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Do Dual-Class Stocks Make for Second Class Shareholders?


Twenty dual-class IPOs occurred in the US last year, up from only a dozen in 2010. In the S&P 500 (INDEXSP:.INX), forty companies employ this structure.

MINYANVILLE ORIGINAL It is undoubtedly hard to believe in hindsight, but back on Valentine's Day, almost everyone in the investment world was professing their love for an upcoming initial public offering of Facebook (NASDAQ:FB). Yet on February 14, The Wall Street Journal's print edition ran an article, not much remembered now, noting that the social network's dual-class stock structure had recently received some sharp criticism.

Also in February, the New York Times (NYSE:NYT) informed its readers that controversy over an identical arrangement had made it all the way to the White House. The Times' story actually occurred 86 years earlier, which was a salient reminder that, in high finance, there is nothing new under the sun and investor indignation tends to run in cycles. The reliably Republican Journal and liberal leaning Times rarely ever find themselves on the same page, but both can speak with some authority on this issue. After all, each employ dual-stock structures themselves, the Journal under the umbrella of its corporate owner News Corp (NASDAQ:NWS).

Had Facebook's IPO been the raging success many expected, its quirk of corporate governance would likely have remained a minor news item. The stock has instead been a famous flop, falling to a fresh low this week after dropping 13% last week, and it is the S&P 500's (INDEXSP:.INX) single poorest performer in the three months since coming to market.
No positions in stocks mentioned.
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