What Is a Blockholder?
A blockholder is the owner of a large block of a company's shares and/or bonds. In terms of shareholding, these owners are often able to influence the company with the voting rights awarded with their holdings.
- A blockholder refers to an individual or organization which owns a substantial amount of a company's shares or debt.
- There is not set number of shares to make somebody a blockholder, although the SEC does require any 5% or larger equity owner to file paperwork stating as much.
- Due to the large number of shares held, blockholders can influence the direction of a company through exercising its voting rights and threats to sell their shares, negatively impacting the price.
A blockholder is an influential shareholder because of the significant block of the company’s stock or bonds that they own. Generally, there is not a specific number of shares that defines a blockholder. Companies can be alerted of significant blockholders through a Form 13D. Shareholders must file a Form 13D with the Securities and Exchange Commission (SEC) when their ownership block reaches 5% of a company’s outstanding shares.
Corporations will typically monitor ownership levels of shareholders to remain aware of how the stock is trading in the open market and who it is owned by. Awareness of ownership is important because of the influencing rights involved with stock issuance.
Companies issue common and preferred stock with varying provisions and privileges. Most common shares come with voting rights, giving the shareholder the right to vote on certain aspects of the company. Shareholders typically vote on things like board of director elections, new securities issuance, corporate actions and substantial operational changes. Many shareholders vote through proxy however shareholders may also attend company shareholder meetings to cast their vote.
Shareholders typically receive one voting right per common share and may have other voting rights with other types of shares. Preferred shareholders typically do not have voting rights. When a shareholder is a blockholder their voting rights become more influential. In many cases, shareholders may accumulate more shares to increase their voting rights and voice concerns about problems they see with the company. These blockholders are known as activists. Corporate executives at the company can also seek to hold substantial share positions in order to control voting rights.
Activist investors typically own 5% or more of a company’s shares, making them blockholders. They use their voting rights to lobby for change at the company. They write open letters to the company’s management and highlight areas they feel are underperforming. One of the most important ways they seek to initiate changes at the company is through the board of directors. Activist investors will often petition for board seats to be more involved in the company’s management decisions.
Blockholders and activist investors may also be influential for the company’s share price trading value. Large blockholders like Warren Buffett and Berkshire Hathaway often praise company management or support company decisions helping to boost its share price. In other cases, an activist’s open analysis of the company’s financial challenges and issues may have a negative effect on the stock price.
Examples of large blockholders that are often influential in affecting publicly traded companies include Warren Buffett, Starboard Value, Pershing Square Capital Management, ValueAct Capital Partners and ThirdPoint Partners.