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.
The International Silver Company began the practice when it issued 11 million non-voting equities in 1898. The Roaring Twenties' market mania cemented the practice, although the crash with which that decade came to a shuddering close led to an eventual ban by the NYSE (NYSE:NYX).
Dual-class shares have historically proven particularly popular with old-time media moguls, where a cadre of tightly knit family members often exerted an iron grip. Industry examples include the Ochs-Sulzberger trust of New York Times fame, the Washington Post (NYSE:WPO) Grahams, the Bancroft family behind Dow Jones, and Time Mirror's Chandler clan. The preservation of journalistic integrity and prevention of undue outside editorial interference are the principal reasons cited for the prevalence of dual stocks in the newspaper arena.
Adolph Coors, Ford Motor Company (NYSE:F), and Hyatt Hotels (NYSE:H) are instances of equities in other sectors that have operated along similar lines over the years.
After lying dormant for decades, dual stocks enjoyed another of their periodic moments in the sun during the 1980s, when they were employed as a useful tool to rebuff the cutthroat corporate raiders of that era. Ironically on July 4, 1986 — the very day millions gathered in New York Harbor to celebrate the centenary of that ultimate testament to democracy, the Statue of Liberty — that morning's newspaper headlines told of the NYSE’s decision to do away with its time honored “one share, one vote” rule. Eventually individual exchanges again tightened their rules but, crucially in light of future developments, agreed to allow a company to go public if its dual class structure was already in effect at the time of the IPO.
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