholders, so that they defend the minority shareholders right for an equitable price and premium. A way to do this, is to set-up a Committee of independent directors, that would be free to retain their own and non-conflicted legal and financial advisors.The company should provide materials and establish chinese walls if needed. At the end the Committee must be comfortable with the transaction, starting with the price. And the turnaround movement needs to be considered if a equitable price is to be settled.

 

  1. An extension of the previous argument would involve one of the independent directors being a representative of minority shareholders` associations, so as to actually enforce a true defense of their interests.

 

  1. The case of a company and a subsidiary, both quoted in the stock market, could be restrained to the case that free float in the subsidiary exceeds 50%.

It is probably very wise to adopt preventive measures such as the one proposed in bullet 3, 5, and even 4, as it seems quite unrealistic to think small investors can have access to measures in bullets 1 or 2.

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