Vontobel, a family-owned Swiss bank, has recently restructured its family shareholding structure to make it more difficult to be taken over. The new structure is likely to shore up family ownership and deter takeover. But the structure is also complicated and that might not be a good thing.
Here’s a recent statement from the Zurich-based bank about how it has recently changed its shareholding structure in response to the death of second generation patriarch, Hans Vontobel, earlier this year.
The statement is one of those pieces of prose that need to be read very carefully, or even a few times before you get an idea of what it all means. Anyway, the gist of it is that Vontobel is consolidating its family shareholding structure among the third generation and making it more difficult to for those shareholders to sell their holdings on the open market. The statement is saying, albeit subliminally, the family is in control and the bank isn’t for takeover.
When the free float is 49.3% of the total shareholding pool, which it is for Vontobel, these statements make sense if the family want to continue to be the majority holder of shares and exercise ultimate control. But they are also signalling to the outside world a complicated shareholdings structure, which may belie tensions within the family shareholding group. Although, it’s important to say that for Vontobel any tensions among the family shareholders are purely speculative.
Hermès, the French luxury goods manufacturer, moved to consolidate its family shareholding structure in a similar way a few years back. The Paris-based company famous for its Birkin bag was facing a potential takeover by rival LVMH. Like Vontobel, Hermès was partly listed and the family shareholding structure was complicated.
In Hermès case, the complication was amplified by a large number of shareholders, more than 60. A large number of shareholders was to do with the fact that Hermès has passed through many generations of control, and is currently under the sixth generation of family control. Anyway, eventually a new pooling structure was created, making it difficult for family members to sell to third parties, and Hermès foiled LVMH’s attentions and remains family controlled.
Hermès and Vontobel will no doubt remain in family ownership for years to come. But as family businesses move further away from simple shareholding structures to more complicated ones they may also be signalling to the market the vulnerabilities of their family control. This will be particularly the case if a big part of the share capital is a free float.
Of course, complicated structures can work for many years, but their robustness will depend on dividends for family owners continuing to remaining high. If they don’t, then such structures will inevitably come under pressure no matter how robust they have been constructed.