Mergers & acquisitions, Chapter 1 (Business

Transcript:Mergers & acquisitions, Chapter 1 (Business:
Mergers & acquisitions, Chapter 1 (Business Associations, Chapter 4) Shareholder Activism Prof. Amitai Aviram Aviram@illinois.edu University of Illinois College of Law Copyright © Amitai Aviram. All Rights Reserved S22 Shareholder Activism (MA1/BA4) Chapter overview The principal problem Share ownership Ownership structure Ownership mechanics (in public firms) M&A players (SH incentives) FD of SHs Shareholder voting Shareholder litigation Ownership structure Sole ownership Ownership in a firm means the control rights to direct its behavior and the economic rights to its residual assets (either periodically as dividends, or at the time the firm is liquidated) Sole ownership: one person has all firm’s control & economic rights The most common situation of sole ownership is a wholly-owned subsidiary Agent problem (cost/risk that corporate actors will exploit owners): low relative to other firms – sole owner can discipline corporate actors (has a strong incentive to monitor the actors & able to punish unaccountable actors) Principal problem (cost/risk that some owners will exploit other owners): none, since there is just one owner Access to equity capital: none, because firm can’t raise capital by selling shares; it can still finance itself from its profits, from the owner’s funding, and by borrowing (but lenders don’t get to control the firm, so they’d be reluctant to lend much or will demand high interest and collateral) Ownership structure Concentrated ownership Concentrated ownership: Firm has C (SH with enough control rights to exercise the authority of the SH meeting), as well as mSHs C may be 1 person, or group that effectively exercises direct control: Low cost to act collectively (e.g., clear hierarchy, easy for group to meet) Similar business interests Equal access to info/expertise Typically, >50%, but in many firms less than 50% is still enough to control (and if SH voting requires a supermajority, 51% may not be enough) Sometimes concentrated ownership results from C owning a special class of “supervoting shares” (more votes per share), or mSHs owning nonvoting shares Agent problem: medium; C can discipline corporate actors, but: C bears 100% of costs of monitoring actors, but gets less than 100% of benefits, so puts less effort into monitoring than a sole owner; C may collude with corporate actors to extract value from firm at expense of mSHs Principal problem: high; C has incentive & ability to tunnel Access to equity capital: limited; firm can issue shares, but: Limited in # of voting shares it issues,