Editorial Buying shareholders’ votes

Consider an investor of modest means who holds 100 shares of Inco. How do you think that investor will vote when the company’s board of directors ask his approval to implement a “shareholders’ rights plan” knowing that a vote in favor of the plan is a vote in favor of a $10(US) special dividend (N.M., Oct 10/88).

There’s been a great deal of publicity surrounding Inco’s shareholders’ rights plans. A plan such as this, fairly common in the United States, is often referred to as a poison pill because it comes into effect only if management is opposed to a takeover bid made against the company. In this case, Inco would have to borrow heavily to pay the dividend, a move that in the long run would detract from the company’s value.

Reaction has been overwhelmingly against the plan, but that reaction has been based on opposition to poison pills as a matter of principle. Shareholders should determine if a takeover bid is welcome or not and tender their shares accordingly. Poison pills, however, leave that decision to management.

Inco’s long-suffering small shareholders, however, will have a difficult time turning down a one-time dividend because of some fairly esoteric arguments about shareholders’ rights and management’s self-serving desire to protect itself from takeover bids.

In effect, Inco is trying to buy votes in favor of a shareholders’ rights plan by offering a $10 dividend.

If Inco wants to institute a shareholders’ rights plan, let it seek the approval of shareholders; if it wishes to offer a special dividend, let it seek approval for that as well. But to link approval of a shareholders’ rights plan with approval of a rich, one-time dividend is not appropriate.

The best interest of Inco’s long-term shareholders would undoubtedly be to vote down this plan. Unfortunately, it’s hard to turn down money.