We have rental cars, rental homes, rental companions and now, rent-a-stock.
One of the inventive concepts for jazzing up the merger and takeover business is to allow shareholders to rent the voting rights on their stock to the highest bidder.
Why shouldn't shareholders be able to deal their voting rights temporarily to either raider or management for a fee? asks Dean LeBaron of Batterymarch Financial Management, a major institutional combatant in the takeover business.
The idea may well be a natural extension of the wide-open competition for stockholders' votes created by the upsurge in takeovers. Corporate raider T. Boone Pickens Jr. labeled the concept "an absolute form of prostitution," at an investor conference this spring. But LeBaron replied, "If you find yourself in the business, at least charge for it."
The rental of voting rights would let shareholders who support a takeover keep their stock and the right to future capital gains if a takeover pushed the stock price higher. It would give raiders a cheaper way to amass a controlling interest in a company, shifting the balance of power toward shareholders, some advocates say. Or it could give management a less costly line of defense. And in takeover battles, it would put more votes in the hands of professionals with expert knowledge of the issues.
The rental would be temporary, say for three months or so, and the price would presumably vary with the circumstances, rising just before an annual meeting or during a proxy fight.
On the other hand, it might create a rich new opportunity for fraud and abuse, the staff of the Securities and Exchange Commission notes, permitting insiders to buy votes cheaply before revealing a proxy contest.
And it could further weaken the notion that individual shareholders "own" the companies they invest in -- an idea that has been stretched close to the vanishing point by the dramatic changes in securities markets in the 1980s.
A few such deals have been cut privately, experts acknowledge, but a large-scale, public trading of voting rights has not yet been attempted.
The issue was among several put before a heavyweight panel of financial and securities market experts yesterday, called together by the SEC, which is itself wrestling with its role in regulating the merger and takeover wave. The panelists ranged from Frederick H. Joseph, chief executive of Drexel Burnham & Co., the Wall Street firm that pioneered the use of junk bonds in hostile takeovers, to Andrew C. Sigler, chairman of Champion International Corp., a leading spokesman for big business against the corporate raiders.
The experts debated -- but didn't come close to resolving -- a core question of whether the takeovers represent a healthy challenge to poorly managed companies or a destructive sabotage of a significant part of American industry.
Sigler argued that there has been an alarming increase in the indebtedness of American companies, many of which have been buying their stock to boost its price or drastically altering their balance sheets as defensive moves against corporate raiders. "You've neutralized lots of great big companies" that make the economy go, complained Sigler.
SEC Chairman John S. R. Shad and Joseph countered that while debt has increased, so has corporations' access to cash from their businesses, thanks to the sweeping corporate tax benefits enacted in 1981. This increase in cash flow has made the increased debt tolerable, Joseph said.
"There's no question corporations have disappeared," said Walter B. Wriston, former chairman of Citicorp. "There's no question more corporations will disappear. . . . " But the economy is creating millions of new jobs and while it may be the survival of the fittest, the strongest companies are surviving, he said.
With Sigler's protests as the principal exception, most of the panel urged the SEC to stay as far away as possible from attempting to control the corporate restructuring.
Shad conceded that the tactics of the takeover battles are changing so rapidly that regulators may not be able to keep up -- by the time they have come to grips with one maneuver, it has been made obsolete by a new variation.
It is the very speed and fluidity of the takeover binge that troubles some of the experts, because it may be altering basic relationships of shareholders and companies and the rules for regulating those relationships.
It is not individual investors who own controlling interests in most of America's publicly traded companies, but firms such as LeBaron's Batterymarch, pension funds, and other big institutional investors. And it isn't settled whether these institutional owners are interested in long-term performance or whether theirs is a hair-trigger loyalty that will sell to the highest bidder.
But it is clear that there are still 43 million individual owners of stock who are pushed farther and farther away from the action by the power of institutional investors and the influence of the corporate raiders.
"They grew up correctly or incorrectly in a world where we talked about corporate democracy, we talked about owning a share of American business," said John J. Phelan, chairman of the New York Stock Exchange, a panel member. "It's not that that world hasn't change. But you do have a concern about this.. . . The broad market concern is the perspective of the people who use that marketplace on a daily basis," the individual investors or small institutions removed from the inner circle. The question they ask, said Phelan, is "if the market is fair and open?. . . . It is a difficult issue because we are in a changing time . . . .
"There is a broad variety of people out there who do think they still have a vote in these corporations," he said.
In a lot of ways, the public's confidence in its financial institutions is being severely tested, and the takeover wars appear to be a part of that problem.