Research at publicly traded companies
The shareholders of a publicly traded company making an acquisition should vote on it. Indeed, greater shareholder involvement in acquisitions can lead to a longer-term focus. This is, in short, the conclusion of Matthijs de Jongh, academic associate of the Supreme Court, who recently obtained his doctorate on the relationship between shareholders and the management of a company. In his research, he argues for more shareholder influence in takeovers and acquisitions. Currently, a company needs shareholder approval only when it is an acquisition that exceeds 30 percent of the stock market fund. As far as De Jongh is concerned, this percentage should be lowered to 10 percent.
The reason for this research, which focuses on publicly traded companies, is the long-standing struggle between shareholders and management. For many years, hedge funds in particular were able, as shareholders, to exert great influence on a company’s policy. As a result, it was not uncommon for organizations, think of Stork and ABN-AMRO, to be split up in order to create higher value for shareholders. The shareholders were supported in this by the Tabaksblat Code and the policy of the Enterprise Chamber. With dramatic consequences for the companies, employees and sometimes society. As a result, the position of shareholders has greatly diminished since then.
Conclusion extended to Family Companies and DGAs
But times have changed and the shareholder should have a bigger finger in the “acquisition pie,” De Jongh believes. An interesting conclusion that I share. And one that, as far as I am concerned, could be extended one-to-one to private, non-listed companies, DGAs and family businesses. After all, here the voice of shareholders is weighed very heavily in acquisitions, with all the positive consequences that entails. Not only does the involvement of more parties in the decision-making process play a role here, but also the “own purse thought” leads to possibly different considerations and risk assessments. For example, the board of a buying party where the shareholder is less involved is not infrequently inclined to pay too much for the acquisition. This stems from personal interest and ego of the management of the buying company, combined with market discipline. ‘It is takeover or be taken over,’ people realize. If the management, of any company, needs the vote of the shareholders, it will have to be able to convince them of the positive returns from the acquisition and explain that the ‘deal’ will not be overpaid. This is exactly what happens in DGA and family-owned companies and why these companies are more successful in acquisitions. Ultimately, this involvement only benefits a company’s continuity and long-term vision.
Because of shareholder involvement, companies will be more critical than ever when it comes to making acquisitions. The purchase price and the risks are carefully weighed, the price paid will usually be lower, and the return from acquisitions greater. Thus, after making acquisitions, value is created again and not, as studies repeatedly show, value is destroyed.
By: Maarten Vijverberg and Irene Schoemakers
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