Question
From:(redacted)
Sent:Monday, March 17, 2008 1:30 PM
To:Verne, B. Michael
Subject:A different version of one I asked you about recently
Mike:
Suppose that threeparties form a corporate joint venture and take back stock of Newco 48%, 48%,4%.
The stock itself hasvoting rights for election of directors and doesn't say anything aboutappointments of directors outside of an election context.
However, the partiesin their agreement to form Newco include provisions allowing each of;the 48%shareholders to designate half the directors.
Iunderstand that, following the formation transaction, each of the 48% holders wouldbe viewedas having a contractual powerto control.
Butdoes the agreement among the shareholders convert the acquisitions of the 48%interests into acquisitions of, voting securities conferringcontrol on the 48% holders?
Oris the formation acquisition viewed as governed by the terms of the votingsecurities, and the shareholder agreement viewed separately as conferringcontrol, but not through acquisition of voting securities?
Ihave seen similar deals where, say, voting securities are issued 50/50 to twoforming shareholders, and a third party puts in cash and takes back preferredstock that is nominally non-voting, but (again, via the formation agreement)the preferred shareholder is given the power to designate more than half thedirectors of Newco.
I take it the two50/50 forming shareholders are viewed as each acquiring a controlling interestin voting securities, and the power in the preferred shareholder to designatemore than half the directors does not "oust" the 50/50 shareholdersfrom also controlling Newco. But is the preferred shareholder viewed asacquiring voting securities because he gets to name some directors? Or is heviewed as a controlling shareholder of Newco, but not as an acquiror of votingsecurities in the formation transaction?