Vince McMahon and 'The Undertaker'. Source: WWE 2016

It must be very rare for a newly listed company to identify its executive chair and second largest shareholder as a risk to its business. But then controversial wrestling impresario Vince McMahon is no ordinary chairman. 

In a Securities and Exchange Commission (SEC) filing last month after its NYSE-listing, TKO Group said “Mr McMahon’s membership on our board could expose us to negative publicity and/or have other adverse financial and operational impacts on our business”. 

TKO –  formed by the merger of McMahon’s World Wrestling Entertainment (WWE) and Endeavor Group’s Ultimate Fighting Championship  (UFC) – said “his membership also may result in additional scrutiny or otherwise exacerbate the other risks described herein”.  

Source: NYSE September 2023

An aggrieved WWE investor, The Laborers’ District Council and Contractors’ Pension Fund of Ohio, recently filed a legal suit in the Delaware courts against McMahon and others over the WWE/UFC  merger.  

The court documents allege that “the larger-than-life” McMahon “used his domineering personality dual-class shares and control over WWE to carry out his own personal agenda at the expense of the company’s public stockholders”.  

More on TKO later, but suffice now to say the US$21.4 billion ($31.9 billion) merger may never have happened if WWE did not have dual-class shares (DCS) – also known as “multiple vote” or weighted voting power (WVP) shares – that gave McMahon voting power disproportionate to his shareholding. 

Ready to rumble 

While the egalitarian Australian Securities Exchange (ASX) and the Australian Council of Superannuation Investors (ACSI) both believe in the “one share, one vote” principle, asset owners with growing international portfolios may have noticed the battles being fought around the world over DCS or WVP structures. 

The UK’s Financial Conduct Authority (FCA) wants a “more permissive approach” to DCS, arguing this is a “critical area to get right to improve the attractiveness of a UK listing”.  

However, a group of UK asset owners led by the £34 billion ($64 billion) UK rail industry employees’ pension fund Railpen argue this will “dilute investors’ ability to act as robust stewards of members’ assets” and “ultimately diminish the UK’s reputation as the world’s leading ‘quality’ market”. 

The European Commission – in an effort to “reinforce the attractiveness” of its “capital markets union” – wants to see bourses across Europe embrace multiple-vote share structures to encourage fresh listings. The EC argues “companies should be able to choose governance structures that suit best their development stage”. 

In the opposite corner of the ring is the European Fund and Asset Management Association (EFAMA) which stresses “the importance of the ‘one-share, one-vote’ principle for investors”, saying voting rights should reflect the economic exposure of the investment in a company.  

EFAMA believes “any new rules governing multiple voting share structures must balance issuers’ and investors’ interests”, stressing the need for “clear and harmonised safeguards to govern their use to protect minority shareholders and promote the overall integrity of EU capital markets”. 

S&P Dow Jones Indices recently announced that all companies with multiple share-class structures will be considered eligible candidates for its S&P Composite 1500 and its component indices. The organisation said this was part of efforts “to ensure that its indices remain timely and relevant”. 

Significant numbers of new IPOs in the US are adopting DCS but, at the same time, there is growing investor pressure that is seeing more existing listings with DCS revert back to a single class, one-share, one-vote structures. 

Meanwhile, US-based proxy advisory firm Institutional Shareholder Services (ISS) has extended its opposition to DCS to European companies and says it will generally vote against directors “if the company employs a stock structure with unequal voting rights”.  

Swedish massage 

Sweden’s most powerful industrialist Jacob Wallenberg has blasted ISS, saying its stance is “a direct declaration against the freedom of contract”. Wallenberg argues “board members should not be held accountable for things over which they have no decision power”.  

“Share class structure is a decision matter for the shareholders and not for the board,” he says.   

Wallenberg is chairman of the Confederation of Swedish Enterprise, which unsurprisingly agrees that the flexibility offered by a system where DCS structures are allowed enables companies and investors to create an investor structure appropriate for each specific company. 

Companies with DCS represent more than 70 per cent of the market capitalisation of Sweden’s main market. Much of this represents the investment empire of the Wallenberg family, whose Investor AB group owns large stakes in companies such as Ericsson Electrolux, Husqvarna, Atlas Copco and ABB. The family controls 50 per cent of the votes at Investor while owning only 23 per cent of the shares. 

The Investor Coalition for Equal Votes (ICEV) recently repeated its calls for DCS to be scrapped. ICEV’s report Undermining the Shareholder Voice: The rise and risks of unequal voting rights says DCS raises “important questions for investors concerned about the integrity and operation of capital markets”. 

ICEV is concerned that “small groups of privileged insiders can maintain control, while other shareholders (with less voting power) provide the majority of the capital and bear more of the financial risk”.   

The report says DCS may mean companies “are less willing to engage with investors (and, also, that investors are therefore less willing to engage with companies as stewardship resource has to be directed to where it can have most impact)”. 

Where there may be cases of “misalignment or poor decision-making by company management or by board members, the right to vote against the re-election of existing board members, to propose candidates and to vote for the election of new board members are crucial safety nets to move the company in the right direction”. 

ICEV, led by Railpen and US-based investor organisation, the Council of Institutional Investors (CII), urges asset owners and managers investing in DCS markets to:  

  • Publicly oppose DCS, and adopt formal advocacy, engagement and voting policy decisions to that effect 
  • Work with companies, policymakers, stock exchanges and index providers to adopt policy measures that discourage the adoption of these structures 
  • Use all stewardship tools at their disposal to urge companies with DCS structures to explore the benefits of recapitalisation to restore equal voting rights. 

TKO written consent 

Back in 2022 McMahon was pressured into resigning as WWE chairman over sexual misconduct allegations but in early 2023 he forced himself – and some allies – back onto the board.  

Through owning nearly all of WWE’s Class B shares (which had voting rights of 10 votes per share) McMahon used his 81 per cent voting power (while owning only just over a third of the shares) to put himself back in charge. 

McMahon then initiated a “strategic review” that led to him backing an all-scrip merger proposed by Endeavor despite WWE receiving higher, cash offers from other parties. Because of his voting power, McMahon was able to unilaterally approve the Endeavour transaction via “written consent”, meaning other WWE stockholders were not offered an opportunity to vote on the deal to create TKO.  

It is here that the Ohio pension fund alleges McMahon “conjured up a sham sales process designed to favour Endeavor and exclude other bidders seeking to axe McMahon”. Meanwhile, McMahon last month offloaded a big chunk of the TKO shares he received, raising about US$700 million. 

Just a couple of months after TKO’s listing bell rang, its new majority shareholder Endeavor announced a “strategic review” of its own business prompted by Endeavor’s flagging share price.  This immediately led to Endeavor’s own largest shareholder, the giant private equity group Silver Lake, saying it wanted to privatise Endeavor.  

Silver Lake indicated it will team up with its one of its investors and long-time ally, the United Arab Emirates (UAE) sovereign wealth fund Mubadala, to bid for the rest of Endeavor. 

As it happens, Endeavor also has a DCS structure that gives Silver Lake – and key Endeavour directors – almost 90 per cent of the voting power.   

So it looks like Endeavor’s minority shareholders, such as the Canada Pension Plan Investment Board and Vanguard Group, will have little choice but to wait and see the extent of Silver Lake’s generosity. 

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