Grab Holdings Inc, southeast Asia’s most valuable startup, is about to go public through a special-purpose acquisition company or SPAC that will grant outsized voting control to its CEO, Anthony Tan, who founded the company less than a decade ago.
Grab—a super app that offers a suite of tools, from payment processing to taxi booking to food delivery—will make its trading debut on the New York Stock Exchange through an acquisition by Altimeter Growth Corp. The so-called blank check company, sponsored by investment firm Altimeter Capital, has raised money for the sole purpose of taking over Grab, fast-tracking the Singapore-based startup’s path to a public listing.
The transaction, which will value Grab at $40 billion, ensures that Tan will be able to outvote any outside investors. (The founder reportedly sought to be made “CEO for life” in scuttled merger talks with Indonesian rival GoJek earlier this year.) Tan will own just 2.2% of Grab’s ordinary shares after the deal with Altimeter, but control 60.4% of the company’s voting power, according to an investor presentation, as part of a voting trust agreement disclosed in the footnotes of the deal.
The deal grants its founders special Class B shares, with each carrying 45 times the voting power of other shares, according to an exchange filing. Grab’s other two co-founders, chief operating officer Tan Hooi Ling and president Ming Maa, have agreed to transfer their voting rights to Tan. Prior to the deal, the three controlled just 3.8% of the voting power.
Such tilting of company voting control in favor of founders is increasingly widespread, but it leaves few means of intervention if Tan takes the company in a direction other shareholders disagree with, or acts in a way that makes him richer at their expense. While a founder’s outsized voting control isn’t unique to SPAC transactions, it’s becoming a more frequent, eye-catching feature of such deals.
“Dual-class structures with disproportionate voting rights are commonly used in innovative, high-growth companies,” said Justin Tang, head of Asian research at United First Partners in Singapore. Companies like Facebook and Google operator Alphabet in the U.S. and Alibaba Group Holdings, Xiaomi Corp and Meituan in China already make use of the arrangement. (Mark Zuckerberg, for example, has a similar amount of voting control in Facebook as Tan will have in Grab). “In this case, Tan, the brains of the business, can continue steering it without being restricted by shareholders,” Tang said. “In the unlikely and unfortunate event that Tan makes decisions that are not in the best interest of minority shareholders, there is likely little that can stop him.”
WeWork highlighted the risks of such dual-class structures. The terms of its planned 2019 IPO would have given founder and CEO Adam Neumann at least 50% voting control. Prospective shareholders balked when Neumann cashed out of millions of dollars of shares before the listing and demanded the shared office space company pay him $5.9 million for trademark rights to use the word “we” in its branding, among a series of corporate governance missteps that ultimately sunk the offering.
Grab may face an easier time managing relations with its shareholders. Tan, despite his prominence, appears to have refrained from the kind of flamboyant behavior that drew attention to Neumann. The company has also donated some of its funds to a $275 million charitable endowment. And fund managers say that a company with a dominant founder can still be reined in by its board or other legal mechanisms.
“There’s always going to be a degree of skepticism when a company lists with dual class shares, given the asymmetry between ownership and control,” said David Smith, senior investment director for Asian equities at fund manager Aberdeen Standard Investments. “There’s a misconception in the market that investors are champing at the bit to replace CEOs, particularly those who are executing well with a clear strategy,” he added. “If anything I think investors can be too patient, given that removing a CEO can be a very disruptive course of action.”
The Grab SPAC deal will be the biggest-ever of its kind. In the past year, these formerly obscure financing vehicles have shot to prominence with notable figures like hedge fund manager Bill Ackman, former U.S. vice president Al Gore, and ex-pro athletes like Alex Rodriguez and Shaquille O’Neal starting blank-check companies.
Around ten times as many SPACs came to market in 2020 compared to the average year during the past two decades, according to IHS Markit. They’ve been used to list companies including fantasy sports betting site DraftKings and space exploration startup Virgin Galactic.
After the Grab deal was announced, shares in Altimeter Growth Corp jumped to a high of $15.56, a 56% premium over the value of the SPAC’s cash warchest.
The degree of prominence sought by Tan may also benefit its investors by providing additional publicity for the company, says Anne Stevenson-Yang, co-founder of J Capital Research in New York.
“The ‘CEO for life’ thing is not unusual and is often baked into the structure of media companies, for example. This sort of company is like a celebrity NFT—without a charismatic CEO, it becomes just one of the pack,” she said, referring to the current cryptocurrency market frenzy for non-fungible tokens.
BlackRock, Morgan Stanley Investment Management and T. Rowe Price Associates, Inc., are all investors in the Grab transaction, and government development funds including Singapore’s Temasek, Malaysia’s Permodalan Nasional Berhad, and Abu Dhabi’s Mubadala are also significant backers of the deal.
After the listing, SoftBank’s Vision Fund, ride-hailing company Uber Technologies Inc and its Chinese competitor Didi Chuxing Technology, and Toyota Motor Corporation will become its biggest shareholders. For some, that indicates that the corporate governance risks around the deal can be handled.
“Tan is a Harvard alumnus and highly-skilled at relationship management,” said United First’s Tang. “Grab didn’t grow to what it is today because he is a megalomaniac.”
