General Motors Corp. could be delisted from the New York Stock Exchange as a result of its decision to create a special class of common stock to help pay for its $5 billion acquisition of Hughes Aircraft Co.
For the second time in less than a year, GM has run afoul of certain NYSE listing rules by creating a new class of common stock to help pay for an acquisition. Even though current NYSE rules specify that all of the common stock of companies listed on the Big Board must have equal voting rights, GM plans to issue 50 million shares of "Class H" stock to help pay for Hughes.
The Class H shares violate NYSE listing rules since they will have only one-half vote per share on matters of GM corporate governance. But it appears that the NYSE, locked in a competitive battle for listings with the American Stock Exchange and the over-the-counter market, will do its best to find a way to avoid delisting GM, one of its most prestigious companies.
NYSE officials said yesterday that the question of whether to delist GM, and several other companies that recently have violated the "one share, one vote" rule, has been suspended pending completion of a review of the Big Board's listing standards. However, the exchange issued a statement saying that it believed it would list the GM "Class H" stock, since it already has listed the GM "Class E" stock, a special class of common stock that GM created last year to help pay for its $2.55 billion acquisition of Electronic Data Systems Corp.
"The General Motors Class H stock which is to be issued as part of the announced merger of General Motors and Hughes Aircraft appears to be identical to the 'Class E' stock which General Motors issued last year as part of its merger with EDS," said NYSE spokesman Richard Torrenzano. "We are in the process of reviewing the whole issue of share ownership, and until that process is completed, these stocks will be allowed to trade."
While the special GM stock may violate certain NYSE rules, it meets other standards, such as availability to public investors, that other recently created stocks with unequal voting rights do not, Torrenzano said. Dow Jones & Co., publisher of The Wall Street Journal, and Hershey Foods Corp., for example, have violated the "one share, one vote" rule by creating a second class of common stock that not only has unequal voting rights but also is not readily available to public investors.
In those cases, the creation of two classes of common stock -- with the new class controlling a majority of votes in friendly hands -- is designed to prevent hostile takeovers.
The leaders of the three major exchanges plan to meet later this month to try to resolve the conflict over differences in listing standards that affect shareholder voting rights. John J. Phelan Jr., chairman of the NYSE, and Arthur Levitt Jr., chairman of the Amex, both recently told a House subcommittee that instead of the NYSE lowering its listing standards to permit companies to have two classes of common stock with unequal voting rights, the Amex and the over-the-counter market ought to raise their standards to require listed companies to have only one class of common stock.
Phelan and Levitt said this would eliminate the competitive pressure on the NYSE to lower its listing standards and would preserve the traditional "one share, one vote" system of corporate governance.