BCE Inc.'s plan to pay Astral Media Inc.'s founding family more than other investors in its takeover of the media company has reignited a divisive debate over the rights of minority shareholders.
One of the country's largest institutional investors has sharply criticized the premium being paid to the Greenberg family for its hoard of special shares that gives them tens of millions of dollars more than they would otherwise be entitled to in the $3-billion deal.
While it is common for media and communications companies in Canada to have two classes of shares, Astral is unusual in that it has three. BCE is paying $50 a share for the class A non-voting shares and $54.83 for the class B voting shares, the majority of which are controlled by the Greenberg family holding company. But they also control a third class of shares, which have extra votes and are called "special shares" and of which there are only 65,000. BCE is paying $50-million for those – or $769.23 each.
"Is that deserving? No, it clearly isn't. It should be one bid for all shares, plain and simple," said Len Racioppo, president of Jarislowsky Fraser Ltd., which owns about 4.3 per cent of the non-voting shares and 1.4 per cent of the voting common shares.
The issue of dual-class shares has simmered quietly since shareholders took Magna International to court last year – unsuccessfully – over the company's decision to buy founder Frank Stronach's special shares for $860-million. That was a premium of about 1,800 per cent from where regular shares were trading the day before the deal was announced.
Mr. Racioppo maintained that while the bid is rich enough, everyone should be paid the same regardless of the voting power of their shares, adding that paying more to the founders to seal a deal is essentially "ransom."
"I don't argue the takeover price isn't high enough – it's a decent premium," he said. "Experts say you should never pay for ransom, but there are always people willing to do so."
BCE chief financial officer Siim Vanaselja said, when pitching the takeover to analysts on a conference call Friday, that the premium on voting shares reflected historical trading patterns .
Meanwhile, independent Astral director Paul Bronfman, who also owns voting shares, said that in the context of a $3-billion deal, shareholders should feel they were treated fairly.
"When you look at the value of the entire deal, I'm not sure it's that big an issue," he said.
He also pointed out that the issue is essentially solving itself. Since 1987, all newly listed companies have been made to ensure all classes of shareholders are treated the same in a takeover. Only a handful of companies, such as Astral, are still trading after receiving an exemption when the rule was instituted.
The group includes Power Corp. of Canada, Rogers Communications Inc. and Shaw Communications Inc.
Many of Astral's largest shareholders refused to comment on the record about the premium. Those that did said that they were comfortable with the way the deal was structured, and were content to see a stock that hadn't done much in the past year pay something out to patient investors.
"I will say we have never felt we have been mistreated as shareholders of Astral or that the management operated in a fashion which was not considerate of shareholders," said Joe Jugovic, president of QV Investors Inc., which owns more than one million non-voting shares as of the last reporting period.
Louis Gagnon, a professor at Queen's University who specializes in capital markets, said investors may question why voting shares trade at a slight premium to non-voting shares on stock exchanges, but they tend to be reminded whenever a significant merger takes place.
"The premium garnered by voting shareholders will undoubtedly raise eyebrows." he said. "Even if it ultimately fails to pass the smell test in the court of public opinion, it is perfectly legal. As this case illustrates, voting rights become valuable in times like this."