Ericsson: from A to B and back again
Voting balance of power untouched by shareholding shake-up
Ericsson plans to reform its controversial voting structure to allow foreign shareholders a greater say in the company. However, the plan will do little to alter the current balance of power since the two existing controlling shareholders will remain in charge.
Under LM Ericsson Telefon's current dual-class shares system, the "A shares"
carry 1,000 times the voting rights of "B shares". Many Nordic companies have A shares with 10 times the votes of B shares, according to the Financial Times.
Currently, both types of shares entitle their owners to the same share of Ericsson's earnings, but the greater voting rights associated with the A shares means that those groups with a majority of A shares have been able to control the company, despite holding just a tiny share of the company's capital.
This arrangement has antagonized foreign shareholders and indeed, the company's own management. Ericsson itself has 15.3 billion B shares, but only 650 million A shares.
Under the agreed plan, A shareholders will have the right to convert one B share to one A share, for every A share they already hold. Those not wishing to exercise the right are being offered SEK1.1 ($0.15) per share by a group of Swedish institutions. The plan will be presented to Ericsson's annual meeting on 6 April.
The two power blocs that currently control Ericsson are Investor, the holding company of the powerful Wallenberg family, and Industrievaerden, which is owned by the banking giant Handelsbanken. At the moment, these two control 80 per cent of the votes with less than 10 per cent of the capital. After the reform however, they will still remain in control, with 40 per cent of the votes.
That said, Swedish institutions and foreign shareholders will gain greater influence, with the combined voting power of foreign shareholders rising from 2 per cent to approximately 20 per cent.
According to the Financial Times, both the Wallenberg and Handelsbanken power houses are expected to convert their B shares to A shares, demonstrating their determination to retain control of Ericsson. This could anger foreign shareholders and also does very little to alter the balance the power with the company. However, for Ericsson's management, it should help them raise capital in the future.