Minorities be damned
A curious side show to the Alcon deal that I blogged about in my previous post is the treatment of minority shareholders. You may recall that Novartis bought 52% of the shareholding in Alcon, from Nestle, at $180 per share in cash. It had already held 25% bought from Nestle earlier. So it now has 77%. The balance 23% is held by minority shareholders as Alcon is listed in the US.
Novartis has now offered $153 dollars to the minority shareholders, in its own shares (not cash as was paid to Nestle). The minority shareholders are crying foul.
Alcon is a Swiss based company and dictated by Swiss Corporate law. Swiss law does not require minority shareholders to be paid the same amount as the majority shareholders in an acquisition. Most other countries in the world have this provision. Switzerland does not. That’s why Novartis can do what its trying to do.
On first glance this would seem to be an abuse of minority shareholder rights. But wait a moment. Its not so black and white.
The “minority” shareholders” who are making all the noise are hedge funds who bought into Alcon shares recently on the hope of making a quick profit when the acquisition happened (betting that the acquisition price has to be above the market price). Do they deserve any sympathy if they have got the Swiss corporate law wrong. The independent directors in Alcon are trying to protect minority shareholder interests (no doubt fearing law suits), but do speculators like the hedge funds deserve either sympathy or protection ??
Secondly if you were truly a small minority shareholder who subscribed to the Alcon shares when Nestle took it public in 2002, you bought it at $ 33 per share. In 8 years that’s becoming $153. Do you have a problem with that ?
Thirdly, what about the famous “control premium”. There is usually a premium to be paid to the controlling shareholder in a private M&A transaction. This is supposed to be “compensation” for the active role played by the shareholder in managing the company and increasing its value (as distinct from the sleeping shareholder who did nothing ). I know it is dangerous territory and contrary to conventional wisdom to argue shades of colour in capital. But then, this is the principle why Swiss law allows different prices to be paid for different classes of shareholders.
I think Novartis will ultimately be forced to pay the same price to minority shareholders, as they will be forced to by public opinion. For “public” read “market”. Despite being a strong votary of good corporate governance (a key component of which is protection of minority shareholders), I think in this case that would be wrong. The loudly yelling hedge funds deserve no better !
Novartis has now offered $153 dollars to the minority shareholders, in its own shares (not cash as was paid to Nestle). The minority shareholders are crying foul.
Alcon is a Swiss based company and dictated by Swiss Corporate law. Swiss law does not require minority shareholders to be paid the same amount as the majority shareholders in an acquisition. Most other countries in the world have this provision. Switzerland does not. That’s why Novartis can do what its trying to do.
On first glance this would seem to be an abuse of minority shareholder rights. But wait a moment. Its not so black and white.
The “minority” shareholders” who are making all the noise are hedge funds who bought into Alcon shares recently on the hope of making a quick profit when the acquisition happened (betting that the acquisition price has to be above the market price). Do they deserve any sympathy if they have got the Swiss corporate law wrong. The independent directors in Alcon are trying to protect minority shareholder interests (no doubt fearing law suits), but do speculators like the hedge funds deserve either sympathy or protection ??
Secondly if you were truly a small minority shareholder who subscribed to the Alcon shares when Nestle took it public in 2002, you bought it at $ 33 per share. In 8 years that’s becoming $153. Do you have a problem with that ?
Thirdly, what about the famous “control premium”. There is usually a premium to be paid to the controlling shareholder in a private M&A transaction. This is supposed to be “compensation” for the active role played by the shareholder in managing the company and increasing its value (as distinct from the sleeping shareholder who did nothing ). I know it is dangerous territory and contrary to conventional wisdom to argue shades of colour in capital. But then, this is the principle why Swiss law allows different prices to be paid for different classes of shareholders.
I think Novartis will ultimately be forced to pay the same price to minority shareholders, as they will be forced to by public opinion. For “public” read “market”. Despite being a strong votary of good corporate governance (a key component of which is protection of minority shareholders), I think in this case that would be wrong. The loudly yelling hedge funds deserve no better !
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