ZNGA: DIVORCE MAY LOOSEN PINCUS’ GRIP ON ZYNGA
ZYNGA’S CLASS A SHARES — THE KIND ORDINARY INVESTORS BUY — ARE WORTH ONE VOTE PER SHARE.
CLASS B SHARES GET SEVEN VOTES APIECE, WHILE
CLASS C SHARES — OWNED EXCLUSIVELY BY PINCUS — GET 70.
PINCUS HAS 91.3 PERCENT OF THE CLASS B SHARES AND 100 PERCENT OF CLASS C SHARES.
That’s how,
WITH JUST OVER A TENTH OF THE COMPANY’S SHARES, HE CONTROLS 69.8 PERCENT OF THE VOTE.
IF IT TAKES A MESSY DIVORCE TO SHAKE ZYNGA LOOSE FROM MARK PINCUS’ CONTROL,
THAT MIGHT BE THE BEST POSSIBLE NEWS FOR SHAREHOLDERS.
DIVORCE MAY LOOSEN PINCUS’ GRIP ON ZYNGA
BY THOMAS LEE
APRIL 5, 2017 UPDATED: APRIL 5, 2017 6:00AM
Photo: Catherine Bigelow, Special To The Chronicle
BAMPFA co-chairs Mark and Alison Pincus (left) with gallery dealer Sarah Hoover and her husband, artist Tom Sachs. Jan 2016.
Coming to a court near you: DivorceVille.
ALISON PINCUS, THE WIFE OF ZYNGA CHAIRMAN MARK PINCUS, HAS FILED FOR DIVORCE AND IS CHALLENGING THE COUPLE’S PRENUPTIAL AGREEMENT, ACCORDING TO DOCUMENTS FILED WITH SAN FRANCISCO SUPERIOR COURT.
Should she succeed in breaking the agreement, she could be due for a significant payday. AS AN ANGEL INVESTOR, MARK PINCUS GOT IN ON THE GROUND FLOOR OF FACEBOOK AND TWITTER. And HE OWNS MORE THAN 10 PERCENT OF ZYNGA, the San Francisco game company best known for “FarmVille” and “Words With Friends.”
More importantly, THAT STAKE GIVES HIM CONTROL OF NEARLY 70 PERCENT OF ZYNGA’S SHAREHOLDER VOTE, according to the company’s most recent proxy statement. ANY DIVORCE SETTLEMENT MIGHT DILUTE PINCUS’ SEEMINGLY UNSHAKEABLE CONTROL OVER THE COMPANY he founded in 2007. (Pincus served as CEO twice; former top Electronic Arts executive Frank Gibeau now runs Zynga.)
A Zynga spokeswoman declined to comment. A lawyer representing Alison Pincus did not return a phone call seeking comment.
Alison Pincus, however, faces quite an uphill battle, said Peter Walzer, founding partner of Walzer Melcher LLP law firm near Los Angeles.
Under California law, prenuptial agreements are hard to challenge, said Walzer, who’s not connected to the case. A person must show, among other things, that he or she lacked an independent lawyer before signing it. Or that the subject of the divorce petition did not fully disclose all of his or her assets, he said. (Court filings did not give any details about the Pincuses’ agreement.)
In addition, Alison Pincus risks losing whatever financial support her husband previously agreed to give her, Walzer said. (Alison Pincus co-founded online home-goods retailer One Kings Lane; after raising $229 million from investors, it sold for just $12 million last year.)
“It’s unlikely the court will set aside the prenup,” Walzer said. “The case will probably not have a major effect on Zynga. But we’ll just have to wait and see.”
Mark Pincus might well fork over cash and property if there is a settlement, and not touch his Zynga stock. But then again, his STAKE IN THE COMPANY IS WORTH ABOUT $254 MILLION, A CONSIDERABLE ASSET.
Corporate governance experts say the divorce of a CEO or other top executive is not just a family matter.
“SHAREHOLDERS SHOULD PAY ATTENTION TO MATTERS INVOLVING THE PERSONAL LIVES” OF TOP COMPANY OFFICIALS,
said David Larcker, director of the Corporate Governance Research Initiative at Stanford Graduate School of Business.
When Tesla filed to go public in 2010, it initially did not disclose that CEO Elon Musk, who had pledged to hold onto most of his stock under the terms of a government loan, was in the middle of divorce proceedings. The company eventually amended its prospectus to note that Musk’s then-wife was seeking to overturn a postnuptial agreement that protected his Tesla stake.
At the least, CEOs and directors must report to shareholders when they sell stock in the company. Four years ago, Best Buy disclosed to regulators that CEO Hubert Joly sold 451,153 shares for $16.7 million to cover the cost of his divorce.
ZYNGA WASN’T JUST A PIONEER IN SOCIAL GAMES THAT SPAM YOUR FRIENDS INTO PLAYING. IT WAS ALSO ONE OF THE FIRST SILICON VALLEY COMPANIES TO SET UP MULTIPLE CLASSES OF SHARES TO GUARANTEE FOUNDER CONTROL, paving a path that Mark Zuckerberg of Facebook and Evan Spiegel of Snap would follow.
ZYNGA’S CLASS A SHARES — THE KIND ORDINARY INVESTORS BUY — ARE WORTH ONE VOTE PER SHARE.
CLASS B SHARES GET SEVEN VOTES APIECE, WHILE
CLASS C SHARES — OWNED EXCLUSIVELY BY PINCUS — GET 70.
PINCUS HAS 91.3 PERCENT OF THE CLASS B SHARES AND 100 PERCENT OF CLASS C SHARES.
That’s how,
WITH JUST OVER A TENTH OF THE COMPANY’S SHARES, HE CONTROLS 69.8 PERCENT OF THE VOTE.
ACCORDING TO ZYNGA’S ARTICLES OF INCORPORATION, THE COMPANY CAN CONVERT CLASS B AND CLASS C SHARES INTO CLASS A SHARES. SO THEORETICALLY, MARK PINCUS CAN CONVERT HIS SUPER-VOTING SHARES INTO REGULAR STOCK AND GIVE THEM TO ALISON PINCUS IN A SETTLEMENT.
But once the conversion happens, those voting rights disappear forever — as might Mark Pincus’ ironclad control.
That’s not the only way a divorce could hurt Zynga. Larcker’s research shows that marital problems can impact corporate strategy. For example, an executive might pursue a more risky strategy in order to replace the wealth he or she lost in the settlement — or become conservative to protect the remaining stake. Divorce proceedings can also sap a leader’s energy and attention.
As chairman, Mark Pincus isn’t charged with overseeing day-to-day operations.
Nevertheless, it would be hard to separate Zynga from its founder. The first time he stepped down as CEO, he remained closely involved with product development. And he replaced his designated successor, former Xbox executive Don Mattrick, after less than two years. Mark Pincus remains a member of the board’s product committee.
Here’s the bottom line: Zynga shares haven’t crossed the $5 mark in the past three years. THE MARKET HAS SPOKEN. IF IT TAKES A MESSY DIVORCE TO SHAKE ZYNGA LOOSE FROM MARK PINCUS’ CONTROL, THAT MIGHT BE THE BEST POSSIBLE NEWS FOR SHAREHOLDERS.
Source:
www.sfchronicle.com/business/article/Divorce-may-loosen-Pincus-grip-on-Zynga-11050459.php
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