Ord Inc. owns 40% of the shares of Derwent Co. and holds the only substantial block of shares in that entity, no other party owning more than 3% of the shares. The annual general meeting of Derwent is to be held in a month. Two situations that may arise are:
• Ord will be able to elect a majority of Derwent’s board of directors as a result of exercising its votes as the largest holder of shares. As only 75% of shareholders voted in the previous year’s annual meeting, Ord may have the majority of the votes that are cast at the meeting.
• By obtaining the proxies of other shareholders and, after meeting with other shareholders who normally attend general meetings of Derwent, by convincing these shareholders to vote with it, Ord may obtain the necessary votes to have its nominees elected as directors of the board of Derwent, regardless of the attendance at the general meeting.
Required
Discuss the potential for Derwent being classified as a subsidiary of Ord.