1 / 16

Golden Shares and Differential Voting Rights in Corporate Control Debate

Explore the principles and alternatives of Golden Shares (GS) and differential voting rights in corporate control debates. Analyze the consequences, bid and block premia, takeover restrictions, ownership importance, alternative forms, state ownership versus GS, and market integration considerations.

kynthia-rose
Download Presentation

Golden Shares and Differential Voting Rights in Corporate Control Debate

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Golden Shares: Principles and Alternatives Colin Mayer Saïd Business School University of Oxford

  2. Differential Voting Rights • GS example of general class of differential voting rights, e.g. dual class shares • Associated with disproportionate control by particular shareholders, e.g. founding families • Create private benefits at expense of other shareholders

  3. Block Premia Austria 38% France 2% Germany 10% Italy 37% Spain 4% UK 1% US 1% Source: Dyck and Zingales (2004)

  4. Consequences • In absence of private benefits, one share-one vote is optimal • Private benefits may justify deviations • GS confers disproportionate control on the state • May therefore be justified by deviation of social from market benefits • Since free rider problem of market control, primarily impediment to market for corporate control • Is this impediment warranted?

  5. Bid Premia • Large gains to target shareholders in takeovers, in excess of 15% • Particularly so in hostile bids (30%) • Where do these come from - wealth transfers or efficiency gains? • Elimination of GS creates opportunities for large gains • Is this desirable?

  6. Takeover Restrictions • Yes - provided that there is not a social/ market divergence • Bid premia are prima facie but not sufficient evidence of benefits • Critical questions: • Do takeovers create social-market conflicts? • Why? • How large? • Are there better remedies than GS?

  7. Importance of Ownership • Ownership confers control rights • Significance in relation to investment and reinvestment decisions • Important where there is contract incompleteness • If possible to specify national objectives completely in, for example, regulatory contract then ownership is irrelevant • But if not then ownership matters

  8. Alternative Forms • State ownership • Partially privatized • Private firm with GS • Private regulated firm

  9. GS versus State Ownership • Large share blocks threaten minorities • Divergence of interests, particularly so when large shareholder is state • Discourages private investment and raises cost of capital • GS lessen this problem by restricting the rights of the state to intervene • Nevertheless, impede beneficial restructurings and undermine market integration

  10. Market Integration • Free flow of corporate control natural extension of free flow of capital • Should avoid impediments to international markets for corporate control • Analogous to takeover directive and break-through provisions • Important distinction – differential voting rights consistent with freedom of contracting, GS are not. Are there alternatives?

  11. Regulation • Can social-market divergences be corrected through regulation? • Can social obligations be specified in licences and contracts? • Can bonds and covenants be used to provide appropriate incentives and protection?

  12. Examples • BAA – GS governs changes in holdings of more than 15% and airport closure decisions • Spanish legislation regarding major corporate decisions, e.g. winding up, mergers and change in control of such companies as Endesa, Repsol and Telefonica • ECJ ruled against British government in relation to BAA and Spanish government in relation to Tabacelera and Argentaria

  13. Issue • Concerns relate to delivery of services to customers (quality, efficiency, price) • Can be specified in licences and regulatory contracts • But more legitimate concern in relation to new services - would rival airport owner seek to develop London or domestic base? • Where there is limited innovation, e.g. in water and electricity, regulatory contracts easy to specify but less so in e.g. telecoms

  14. Investor Protection • Efficient operation of market for corporate control requires regulation to protect investors as well as customers • In particular, market in corporate control requires takeover legislation to protect minorities

  15. Conclusions • GS debate should be considered in context of literature on ownership and control • Points to benefits of free market in control as well as capital • GS should only be justified on basis of clear public interest case and absence of alternative contractual remedies

  16. Conclusions • Implication is that GS should only be permitted in limited number of cases and sectors • Prohibition on state control does not however have implications for differential voting rights in private sector

More Related