Regarding the quote below from the news article, linked below, what does it mean to say that 28.5 percent stake in the corporation is “controlling?”
Thanks.
http://money.cnn.com/2005/08/01/news/newsmakers/murdoch/index.htm?cnn=yes
“…the Murdoch family trust, which owns a controlling 28.5 percent stake in the media conglomerate that Murdoch runs.”
In general, 1 share over 50% is controlling interest, but there are ways of setting up your stock ownership so that it’s not true. The article doesn’t specify the nature of Murdoch’s holdings, but a number of companies are set up so that there are two types of stock - we’ll call them Type A and Type B. While each share of either type might represent the same portion of the company, the shares can be set up so that Type A shares have, say, 10 votes (for Board elections and any other issues where shareholder approval is required) and Type B shares only get one vote each. In that case, you could have controlling interest in a company without actually owning a majority of the shares.
And a quick check shows that this is the case - News Corp. has two types of shares outstanding - ordinary and preferred, but the preferred shares can only vote on certain issues.
In a publicly-traded company with a lot of stock outstanding, I’m told that 20% is usually enough to control. You have to think about how that 25% ownership – or more importantly, the other 75% – is transferred into power over the company. In big companies these days, the largest single investors are often mutual funds, retirement funds, and other institutional investors. Except in extraordinary circumstances, they don’t much give a shit how the firm is run (although the trend over the last several years is for them to become somewhat more involved). So a large minority – even a majority – of voting shares won’t be arsed to vote. The rest of the stock is scattered, and any given owner who disagrees with management is going to be fighting with other owners who don’t like management, but also don’t like Owner A’s candidate to reform the business. Then add the number of owners who have a very tiny piece of the pie – the individual investors – they’ve got nowhere near enough power themselves, but in the aggregate they may own a lot of shares. But none of them ever vote on anything, because it’s a hassle to educate yourself on the issues when you don’t have all that much money at stake. So that’s yet more votes that don’t get cast. After all that, 20-some % is a large enough bloc that you’ll rarely be in danger of losing your way.
Rarely – not never.
–Cliffy
Additionally, some jurisdictions require a two-thirds or 75 % majority in the vote for certain issues. If you have more than one fourth of all the shares, you can block decisions of that kind.
Preferred shares are preferred as to dividends (they must be paid dividends before common shares). They generally are non-voting shares. Investors in preferred shares expect to get a fixed dividend (a %age of par, at minimum) at fixed times (usually quarterly), similar to a bond holders interest payments. For the company, these are listed as capital and not debt (better for the balance sheet usually). Also, missing a preferred dividend payment will not affect the perception of a company as adversely as missing a coupon payment. When someone says that Murdoch controls 28.5% of the company, preferred equity is usually excluded.
Companies can have different classes of common shares. I’ve seen several different types of ownership designed to keep the insiders in control of the company. One has a class of common shares with voting rights and another without. The class offered to the public will not have a vote. I am fairly certain WWE does this. Another will assign a certain class with many more votes that the other, say 10 votes per share on class A and one vote per share on class B. If memory serves, TBS (Ted Turner’s company before Time Warner bought it) did this. Other methods include issuing warrants or rights to insiders that they can exercise if they feel they are losing control.
These methods generally insure that insiders retain a controlling portion of the vote. In the case of WWE, I know that the McMahons control over 51% of the vote, and company insiders have what little the McMahons have deigned to turn over. The general investing public cannot buy voting shares.
Cliffy, also, is absolutely correct. Most companies do not need 51% of the vote for control. It is very hard for minority holders to overcome voter apathy and convince enough shareholders to vote against Murdoch. One can also safely assume that there are other large holders whose votes Murdoch can count on.