A New Challenge to Dual-Class Stock Structures
- CBS’s lawsuit against National Amusements, its controlling shareholder is, among other things, a challenge to dual-class stock structures.
National Amusements controls almost 80% of the voting stock in CBS, but actually owns only 10%.
Dual-class stock structures are already under fire from regulators, index providers and the courts.
Here at Sigma, we have consistently voted against dual-class and super-majority stock structures at every opportunity.
Under dual-class stock structures, some shareholders can be favored over others, which is the long-running criticism of these structures.
A case can be made that dual-class systems can benefit investors during a company’s early stages by insulating the company from short-term market pressures. However, studies show that the benefit wanes over time and firms that keep a dual-class structure tend to trade at a discount to ones that end it.
Last year, the S&P 500 took a stand against dual-class structures, barring public companies with multiple classes of shares from joining the index.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA