Classified Stock as Control Multiplier

"Power Corporation is a classified-stock corporation, with three types of shares that constitute its capital stock: first preferred shares, 3.75- cent participating preferreds and subordinate voting shares. The first preferred shares carry no votes, but are entitled to a $2,375 dividend (5 percent of their $47.50 issue price); the dividend is also cumulative, so, if the dividend for a certain year can’t be paid, it would be credited to the shareholder and paid the next year, or whenever the company could afford to pay. (Preferreds are, for the most part, issued to raise capital.) The 3.75-cent participating preferred carries 10 votes per share, pays a fixed annual dividend of 3.75 cents per share, and participates in company profits. The subordinated voting is a common share car¬ rying one vote and participates in profits by way of dividends."

"So Desmarais also learned and applied the notion that 50.1 percent voting power is absolute control, but in the modem world of corporate capitalism, where corporations might have thousands of small share¬ holders, it’s possible that the owner of a relatively tiny percentage of voting stock has effective control, as long as that person is the largest single shareholder. Economists, securities commissions and business theorists differ wildly when defining the breaking point, so any expert and any number could be quoted; the reality is, though, that there are companies like Bell Canada and American Telegraph and Telephone whose controlling shareholders own less than one percent of voting stock."

"which they so excelled. They traded their assets to acquire control of Power. The deal worked this way: 1. Power created a special 5 percent second preferred share issue of 10,000,000 shares at $12 per share ($120 million total). 2. The number of 6 percent participating preferred shares — the ones that carried 10 votes each, and dictated control of the company — was increased. 3. Enough of the 5 percent second preferred shares were offered to Trans-Canada Corporation Fund shareholders on a one-for-one trade for Power to acquire all tccf shares. 4. Gelco received 57 percent of the Power second preferred shares offered for purchase of tccf; the remaining 43 percent of tccf shares were redeemed from their holders, making tccf a 100- percent owned and controlled Power subsidiary. 5. Then Peter Thomson traded a bit more than half of his 6-percent participating preferred shares of Power — the ones that carried 10 votes each — to Gelco on a two-for-three swap for the new 5- percent second preferred shares (with no votes). 6. The trade gave Desmarais voting rights through Gelco on Power’s board slightly greater than those of Thomson, who held his Power shares through a recently created holding company, Wamock- Hersey International, which held a number of Thomson’s non- Power investments. 7. Between them, Desmarais and Thomson controlled about 61 per¬ cent of Power’s votes and, consequently, Power’s board. 8. Desmarais became chairman and chief executive officer and Peter Thomson deputy chairman. 9. Desmarais and Thomson entered into a voting trust, whereby Thomson’s voting shares were voted by Desmarais."