Here is an example: Say a company has
Outstanding shares= 100,000
Float = 40,000
Current price: $10/share
Can I buy control of this company? How many shares do I need to buy to buy control of the company? Or can you tell from this info?
Thanks!
In general you gain control of a company by buying 50.1% of its stock. If only 40,000 out of 100,000 shares are publicly traded, then you can’t do it without negotiating privately with the owner(s) of the other shares.
In practice many companies have different classes of shares with expanded or restricted voting rights, or “poison pill” provisions that make takeovers more complicated. This is why investment bankers and M&A lawyers are wealthy peope.
how can you tell which shares are voting shares and which are not?
Read the corporate charter, bylaws, and other docs. If publicly traded, then documents publicly available. If not, then (some) may not be public.
Read the corporate charter, bylaws, and other docs. If publicly traded, then documents publicly available. If not, then (some) may not be public.
And sorry for the double post.
This is a weird area of law, to say the least.
I remember one company that had 100,000 shares of stock outstanding, but 10,000 of the shares had 100 votes each, and the 90,000 shares had 1 vote each.
The revenue was split evenly… (90 and 10)
This was done by an old, famous family that couldn’t let the company go, but needed the immediate cash that the 90,000 shares would bring.
Yes, it was contested.
PS: Even if you have 51% of the votes, you still have to fight your way on the board. If they don’t want you there, you’re in for a fight.
Another common trick, not mentioned, is a staggered board. So, 1/3 of the board leaves every year. (I’m assumming a 3 year term)
Actually, in the typical large, publicly traded corporation, storck is so dispersed that you only need to buy up 20-25% to have effective control. While it’s mathematically possible for someone else to get more shares (and thus more votes) than you, in these companies so many people own a few shares that it’s incredibly difficult for a group of dissident shareholders to rally them, so 20% of the shares is enough to run the place.
–Cliffy
I was under the impression that the Board was always elected by the shareholders. So if you have 50.1% of the voting shares, can’t you just appoint yourself to the board, and then elect your cronies, in the manner of an obnoxious banana republic dictator?
I was under the impression that you only have to have more shares than anyone else does.
IIRC, you only need to own a controlling share of stock to (be the largest shareholder) to control the company (technically ALL shareholders “own” the company.
Takeovers are further complicated by the fact that buying up stock tends to raise the price and you generally don’t want to pay more for the company than what its worth. This is why M&As tend to be performed through an investment bank (as opposed to buying 10,000s of shares on E*Trade). The I-Bank will put together a deal consisting of a complex combination of cash, debt, and various classes of stock, all designed to maximize profit for all those involved.
Check out the movies Wall Street, Barbarians at the Gate or Other People’s Money for some good old fashioned '80s hostile takeover action.
(Minor nitpick, in Other Peoples Money, Danny Devito figured out the value of the wire & cable company from the the market value of the companies assets. In real life, they generally value a company based on the NPV of the company’s expected future cash flows. This would probably be over the heads of most moviegoers who did not study corporate finance.)
Staggered boards are important.
Preferred s/h rights are important.
Poison pills (this just refers to any bylaw, etc. that allows the current controlling interests to respond to takeover attempt) are important – e.g., a poison pill could be as simple (IANA corporate raider, but seem to recall several approaches) as allowing the company to issue a large number of new shares, thus diluting the percentage stake of the would-be acquiror.
My impression of this was that the W&C company had physical assets that were valuable, but used them so inefficiently that the NPV of Cash Flow was below the market value of the assets themselves. Thus, a quick sale of the assets was worth more than keeping the company running as-is.
You gain election to the board at a shareholders’ meeting. If you have 50%+1 of the votes, you can win any election going. If you have fewer, then things get a little dicier … it is still very common for institutional shareholders (pension funds, mutual funds, etc.) to vote for the management slate without much thought - and even in a perfect world, this would still be the default option.
It is not unknown for a shareholder to have 10% of the stock, say, be the biggest shareholder, want a seat on the board and not get one because management won’t put him on the slate and a proper “proxy battle” (putting up an opposing slate and canvassing for votes) is just too expensive for the potential reward. So, that shareholder can either like it or lump it.
Many companies, especially in Canada, have multiple classes of shares: a good example is Magna International. Their annual report discloses in a note (as it must) that the Class A shares have 1 vote each, while the Class B have 500 votes each.
(page 56 of annual report = page 58 of document)
This is correct - but you can’t go too far because the board has a fiduciary obligation to all shareholders. Step over the line and they will run to courts claiming oppression.
I assume that by “float” you mean the public float - that is, the number of shares that are being traded by ordinary investors as opposed to being simply held by the controlling shareholders, who may have a shareholders’ agreement or other restriction on their right to trade these shares.
In this example, therefore, it seems that 60% of the shares are not trading publicly … they will not be sold on the stock exchange. In order to buy control of this company, you will have to cut a deal with whoever owns these shares.
Some companies, especially formerly state-owned businesses, have what is referred to a a “golden share”; maybe this gives the holder (government) the right to veto a change in headquarters, or veto mass layoffs, or whatever they decided when issuing themselves the “golden share” when they controlled the company.
This is what caused the takeover boom of the late-'80’s … in many cases you could make money buying the whole (company) and selling the parts.
Actually that sounds about right. It’s been awhile since I’ve seen that movie.
I find the 80s to be an interesting contrast to the 90s Internet boom where the exact opposite was true - companies worth millions on paper with little or no assets behind them.
According to the net, " Gates owns about 12 percent of Microsoft’s outstanding shares."
http://www.detnews.com/2002/technology/0207/26/technology-546192.htm
Is not Gates controlling Microsoft with less than 50%?
A few things people have overlooked.
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The impact of the U.S. Federal Securities Laws on your ability to take over a company which is publically traded.
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The impact of company sponsored litigation to stop a takeover.
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The impact of shareholder and class action law firm sponsored litigation to stop a takeover (or to force an auction style proceeding).
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The impact of state-anti takeover provisions, in state based litigation (see i.e. Hershey for an unpleasant surprise in this regard).
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In S&P 500 companies, the large % of shares held by mutual funds.
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A public company is controlled by its Board of Directors, not by its shareholders. Now there are fiduciary duties owed by the Board to the shareholders, but make no mistake, the board calls the shots.
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Some companies have “super-majority” shares which give 10-100 votes per share. Common in “family” controlled corps.
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The impact of federal and international anti-trust laws.
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The impact of key contracts’ transfer provisions held by the target.
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The impact of the debt restrictions on takeovers held by the target.
Well, you get the idea now, I hope.
The main hinderence will be litigation and Federal Securities Law requirements regarding tender offers and M&A. The these costs to the acquiror are very high. Modern M&A is not a game for the faint hearted.
He is, but not because he owns more shares than anyone else. He controls Microsoft because the other 88% of the shareholders are happy with (or at least are indifferent to) his management.
I would say that most Fortune 500 corporations are NOT controlled by their single largest shareholder.
Look at it this way: I own 30% of the stock in Corporation X. My brother (or someone else allied to me) owns another 30%. Our rival owns 40%, making him the largest shareholder. Guess who controls the corporation?
Here’s another example: I own 10%. You own 15%. The other 75% is scattered among 100 other people. If I’m able to convince more people to support me over you (perhaps because my posts are historically more accurate than yours), I will control the company, assuming my supporters control 5.1% more of the stock than any backers that you might have.
In larger corporations, most minor shareholders don’t bother to vote. Still, of those that do vote, the larger bloc of votes will prevail, even if that group does not contain the single largest shareholder.
(This ignores staggered terms, management proxies, cumulative voting, voting agreements and different voting classes of stock.)
Leveraged takeovers.
Now that’s fun.