The Agency theory is the issue that arises when Shareholders...

The Agency theory is the issue that arises when Shareholders appoint Management to run the company. As management do not own the company and are merely on the payroll, human nature suggests that they are incentivized to line their own pockets at the expense of the long term benefit of the company. When management do not have a significant stake in the company, shareholders are at their mercy and merely have to trust that management will put them first.

Let’s take a look at the BrainChip Inc. transaction with Aziana and how this issue is resolved.

BrainChip Inc. are receiving shares for consideration and not cash (remember that). They will be the majority shareholders for the new company holding 63% of all shares. The following is taken from the Heads of Agreement announcement 18 Mar 15:
At the time of acquisition BrainChip Inc. will be issued:

Consideration Shares 303,600,000 + Milestone 1 Performance shares 49,500,00 = 353,100,000
Total Shares on Issue = 557,254,699.

Therefore, Brainchip will own 63% of the company. It also states that if further shares are issued as per the capital raising of Aziana (The one being announced on Monday) that BrainChip will receive ‘top up shares’ as to maintain their proportion of holdings (63%). They have expressly stated that they want to maintain a majority ownership of the company.

Furthermore, the shares BrainChip Inc. receive will be subject to escrow conditions. This means Directors and Non-Directors alike can’t sell their shares for a period of 12 to 24 months.

“In accordance with Chapter 9 of the ASX Listing Rules. Generally shares to be held by persons becoming directors of the Company or by persons considered to be promoters will be escrowed for a period of 24 months from the date of re quotation of the Company’s shares on ASX; and those to be held by non-directors for a period of 12 months.” (credit to TLC2008).

BrainChip will be the management AND majority shareholders. They will act for my and any other shareholders’ best interest. They can’t sell their shares for up to 2 years and they will want a maximum share price by that time, if they do decide to sell.

In my opinion, they will want to maintain the majority holding indefinitely to defend against hostile takeovers and for future dividends. Robert has clearly stated that they’ll be using a business model that is comparable to ARM. ARM is a cash cow that collects huge royalties for licensing out its technology at a high margin, which allows them to return a lot of if to shareholders through dividends.

In conclusion, this is the ultimate Corporate Governance structure and the Agency Theory is resolved.
Imo dyor