Shareholder rights and activist investingSunday, October 24, 2021
Although thousands of Jamaicans have built their wealth through equity, in particular listed stocks, many don't seem to grasp the concept of being a shareholder. Though many seem to ignore it as a side effect of investing in a company, a shareholder has a lot of power to change the direction of a business for better or worse.
Once you own common shares in a company, you are an owner in the business. Even if you own a single share from a total of one billion issued shares, you are a shareholder with a minor stake. This entitles you to the common benefits experienced by all other shareholders, such as the ability to vote on resolutions at a company's annual (AGM) or extraordinary general meeting (EGM), receive profits in the form of dividends, and approve other general items which may be presented to shareholders. Each shareholder gets one vote on each resolution at any meeting.
This includes considerations for the issue of new shares, a possible merger or takeover, election of the company's external auditors and spin-offs. As a result, if the company pays out $250 million in profits with one billion shares in issue, each shareholder receives $0.25 per share they own as at the record date. If that company wants to have a stock split, shareholders have to approve it, even if the board approves the split at their meeting. If a shareholder thinks that the company should do a stock split, they can write to the board, through the company secretary, requesting that the proposal be considered for approval at the next available meeting of shareholders.
Additional public offerings (APO), rights issues, and the creation of new shares for possible acquisitions have to be approved by shareholders at an AGM and EGM.
When Seprod Limited was acquiring Facey Commodity Holdings Limited in 2018, it paid US$16 million in cash and issued the remainder in shares. However, it had to gain permission from its shareholders in a prior EGM where the authorised share capital was increased with the newly issued shares allotted as deemed fit by the directors for the company's benefit. In the case of an APO or rights issue, the existing shareholders have the right to buy these new shares before the public or have a specific pool created for them to purchase from.
A clear example of how shareholders benefit and are treated equally is in the case of Heineken N V offering to acquire the remaining shares of Desnoes and Geddes (D&G) in October 2015. Since Heineken acquired controlling interest from the largest shareholder, a mandatory takeover offer was made for the remaining shares owned by the other shareholders. Though D&G traded for $8, Heineken offered $31 or US $0.259 per share, a 288 per cent premium. Thus, all shareholders benefited from this takeover and were not offered different prices based on their relative ownership in the company.
When Cable and Wireless Jamaica (CWJ) was listed, minority shareholders struck down a resolution in 2016 to reappoint the auditors and fix their fee. The company secretary called a poll which resulted in shareholders returning a month later to vote on the resolution relative to their actual share ownership. Though the auditors were rehired, it was a clear show that minority shareholders do have the power to force change. In 2018, Eric Jason Abrahams took CWJ to court under a derivative action based on what he saw as misconduct by the board over a period of time. The Court of Appeal eventually shot down an appeal by CWJ and let the original judge's decision stand.
Back in October 2017, Mayberry West Indies Limited, now Mayberry Jamaican Equities Limited (MJE) and other shareholders of Supreme Ventures Limited (SVL) called an EGM as per Section 128 of the Companies Act. This part of the Companies Act speaks to a collective group owning not less than 10 per cent of a company being able to call an EGM to discuss certain objectives. The EGM was to consider removing seven members of the board and appointing even new directors to better govern the company's interest.
Though the EGM didn't occur, some of the existing board members resigned with many of the proposed MJE directors being appointed over some time. MJE now owns 18.16 per cent of SVL with the CEO of Mayberry Investments Limited (MIL) serving as the executive chairman of SVL. At SVL's 2020 AGM, a director was not re-elected to the board after the proxy vote by poll saw more of the major shareholders voting against his re-election. MIL is one of Jamaica's most active brokerage firms with respect to voting and exercising its power as a shareholder.
As Prime Minister Andrew Holness said recently, shareholders get to vote on a company each year, while the general electorate only gets that chance once every five years. So exercise your power as a partial owner and ensure that the company is held accountable.
— David Rose