MLI28C060 - Corporate Finance
Seminar 7
Question 1. What is pyramiding and crossshareholdings? How do these techniques enable the
separation of ownership from control? [Hint: Read
Claessens et al (2000)]
Pyramiding
Payment of dividends
Family
• 51%
Tunnelling of resources and profits
Firm 1
• 51%
Firm 3
• 51%
Firm 4
• 51%
Firm 5
Cross-shareholding
20%
Firm 2a
Firm 1a
20%
20%
Cross shareholdings
20%
20%
Family
Firm 2b
20%
20%
Cross shareholdings
20%
20%
Firm 1b
Firm 2c
Separation of ownership from control
• Berle and Means (1932) concept of separation
of ownership from control
– Envisages this through simple diversification of firm
– Is classical assumption behind almost all finance
and common to almost all corporate finance
textbooks
• Claessens et al (2000) reveal that pyramiding
and cross shareholdings are alternative means
of achieving this.
– Cash Flow ownership is minimal while voting rights
control is maximised
Business group structure
Ownership and Control structure of Business Group
Pros
Cons
-Tunneling of resources
-Risk Sharing and Mutual Assurance:
Firms within group can share risks and
enjoy mutual assurance effect through
investment relation and mutual lending
(1) Controlling shareholder tunnels
resources from firm that he has less
share to firm that he has more share.
(2) Controlling shareholder sacrifices
some firms shareholder value in order to
maximize his profit.
-Buysschaert, Deloof, and Jegers(2004)
-Kahnna and Yafeh(2005)
-Chang and Shin (2005)
- Bae, Jang and Kim (2002)
- Bae, Jang and Lee (2006)
Figure: Extent of control of Société Nationale d’Investissement (SNI) business group,
2010 – Morocco
ONA Courtage
50.03%
Moroccan
state and
government
King Mohammed VI
Agma Lahlou-Tazi
[Listed]
100%
100%
SIGER ERGIS
Societe
Metallurgique
D''imiter (SMI)
[Listed]
7 mining
subsidiary firms
80.25%
100%
Société Commerciale de Promotion
et de Participations (COPROPAR)
Managem
[Listed]
8 subsidiary firms
60%
81.6%
SNI
5%
55.10%
55.49%
98.7%
16.2%
WANA Corporate
FP: Zain / Al Ajial [31%]
33.8%
99.8%
Centrale Laitière Groupe
[Listed]
FP: Gervais Danone
[29.22%]
7.10%
Consumar Groupe [Listed]
20%
Marona
Sonasid
Dan Maroc
100%
5.10%
6.6%
15.24%
Groupe Attijariwafa
bank [Listed]
Compagnie Bancaire de
L’Afrique Occidentale
(CBAO Groupe
Attijariwafa bank)
(Sénégal)
50%
62.28%
13.47%
Onapar
100%
25.01%
100%
33.50%
Sapino
34%
99%
Amitech
50%
99%
Amensouss
Kasovi
79.29%
9 subsidiary
firms and resorts
FPOS Holding
Company
8.30%
Wafa Assurance
[Listed]
Marjane
Holding
100%
Lesieur Cristal
Groupe [Listed]
87 subsidiary
firms across
Africa and
Middle East
11 subsidiary
firms
SFGP
5.35%
55.05%
Lafarge Maroc
FP: Lafarge SA [50%]
35.5%
Omnium Nord
Africain (ONA)
35.20%
50%
50%
8.94%
FILAF
(Sénégal)
100%
8.94%
SAF
(France)
71%
20%
100%
100%
91%
100%
Nareva Holding
SGA
Sopriam
99.82%
Atlas Hospitality
Morocco
Longométal Afrique
OHIO
Renault Maroc
FP: Renault (France)
[80%]
Financière de Prise de
Participation (ex Financière
d’emballages)
Groupe Optorg Consolidé
91%
32.88%
SOMED
FP: Intérêts émiratis [33.80%]
État marocain [33.30%]
Nouvelles Sidérurgies
Industrielles (NSI)
FP: Arcelor Mital
Austria Holding [50%]
22.8%
ALD Automotive
20.37%
8.50%
3.25%
AM Invest
Morocco
Figure. Extent of control of Bank of Africa business group, 2011
100%
Benjelloun Family (Morocco)
BMCE Bank
57.70%
99.90%
BoA Group
BoA Ghana
86.82%
BoA Burkina
Faso [Listed]
52.24%
50.06%
47.75%
15%
AGORA **
ATTICA
††
50%
35.89%
5.71%
BoA Benin [Listed]
14.43%
20.33%
††
5.71%
11%
7.5%
11%
22%
BoA
Tanzania
**
8.57%
5.71%
16%
BoA
Madagascar
*, **
41%
24.6%
BoA Mer
Rouge **, †
2.35%
BoA Cote
d’Ivoire
[Listed] ††
55.51%
13.87%
14.29%
13.07%
10%
60%
0.57%
20%
BoA Mali ††
5%
BoA RDC *,
36.57%
22.99%
55.56%
0.43%
46.10%
**
21.96%
33%
2.10%
BoA Senegal
**
0.30%
7.19%
AFH Ocean Indien
Equipbail
Madagascar
24.29%
22.47%
Banque de
l’Habitat du
Benin (BHB)
*, **
20.25%
10%
BoA Kenya **
***
31.07%
20.39%
BoA Asset
Management
BoA Uganda **
5%
BoA West Africa
Banque de Credit
de Bujumbura
(BCB) †
BoA Niger
[Listed] ††
†
26.45%
Actibourse
5%
BoA France *
21.08%
13.82%
2.86%
7.14%
13.07%
40%
Question 2. What are the two principal categories of
mechanisms used by business groups to achieve
control over networks of firms?
• Two categories of control mechanisms:
– “Soft”
– “Hard”
“Soft”
• These include:
– Interlocking (shared/common) directors
– Socialization of directors
• Examples range from training courses in head office
• To communal membership of Presidential Club
(common feature of Japanese Keiretsu’s)
– Exertion of control over boards of group-firms
• Preferential hiring of nonexecutives from group/family
• Chairperson and CEO from group/family
– A range of entrenchment tools such as salary
packages, contingent-pay and ownership tied to
group holding company
“Hard”
• Ownership-based forms of control
– However in configurations of ownership where “voting
rights” are in excess of “cash flow” rights
– All equity entitles holder to “one-share-one-vote”
– However through elaborate pyramids and crossshareholding networks of firms voting rights are in effect
“enhanced” (maximised” in contrast to relatively minimal
actual ownership of firms within network (or business
group)
• Pyramid Structure
• Cross-shareholding
• …..and combinations of above two….
Question 3. What are the pros and cons of Business
Groups?
Business group structure
Pros
Cons
-Risk Sharing and Mutual Assurance: Firms within
-Tunneling of resources
group can share risks and enjoy mutual assurance
(1) Controlling shareholder tunnels resources from firm
effect through investment relation and mutual lending
that he has less share to firm that he has more share.
(2) Controlling shareholder sacrifices some firms
-Incumbent firms able to draw on reputation of wider
shareholder value in order to maximize his profit.
group to preferentially access external capital, labour
and product markets
-BG’s frequently encounter controversy (tax, regulatory,
legal issues) in conjunction with notions of “cross
-Ability to counter “institutional voids” or deficiencies
border expropriation” when in fact all that is happening
in domestic capital, product and labour markets
is the far-sighted redirection/redistribution of capital
through the optimal use of “internal” markets and
flows from well-performing group firms to poorer-
superior “internal coordination” based on group-
performing firms
structure
-BG’s structure and coordination system effectively
-Some evidence from India that BG’s are more effective
in providing services and building regional economies
than State Owned Enterprises
-Benefits of far-sighted investment horizon in groups
“prop up” (support) firms that would otherwise fail