Goldman lines up poison pills to fend off predators

WALL STREET investment bank Goldman Sachs is to adopt a slew of tough poison pill defences against potential predators when it comes to the market in its $30bn float in November.

According to the S1 registration document filed with the US Securities and Exchange Commission (SEC) on Monday, the partners and management board have put in place provisions to enable them to block any change in control without reference to outside shareholders.

The board will be split into three classes of members, with one class being elected each year for three-year terms. As a result, at least two annual meetings of shareholders will be required to change a majority of directors.

The shareholders of the company can only remove directors with a 66.6 per cent majority. Any change in Amended and Restated Certificate of Incorporation - the US equivalent of a company's articles of association - will require an 85 per cent majority. Changes in by-laws will also require a majority not just of the shares present at the meeting but the total shares in issue.

If that fails, the board also has a "blank cheque" provision enabling them to issue unlimited amounts of preferred stock to friendly shareholders in order to frustrate any hostile move.

The belt-and-braces anti-takeover provisions were put in to placate opponents of the float, such as John Thornton, a senior partner, who feared that listing the company would mean that the partners who have been the driving force behind Goldman would ultimately lose control of the firm.

"It was the big issue at the time when we were debating going public," one insider said. "It is a clear objective to avoid losing control of the firm."

Initially only 10 to 15 per cent of the company is expected to be sold, but once the shares are listed and the lock-in provisions expire there will be little to stop Goldman employees who retire or leave from selling.

There is an irony in a firm which advised on merger and acquisition deals worth nearly $1,400bn in the last five years - about a quarter of all deals worldwide - taking such steps. To be fair, Goldman tends to act either in agreed deals or for the defence in contested bids.

The Goldman co-chairmen and chief executives, Jon Corzine and Henry Paulson, say the float will enable the firm to spread its ownership more widely through the firm and beyond its 198 partners

Goldman has two outside shareholders, the Sumitomo Trust of Japan and an obscure Hawaiian trust, Kamehameha Activities Association, which together own 20 per cent of the firm. They have been substantial shareholders since 1994 when Goldman needed capital.

Eyebrows were raised yesterday by the large proportion of Goldman's revenues which, according to the document, come from own-account trading. The document disclosed that return on partners' capital in the first half of the year was a staggering 65 per cent pre-tax, but that will almost certainly fall when the firm floats and the valuation of the capital rises.