SAP AG said on Wednesday it planned to convert its widely-traded preference shares into ordinary shares, simplifying its capital structure and making the stock more attractive to international investors.
Europe's largest software maker said it would propose a one-to-one conversion of its non-voting preference shares into ordinary shares with voting rights at its annual shareholders meeting on May 3.
The change would increase the number of shares in free float, with the percentage of ordinary shares held by the company's founders falling from 63 per cent to 39 per cent.
The move, which was generally welcomed by the market, comes as the main stock market index compilers have encouraged companies to standardize shares included on indices.
From June, 2002, Deutsche Boerse will take only one class of share into account and, like most other international index compilers, consider only shares in free float when calculating the value of companies included on the benchmark DAX index.
"Generally, it's positive news, although there's perhaps room for discussion about the way they did it," Stephan Thomas, fund manager at Frankfurt Trust, said.
"With a 20-per-cent spread between the preference and the ordinary share, there was maybe some room for some compensation for preference shareholders, but the market has taken it positively," he said.
If approved, each of the 314.7 million outstanding shares will qualify for the same dividend, which will be around the higher level paid to preference shareholders.
Investors and analysts generally welcomed the change.
"I think it will make it more attractive for international institutional investors. They tend to prefer ordinary shares to preference shares," said Friederike Herkommer at HypoVereinsbank, who rates the share "outperform."
Frankfurt Trust's Thomas said speculation the move could see SAP included in more leading international indices was helping the share price.
"There's now room for speculation the share could join the Eurostoxx 50 index," he said. "Personally, I'm not so sure about that but in any case there is room for speculation there."
The change also prompted a surge in preference shares in Volkswagen and BMW AG as investors speculated the two automakers could make a similar change.
SAP said the move, which will see its New York-traded ADRs based on its ordinary shares in future, was intended to reflect the demand for greater transparency and standardisation on international capital markets.
"The simplified capital structure makes SAP more transparent and makes it easier to value the company," Dietmar Hopp, co-founder and SAP supervisory board head, said in a statement.
"After the conversion, the principle of one share, one vote will apply for SAP as well," he said, adding that the founding shareholders planned no significant changes to their holdings after the conversion.
At Dec. 31, 2000, SAP had 131.7 million preference shares and 183 million ordinary shares.
Preference shareholders do not have voting rights but receive a slightly higher dividend than ordinary shareholders. However ordinary shares were previously traded at a significant discount to the preference shares because of their much lower liquidity.
Morgan Stanley Capital International, which compiles the MSCI family of global stock indices, said last year it would only use shares in free float as the basis for calculating the value of stocks included in its indices.
Stoxx Ltd., which compiles the Eurostoxx indices, changed its European indices to free float in September.