Man U investors can always vote with their feet

September 20, 2011

By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Shares without votes raise hackles. Consider the disquiet around Manchester United’s upcoming listing in Singapore, where new shareholders may be offered a package of vote-lite instruments that will entrench the Glazer family’s control. But while unorthodox, that’s not necessarily bad. Besides, investors are free to demand a discount, or boycott the IPO altogether.

Many companies break the one-share-one-vote principle. Carmaker Ford and Warren Buffett’s Berkshire Hathaway both have vote-lite and vote-heavy shares. Ditto internet companies Google and LinkedIn. Manchester United may have dreamt up an alternative by “stapling” non-voting preference shares to regular voting ones.

Reduced voting power can be problematic if managers misbehave or if takeovers arise. Take media empire News Corp, where shareholders have struggled to exert pressure on the founding Murdoch family despite their poor governance. Or Playboy founder Hugh Hefner, who used his control of voting shares to take the adult entertainment group private in 2010 for less than the owner of rival Penthouse said it would offer.

But votes aren’t everything. The majority of investors don’t always know best, as shown by dreadful, shareholder-approved deals like Time Warner’s bid for AOL and Daimler’s tie-up with Chrysler. Meddling investors can also impede development. Companies should be encouraged to experiment, so long as rules are clear, and investors protected from deceit and fraud.

For the Glazers, the question is how much the IPO pricing is harmed by them bending the norms of shareholder democracy. If pref and regular shares are glued together, investors who want one may demand a discount for having to take the other too. Without guaranteed dividends, valuing the prefs would be even harder –- giving rise to a potential “complexity discount”.

The value of a vote also depends on investors’ faith in management. Berkshire Hathaway’s A and B shares trade on par, suggesting Buffett has investors’ trust. Manchester United investors should ask for a sizeable discount, if only to compensate for the Glazers’ taste for aggressive financing. If the family don’t like it, they have a choice too. They can stick to the norms, or find capital elsewhere.

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