Postscript to Dual-Class Shareholder Voting Rights

To follow-up on our Bloomberg BNA article, “IPOs in 2016 Increasingly Include Dual-Class Shareholder Voting Rights” from July 2016, The Wall Street Journal reported on Monday, November 28 that Under Armour, Inc. is now taking steps aimed at reconciling the trading prices of its Class A Common Stock, which has one vote per share, and its Class C Common Stock, which has no votes. Under Armour also has super-voting Class B Convertible Common Stock, which has ten votes per share, all of which are held by the company’s founder.

As of Friday, November 25, the Class C shares were trading at a 22% discount to the Class A shares, a spread that has widened from 3.7% on March 23, 2016, the first day the Class C shares began trading.

While logically, given the disparate dual-class shareholder voting rights, the Class C shares should trade at some discount to the Class A shares, the existence of the super-voting Class B shares effectively takes away any voting influence held by owners of the Class A shares.

Other companies with similar capital structures apparently have not experienced this effect. For example, the non-voting shares of Google-parent Alphabet, which also has non-voting shares, one-vote shares and super-voting shares (with a majority of voting power), trade at a discount of only 2% to its one-vote shares.

The Wall Street Journal article posits several explanations for the gap – lack of liquidity in the Class C shares, fear that the company’s founder may sell shares without wanting to dilute his control over the company, pessimism that the company’s high growth rate is heading for a slowdown, and arbitrage trading between the share classes – none of which appears to settle the matter according to the author.

The concern expressed by Under Armour appears to center around the fact that it uses the Class C shares for stock-based compensation and executive incentives. For now, Under Armour has determined to change the ticker symbols for its Class A and Class C shares (to UAA and UA from UA and UA.C, respectively), hoping somehow that this will narrow the market’s discount of its traded shares.  

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