NYSE Seeks to Delist Beverly Enterprises Stock

Beverly Enterprises, the nation’s largest nursing-home chain, has disclosed that the New York Stock Exchange is moving to delist its common stock because of Beverly’s decision to issue a block of preferred shares with separate voting rights.

In the proxy statement for its May 8 annual meeting, the Pasadena-based company said it had requested a hearing on the delisting, which is based on the Big Board’s longstanding rule that prohibits the listing of multiple classes of stock with disparate voting rights.

“It’s our intuitive feeling that it’s likely that stock of this character will be grandfathered in” and approved, said Robert Van Tuyle, chairman of Beverly. If not, Van Tuyle said, “I’m sure Arthur Levitt Jr. (chairman of the American Stock Exchange) would be glad to have us back.”

Beverly, which joined the New York Stock Exchange in 1982, after several years on the American Stock Exchange, becomes the 43rd company of the 1,584 traded on the New York Stock Exchange to be threatened with delisting.

The action stems from Beverly’s move last December to issue about $100 million of a newly created preferred stock to Stephens Inc. of Little Rock, Ark. The stock was issued as payment for 69 nursing homes that Stephens sold to Beverly last year.

The 999,999 preferred shares owned by Stephens vote as a separate class on mergers, reorganizations and certain other business combinations and are entitled to five votes per share. As a result, the preferred shareholders could block an acquisition even if common shareholders approve it.

Meanwhile, the Securities and Exchange Commission is deliberating a proposed rule change that could overturn the New York Stock Exchange’s half-century-old prohibition against the issuance of such stock.

Prominent companies, including Dow Jones & Co., publisher of the Wall Street Journal; Hershey Foods Corp., and General Cinema Corp., have used the maneuver as a takeover defense and also are being threatened with delisting.

“Beverly is not being treated any differently from any of the other companies,” said David L. Domijan, NYSE vice president of new listings. “Their stock will continue to be listed” until the SEC acts this spring.

Supporters of the Big Board’s rule say that the average investor could be hurt if the SEC relaxes the current one-share, one-vote rule. That’s because investors could lose the power to challenge management, they say, and to get the best price for their stock if there is a takeover bid.

Beverly argued in its proxy statement that “although a takeover attempt may be made at a price substantially above then current market prices, such offers are sometimes made for less than all of the outstanding shares of a target company.” Thus, Beverly said, a new class of voting shares may help “obtain maximum value for the company and all of its shareholders.”

Under most of these plans, a company issues one new share or fraction of a share for every one previously held by investors. The newly created share allows from 10 to 100 votes per share. When an investor sells his multiple-vote shares, they automatically revert to a single vote share. Since outside shareholders usually trade more frequently than corporate insiders, management ends up with a controlling majority of votes.

As a member of the American Stock Exchange in 1974, Van Tuyle said, Beverly issued such preferred shares without incident. The American Stock Exchange permits the issuance of dual classes of voting stock with disparate power in ratios as high as 10 to 1.