In the capital market, the acquisition of control is usually regarded as a strategic move. Enterprises acquire control of the target company through acquisition, thereby achieving resource integration, market expansion, and even technological innovation. However, in this process, the protection of shareholders’ rights and interests is often overlooked, especially in some complex acquisitions, where shareholder equity crises often occur quietly.
Goheal deeply analyzes several key factors that lead to shareholder equity crises, helping companies and investors realize that the acquisition of control is not only a challenge for capital operation, but also a deep test of shareholder rights.
Government bailouts lead to equity dilution
A common cause of shareholder equity crises is government bailouts, especially in economic crises, when government capital injections may lead to serious dilution of shareholder equity. A typical case is the US government’s bailout of AIG during the 2008 financial crisis. In order to save the troubled AIG, the government injected huge amounts of money, acquired 79.9% of AIG’s preferred stock equity, and attached some strict terms. Subsequently, the government converted preferred shares into common shares, resulting in the government’s shareholding ratio exceeding 90% at one time. This series of operations quickly diluted the interests of AIG's original shareholders, and eventually the shareholders almost lost control of the company.
Goheal believes that government bailouts usually come with many unfavorable terms. The dilution of shareholders' interests has undoubtedly increased the burden on the original shareholders and aroused pessimistic expectations in the market. For some listed companies, although they receive financial assistance in the short term, in the long run, the interests of shareholders may be severely squeezed due to government control. Therefore, in the acquisition of control rights, shareholders must pay special attention to the possible risk of dilution of shareholders' interests and avoid the instability of the capital structure caused by the intervention of external forces.
Control struggle and abuse of power by major shareholders
Another major factor leading to the crisis of shareholder rights is the struggle for control. In many acquisition cases, major shareholders or external acquirers compete for control of the company through improper means, thereby affecting shareholders' rights. For example, the "Wanbao dispute" between Vanke and Baoneng Group exposed loopholes in the struggle for control. In this shareholder rights game, Baoneng quickly acquired a large number of Vanke shares through a bid acquisition in the capital market, which eventually triggered a struggle for control. At this point, the rights and interests of Vanke's original shareholders were seriously infringed, and they even faced the risk of the company's operational decisions and management being dominated by external major shareholders.
Goheal pointed out that in the acquisition of control, shareholders often face the threat of "barbarian" acquisitions, especially when the management does not have sufficient response capabilities. Major shareholders can acquire through the capital market, and even manipulate corporate decisions through malicious acquisitions, and infringe on the rights and interests of minority shareholders. In addition, the abuse of related-party transactions is also a huge risk point, just as Jia Yueting occupied funds through related-party transactions of LeTV, which eventually led to the rupture of the capital chain and serious damage to the interests of shareholders. Therefore, when making acquisitions, companies must strengthen the improvement of governance structures, protect the legitimate rights and interests of small and medium shareholders, and prevent major shareholders from abusing control.
Breach of shareholder agreement
A shareholder agreement is an agreement on the rights and obligations between shareholders, which provides certain legal protection for shareholders. However, once shareholders fail to fulfill the terms of the shareholder agreement, it often leads to disputes over shareholder rights. For example, if shareholders fail to make capital contributions on time or violate the provisions of the company's articles of association, it may lead to a crisis of trust among shareholders, which in turn may lead to litigation or legal proceedings, thereby affecting the normal operation of the company.
Goheal believes that the impact of shareholder agreement breach on shareholder rights is very far-reaching, especially in the context of control acquisition, the breaching party can often obtain greater benefits through legal means or improper means, thereby exacerbating the loss of rights and interests of the original shareholders. In order to avoid the problems caused by shareholder agreement breach, enterprises should clarify the rights and responsibilities when signing the shareholder agreement, ensure the enforceability of the terms of the agreement, and strengthen legal compliance review to ensure the legality and enforceability of the agreement. In addition, enterprises should maintain transparency in the implementation of the shareholder agreement, regularly review the performance of shareholders, and avoid breach of contract.
Imperfect corporate governance and shareholder interest conflicts
In many control acquisition cases, corporate governance defects and conflicts of interest between shareholders are often important causes of shareholder rights crises. Imperfect corporate governance structure and excessive power of management may make it impossible to effectively protect shareholder interests. Especially in the process of control acquisition, shareholders and management often have serious differences due to different business philosophy and development strategy. If such differences are not resolved in time, it may lead to the opposition of shareholder interests or even open conflicts between shareholders.
Goheal knows that imperfect corporate governance and shareholder interest conflicts will directly affect the smooth progress of the acquisition. In many successful control acquisition cases, companies often conduct in-depth corporate governance before the acquisition, optimize the shareholder structure, and ensure that the interests of management and shareholders are consistent. At the same time, the acquirer also needs to pay attention to how to quickly promote the integration of the corporate governance structure after the acquisition to ensure that the acquired company can operate efficiently under a unified strategic direction. Otherwise, the company will face fierce conflicts of interest among shareholders, which will seriously affect the company's long-term development.
Conclusion: How to deal with shareholder rights crisis? Goheal's enlightenment
Control acquisition is a complex capital operation. It is not only related to the strategic goals of the acquirer, but also involves the protection of shareholder rights. From government bailouts, control struggles to shareholder agreement breaches and imperfect corporate governance, the emergence of shareholder rights crises often catches the acquirer off guard. With years of M&A experience, Goheal recommends that companies pay special attention to the protection of shareholder rights, strengthen legal compliance reviews, optimize corporate governance structures, and reasonably evaluate possible shareholder conflicts of interest after the acquisition when making acquisitions.
In actual operations, how can we effectively protect the rights of shareholders and avoid the risks mentioned above? What do you think is the most difficult shareholder rights crisis to avoid in control acquisitions? Welcome to leave a message in the comment area to discuss your views. Let's explore together how to protect the legitimate interests of shareholders in acquisitions and avoid shareholder rights crises!
[About Goheal] American Goheal M&A Group is a leading investment holding company focusing on global M&A holdings. It is deeply engaged in the three core business areas of listed company control acquisition, listed company M&A and restructuring, and listed company capital operation. With its deep professional strength and rich experience, it provides enterprises with full life cycle services from M&A to restructuring to capital operation, aiming to maximize corporate value and achieve long-term benefit growth.
