In the bloody capital market, the acquisition of control rights is often regarded as a great temptation for corporate development. However, the situation of being suddenly "kicked out" at the shareholders' meeting often hides the subtle traps of capital game. In these seemingly fair investment operations, many companies and shareholders have quietly lost control without knowing it.
Goheal has insight into the risks with his deep experience in mergers and acquisitions. Today we will discuss the capital traps behind the acquisition of control rights and how to avoid being "kicked out" at the shareholders' meeting.
Potential risks of acquisition of control rights
Acquisition of control rights, as the name suggests, refers to the acquisition of shares in the capital market, which enables the acquirer to obtain control of the target company. This acquisition usually brings about changes in the shareholder structure, thereby affecting the company's decision-making power and business direction. When many companies accept acquisition of control rights, they think they can maintain their dominant position in the company through the shareholders' meeting, but this is not the case. Especially when capital tycoons gradually control more shares through complex acquisition methods, the original management and founding shareholders often fall into a passive situation at the "shareholders' meeting" or are suddenly "eliminated".
Typical case: the story behind the "eliminated" at the shareholders' meeting
Let's analyze it in detail through a classic case. In 2010, Wanxiang Qianchao, a well-known Chinese enterprise group, experienced a storm of control acquisition. At that time, Wanxiang Qianchao was originally a listed company, but with the continuous influx of external funds, the company's shareholder structure changed. Through a series of acquisition actions, the capital party finally obtained shares sufficient to influence the board's decision.
However, at the subsequent shareholders' meeting, the original shareholders were "eliminated" because of the gradual transfer of control power. This incident warns us that in the process of capital operation, behind the seemingly simple share acquisition, there is actually a huge risk of losing control. Goheal studied this case in depth and found that the capital game behind it is not something that investors can easily detect.
What is more complicated is that some acquirers not only transfer control by purchasing stocks, but also often use shareholder agreements, management incentives and other means to build an extremely sophisticated acquisition plan. Behind these means, there are often operational loopholes that are enough to make the original shareholders and management lose control of the company. When dealing with similar cases, Goheal always reminds all parties how to ensure the controllability and stability of corporate strategies through the details of the terms.
"Hidden traps" at the shareholders' meeting
As an important link in the corporate governance structure, the shareholders' meeting should be a democratic expression of corporate decisions. But in fact, in the complex capital game, the shareholders' meeting often becomes the main battlefield of "power struggle". Some acquirers have gradually weakened the original shareholders' right to speak and vote by establishing special voting rights and shareholder proposal rights at the shareholders' meeting. Even if the nominal control is still in the hands of the original shareholders, in fact, the capital party has quietly controlled most of the company's decisions through the operation of the shareholders' meeting.
For example, some capital parties control the company by acquiring preferred shares, setting up different categories of equity voting rights, and even through "shareholder agreements". These measures are usually not easily detected by ordinary shareholders, and once the capital party successfully implements them, the status of the management and the original shareholders will change substantially. If the management fails to take effective measures to deal with it in the early stage, then at the subsequent shareholders' meeting, the original shareholders are likely to be "marginalized" or directly "out".
How to avoid being "out" at the shareholders' meeting?
Faced with the risks that may be brought about by the acquisition of control, how to effectively avoid being "out" at the shareholders' meeting? First, the management and existing shareholders of the company should formulate a clear shareholder agreement before the shareholders' meeting to clarify the rights and obligations of each party. Especially in the case of a possible acquisition of control, the terms in the shareholder agreement should ensure that shareholders and management have a certain dominant position in the decision-making process.
Secondly, the voting mechanism of the shareholders' meeting should ensure that the voting rights of each shareholder can be fairly reflected. For example, through the balance of power between preferred shares and common shares, it is prevented that a certain shareholder or capital party can achieve a monopoly on the company's decision-making by manipulating voting rights. Goheal always recommends that when companies conduct capital operations, they must plan the power structure in the shareholders' meeting in advance to prevent any party from gaining excessive control through asymmetric voting rights.
Finally, in the process of controlling acquisition, existing shareholders and management should maintain a keen market observation. Once the risk of changes in shareholder structure or acquisition by capital is found, management should take timely countermeasures and activate appropriate defense mechanisms, such as preventing hostile acquisitions and protecting shareholder rights. At the same time, actively engage in dialogue with capital parties to explore feasible ways of cooperation to ensure the long-term and stable development of the company.
Conclusion: Who will have the last laugh in the capital game?
In the ever-changing capital market, the operation of controlling acquisition is constantly changing, and the power struggle at the shareholders' meeting is becoming more and more complicated. Shareholders and management, are you clear about your rights? When the capital trap of controlling acquisition is quietly approaching, are you fully prepared? Behind the capital game, it is not only a contest of money, but also a test of strategic vision and power game. Goheal reminds all capital market participants that when facing controlling acquisition, they should respond calmly and think carefully to avoid being passively "out" at the shareholders' meeting.
Readers are welcome to leave comments in the comment area to discuss and share your views and experiences on controlling acquisition. In your opinion, how can the rights of shareholders be protected in controlling acquisition?
[About Goheal] Goheal is a leading investment holding company focusing on global mergers and acquisitions. It has deep roots in the three core business areas of acquisition of controlling rights of listed companies, mergers and acquisitions of listed companies, and capital operations of listed companies. With its profound professional strength and rich experience, it provides companies with full life cycle services from mergers and acquisitions to restructuring and capital operations, aiming to maximize corporate value and achieve long-term benefit growth.
