Corporate actions and investing

[Debronic]

Are there any guides or strategies available for shareholders of companies which make good profits but Board of Directors refuse or just don't care enough for their shareholders interests to recommend a payment of dividend ?

About the only way is for minority shareholders to band together and get enough shares to make yourselves heard. Going through SIAS might work too if there is a major corporate governance issue that needs to be addressed.

Otherwise, you will need to ride on one of the activist shareholders. Unfortunately, the Asian culture in Singapore does not encourage this sort of behaviour so there are very few of these activists around. Westerners, on the other hand, behave very differently.

I attended an EGM a few years back where one Caucasian fund manager had the audacity to call out the Non-executive chairman for not attending the meeting due to prior commitment and then proceeded to insult the board members as being too old and suggesting they should retire. I would imagine this is probably more commonplace in US or Europe. Then again, it could be because he runs a pretty big fund.

[soros]

In US and Europe, there seems to be more acceptance by the Boards of Directors that the listed company should act in the best interests of its shareholders and show willingness to pay annual dividend or willingness take steps to support the share price.

However in Asia, many public investors still view the listed company as "belongs to the major shareholder" who controls the company and can run the company without any care for the interests of public shareholders. The public investors may be told to sell their shares if not satisfied by the lack of dividend from the company. This really amounts to "loss of investment return" for the public shareholders who should be entitle to a profit on their investment. But such profit will not arise if if there is no dividend to motivate the prospective investor to enter and invest at higher share price levels.

I have been wondering about possibility of public investors asking the Stock Exchange to amend the rules for independent non-executive directors who are supposed to represent the public shareholders. They should be retired after 3 years and barred from re-election if they do not vote for dividend payment or the company lacks resolve to pay any dividend ?

In the case of a company making good revenue profits and able to be paying dividends, the Chairman of the Remuneration Committee should be required to table a motion to pay an annual dividend and the director's voting record on dividend payment shall be shown in the company annual report. We already see the directors attendance rate for Board meetings shown in the annual report.

[mrEngineer]

Great posts. Debronic can explain what you meant that majority shareholder consolidation of shares when issuance of rights near the current trading price or no discount?

[CityFarmer]

A real and interesting stock split case study, but only applicable to multi-class share system, not for Singapore system.

It is complex to figure it out the impact, even among professionals.

Stock split could cost Google over S$679 million

SAN FRANCISCO — An unorthodox stock split designed to ensure Google CEO Larry Page and fellow co-founder Sergey Brin retain control of the Internet’s most profitable company could cost Google more than half a billion US dollars.

Mr Page, 42, and Mr Brin, 41, have maintained control over Google since they started the company in a rented Silicon Valley garage in 1998. Their ideas and leadership have spawned one of the world’s best known and most powerful companies with a market value of US$375 billion (S$509.8 billion) and a payroll of about 54,000 employees.

Yet many investors have become frustrated with Mr Page’s unwavering belief that Google should be spending billions on far-flung projects ranging from driverless cars to diabetes-controlling contact lenses that may take years to pay off and have little to do with the company’s main business of search and digital advertising. The big spending is one reason Google’s stock price is about 2 per cent below where it stood at the end of 2013, while the Standard & Poor’s 500 index has climbed 11 per cent.

To maintain the power to drive Google’s direction, Mr Page and Mr Brin initially accumulated virtually all of the company’s class B shares, which have 10 votes for each class A share. The duo, though, worried that control would erode as Google issued more class A shares to pay for acquisitions and reward other workers. A year ago Thursday, Google split its stock to create a new category of class C stock with no voting power that would allow more Google shares to be issued without undercutting Mr Page and Mr Brin.

Class A shareholders were outraged, skewering the manoeuvre as a textbook example of shoddy corporate governance. Google argued there wouldn’t be much difference between the price of class C and class A shares because Mr Page and Mr Brin held majority control anyway with the class B shares. To settle a class-action lawsuit challenging the split, Google agreed to compensate class C shareholders if the average price of class C stock fell more than 1 per cent below class A shares through the first year of trading.

Google’s theory proved wrong, said BGC Financial Partners Colin Gillis. The difference turned out to be between 1 per cent and 2 per cent, though the final gap won’t be announced for up to 30 days as Google works with outside experts to determine the figures under a complex formula.

“This shows the market does place a value on owning a voting stock,” he said.

Google disclosed in a recent regulatory filing that it would have owed about US$593 million to class C stockholders had the calculations been done on Dec 31. Based on that estimate, the class C stockholders would receive roughly US$1.74 per share in cash or additional stock. Calculating the exact amount that Google owes will start after the stock market closes tonight (April 2).

The Mountain View, California, company has until early July to pay the money. It’s something that Google can easily afford, given the company holds US$64 billion in cash. And the damage could have been a lot worse: Google would have had to pay US$7.5 billion, or about US$22 per share, had the first-year spread between class A and class C shares was 5 per cent or more.

Class C shareholders should ask themselves if the money they are getting is enough to compensate for relinquishing their voting rights and ceding control to Mr Page and Mr Brin, said Mr Charles Elson, director of the University of Delaware’s Weinberg centre for corporate governance.

Shareholders “are getting this cash for giving up their say in effective management”, Mr Elson said. “This could be a case of ‘penny wise, pound foolish.’”

Google declined to comment. AP
http://www.todayonline.com/business/stoc...79-million

[Debronic]

Great posts. Debronic can explain what you meant that majority shareholder consolidation of shares when issuance of rights near the current trading price or no discount?

All things being equal, when there is little or no discount for rights issues, the percentage of minority shareholders subscribing for them will be correspondingly lower. Depending on how the rights issue is structured, the majority shareholders interest may creep up simply by just subscribing for his full entitlement and/or undertake/underwrite to subscribe for the remaining shares not subscribed. To extend the example of Shangri-La Asia mentioned in the article, you can see that Kuok group's interest went up from 63.86% to 66.74% by picking up all the unsubscribed shares even though they only did a not so dilutive 1:7 issue.

You may think nothing of a ~3% shareholding increase but to step up your interest by that much in the open market at no premium to prevailing market price especially in a counter as illiquid as Shangri La Asia would not have been quite possible otherwise. Only alternative is probably to buy direct from someone holding that much shares provided that person exists and is willing to do the deal. Again, I am not saying that this is Kuok group's real intention but it is certainly a viable avenue for them to do so.