In the business world, family affairs don’t always enter the boardroom. But when they do, the consequences can be grave for investors.
In the business world, family affairs don’t always enter the boardroom. When they do, if the situation is dire, the consequences can be grave.
At their worst, big family-run companies have seen their fortunes nosedive on the markets after expensive divorces. Many have recovered, but there are notable examples of businesses and tycoons whose share prices and balance sheets have suffered after a separation.
For example, Russian billionaire Dmitry Rybolovlev, who owns French soccer team AS Monaco, lost $600 million in a costly divorce in 2014. The former owner of Uralkali (MCX:URKA) was initially ordered to pay $4.5 billion to his wife Elena, but had the settlement reduced on appeal. Since then, his net worth has dropped to around the $7-billion mark.
Another costly example of what divorce can do to a business owner’s finances is that of Steve and Elaine Wynn. In 2010, the couple’s second divorce saw the latter gain 46 percent of Steve’s shares in Wynn Resorts (NASDAQ:WYNN), causing some uncertainty for the company. However, both stayed on and Wynn Resorts has prospered ever since.
With a little professionalism and continuity from both divorcees, a split can prevent any serious business damage. The case of the Wynns and Wynn Resorts is proof of that. If, however, the split is acrimonious, the consequences can be huge. A big cash settlement and drawn-out divorce process will eat into the company’s bank balance and see shareholders’ confidence drain.
In some cases, divorces involving major shareholders can have a positive impact on the affected company. Around the same time that News Corp (NASDAQ:NWSA) founder Rupert Murdoch filed for divorce with his wife Wendi Deng in 2013, the company’s share price on the NASDAQ followed an upward curve up until January 2014.
It is possible that people saw the news about Murdoch’s separation and sensed an opportunity to invest in case News Corp’s share price fell. In the event of him paying a big divorce settlement, other News Corp shareholders may have felt compelled to sell their shares in case the worst happened.
Regardless of what causes a divorce or how much the business is involved, a lot of work is needed to minimize the impact on the business’ share price. For the couple, a prenuptial agreement will make the process of divorcing less messy and costly than it would otherwise be.
Next, when it comes to the divorce itself, hiring divorce lawyers will make all the paperwork and transferring of assets to both divorcees simple. Finally, reassuring any other shareholders that everything will work out will prevent their confidence from dipping. That may depend on how many shares go to the divorcee who may want to leave the business.
If handled sensibly, the divorce of major shareholders can see any damage limited and can even have positive impacts for the concerned business. However, letting personal feelings get in the way of running a business is likely to send a company plummeting.
About the author — Zak Goldberg is a law and business graduate from the University of Leeds who has chosen to follow his aspirations of becoming a full-time published writer, offering his expertise on all areas of law and finance.