Foreign stockholders are having an uneven time of it with ex-U.S. stocks. Their own actions, and those of the companies they hold, are giving both retail and institutional U.S. investors a run for their money—sometimes in a good way and sometimes not—in countries from Japan to South Korea, China and even many in the EU.
In some cases it’s the companies or even foreign governments who are seeking to tighten the reins on shareholders, and in others it’s the investors who are fighting back—or launching the battle in the first place. Some investors are gaining more power, while others appear to be losing.
Savvy investors should know about these four major actions changing the treatment of foreign shareholders:
1. Toyota’s new class of stock shares:
Toyota ruffled a lot of investor feathers when it decided earlier this summer to add a new class of stock shares—one available only to long-term shareholders and only in Japan.
Foreign pension funds, including the California State Teachers’ Retirement System, the Canada Pension Plan Investment Board and the Florida State Board of Administration, and proxy advisor Institutional Shareholder Services Inc. opposed the new share class, but the Model AA shares were voted into existence on June 16—although they passed with just 75% of the vote. Company spokeswoman Kayo Doi said in reports that it’s rare for a company resolutions to win less than 90% support.
The shares sell at a 20% premium to common stock but offer a really tempting deal for long-term investors, who must hold the new class of shares for at least five years. There’s an annual dividend, starting at 0.5% and rising each year by 0.5% till it hits a maximum of 2.5%. Once five years have passed, shareholders can keep the stock, convert it to common shares or even sell it back to Toyota for the issue price.
The downside is that foreign investors are shut out. In addition, since Toyota said in a statement that it would repurchase common shares “in roughly the same number as the number of the First Series Model AA Class Shares issued,” the new shares provide “a greater voice to shareholders with medium to long term holdings.”
They also, according to opponents, create two classes of investors; foreign shareholders and those who hold common stock are relegated to second class. Although Toyota said the new class of stock was intended to help finance research and development by long-term investors, it’s also expected to help the company avoid new standards on cross-shareholding (owning the shares of other companies) with which it might otherwise have to comply.
2. Activist stockholder fight against Samsung merger:
Individual stockholders of South Korea’s Samsung allied themselves, oddly enough, with American activist investor Paul Elliott Singer and his hedge fund Elliot Associates in a merger battle that Singer said undervalued the company.
Samsung nevertheless managed to scrape together enough votes to win the day—but just barely. A two-thirds majority was needed, and the vote was 69.53% in favor after a shareholder meeting described as “heated.”
Samsung C&T Corp. did all it could to win shareholder support for the $8.3 billion merger with Cheil Industries, Samsung’s de facto holding company. Samsung, the largest family-run conglomerate, or chaebol, in the country, wanted the deal to solidify the family’s hold on the company after the group’s patriarch Lee Kun-hee was hospitalized last year.
However, Elliott Associates, the third largest shareholder with a 7.12% stake, had campaigned loudly against the deal, even taking lowball bid allegations to the South Korean court. And despite the fact that South Korean investors usually side with the home team, hundreds of small investors broke ranks to say that Cheil should offer more for Samsung.