A company with a successful and rich history has fragmented it’s shareholder base over time. The founders and their heirs still own significant stakes (no majorities), but a number of minority shareholders have a joint stake that facilitate “changing majorities” with the main shareholders.
In the past shareholders where part of company management and shareholders and company management where aligned. Now management and shareholders have different interests, but there are also different interests between different shareholders. As a consequence, in the interest of none, decision making stagnates and company performance suffers. As a result conflicts extends to board and supervisory board. All parties start to bring the other parties to court, leading to further stagnation. We find ourselves in a kind of a Mexican Standoff.
A Mexican Standoff
A Mexican Standoff is a confrontation in which no strategy exists that allows any party to achieve victory. Any party initiating aggression might trigger their own demise. At the same time, the parties are unable to extricate themselves from the situation without suffering a loss. As a result, all participants need to maintain the strategic tension, which remains unresolved until some outside event makes it possible to resolve it.
The Trigger to a Solution
As the definition clarifies, an outside event was to be created to overcome the Standoff. Under pressure of court (and the premise that all would lose all) a outside party entry was suggested. All parties where confronted with the “shoot or be shot clauses” in the articles of association. Now all parties have a potential win, but also a potential loss. Without showing their cards, there would not be any influence on the outcome.
The terms for the outside party entry would be set by independent valuation, such defendable for a court. The valuation would serve as a referee for all. When negotiations will not restult in a majority agreement between shareholders the outside shareholder would obtain a majority. The latter as a consequence of statutory rulings jurisprudence in commercial law.
How did this end..
The proces was a diligent and thorough from a legal, financial and valuation perspective. Independent advisors (laywers, accountants, banks) where lined up in the process to facilitate. Communication to stakeholders where routed through a single channel. The pressure of the commercial courts potentially backing the outside entry, creating a risk for all, triggered a solution. Some of the shareholders choose to depart and others to extend their shareholdings based. The company released from stagnation and re-alignment between shareholders and management was able to bring the company forward again.