Small water company Dee Valley has been the subject of a bid from Severn Trent Water via a scheme of arrangement. An attempt to block it by those opposed acquiring a block of shares and then distributing them to many supporters (mainly employees we understand) has been rejected by the High Court.
In the case of a scheme of arrangement, more than 50% in number of the shareholders have to support the offer, as well as 75% of shareholders by value. In this case, because of the share “splitting”, more than 50% in number were opposed. The judge said that this was a share manipulation strategy which the company chairman could reject. In addition that shareholders must exercise their voting rights for the purpose of benefiting the class as a whole, and not merely individual members.
The decision might well be appealed, particularly on the latter point as no doubt the promoters of this tactic might argue that it was in the long term interests of all parties for the company to remain independent.
It also brings into question the use of schemes of arrangement which many shareholders dislike for other reasons. It shows how the outcome of such votes can be manipulated, if not necessarily quite so blatantly as in this case.
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