3 ms·

Very ELI5 question: > When a company hits an extended rough patch and its stock price slides into a trough and stays there for a while, a special class of oppo

by Sujan 9y ago

Very ELI5 question: > When a company hits an extended rough patch and its stock price slides into a trough and stays there for a while, a special class of opportunistic investors—hedge funds and so-called activist investors like Jana Partners—stands ready to pounce. They buy up large chunks of the stock, enough to give them some bully power, and try to force the company to make changes that could increase the stock’s value, preferably quickly. That might mean selling the company, breaking it apart, forcing cost cuts, replacing leaders, or other often drastic measures. If the activists can rally other shareholders to join their cause, the company may have no choice but to acquiesce, at least to some degree. Why does owning shares automatically mean having power over a company? Is there no way to say "You buy shares, and the only right you acquire by it is participating in share price increases and an optional dividend we decide to pay or not"?

al2o3cr 9y ago
Companies can issue common stock both with and without voting rights; non-voting stock isn't welcome at some exchanges like the NYSE, for instance. Here's an article with more history: https://www.bloomberg.com/view/articles/2017-03-16/non-voting-shares-don-t-have-a-pretty-history https://www.bloomberg.com/view/articles/2017-03-16/non-votin...
throwaway9980 9y ago
Google and Facebook are structured this way. Multiple classes of stock, some with voting rights and most without. The founders own the majority of shares in the voting class and the public owns the majority of shares in the non-voting class. Larry/Sergei and Zuckerberg retain control indefinitely.
jasode 9y ago
>Is there no way to say "You buy [non-voting shares]" Yes, you can have multiple classes of shares[1], but the tradeoff is it makes the shares less desirable for investors. This means the pricing of shares will be lower (or possibly unsaleable) and you won't raise as much capital as you intended. If you have a company considering an IPO, your investment banker (e.g. Goldman Sachs, Credit Suisse, etc) will advise if the marketplace is willing to buy your non-voting shares. Facebook is an interesting example of having 3 classes of shares: Class A - 1 vote per share Class B - 10 votes per share (MZ holds these) Class C - 0 votes Facebook did not issue Class C when they went public in 2012. The non-voting shares were created in 2016.[2] Snap Inc on the other hand, issued non-voting shares right at the IPO. When you're a glamorous high-flying tech company, it's easier to entice investors with the less-desirable non-voting shares. Could Whole Foods have issued non-voting shares at IPO in 1992? They would have had to have agreement from their investment bank to underwrite them and market interest from the first wave of investors to buy them. You can't always have your cake (significant capital funding) and eat it too (outside investors get 0 votes). [1] http://www.investopedia.com/articles/fundamental/04/092204.asp http://www.investopedia.com/articles/fundamental/04/092204.a... [2] http://www.nasdaq.com/g00/article/facebook-shareholders-approve-creation-of-class-c-shares-cm638528 http://www.nasdaq.com/g00/article/facebook-shareholders-appr...

by Sujan 9y ago

al2o3cr 9y ago

Companies can issue common stock both with and without voting rights; non-voting stock isn't welcome at some exchanges like the NYSE, for instance. Here's an article with more history: https://www.bloomberg.com/view/articles/2017-03-16/non-voting-shares-don-t-have-a-pretty-history https://www.bloomberg.com/view/articles/2017-03-16/non-votin...

throwaway9980 9y ago

Google and Facebook are structured this way. Multiple classes of stock, some with voting rights and most without. The founders own the majority of shares in the voting class and the public owns the majority of shares in the non-voting class. Larry/Sergei and Zuckerberg retain control indefinitely.

jasode 9y ago

>Is there no way to say "You buy [non-voting shares]" Yes, you can have multiple classes of shares[1], but the tradeoff is it makes the shares less desirable for investors. This means the pricing of shares will be lower (or possibly unsaleable) and you won't raise as much capital as you intended. If you have a company considering an IPO, your investment banker (e.g. Goldman Sachs, Credit Suisse, etc) will advise if the marketplace is willing to buy your non-voting shares. Facebook is an interesting example of having 3 classes of shares: Class A - 1 vote per share Class B - 10 votes per share (MZ holds these) Class C - 0 votes Facebook did not issue Class C when they went public in 2012. The non-voting shares were created in 2016.[2] Snap Inc on the other hand, issued non-voting shares right at the IPO. When you're a glamorous high-flying tech company, it's easier to entice investors with the less-desirable non-voting shares. Could Whole Foods have issued non-voting shares at IPO in 1992? They would have had to have agreement from their investment bank to underwrite them and market interest from the first wave of investors to buy them. You can't always have your cake (significant capital funding) and eat it too (outside investors get 0 votes). [1] http://www.investopedia.com/articles/fundamental/04/092204.asp http://www.investopedia.com/articles/fundamental/04/092204.a... [2] http://www.nasdaq.com/g00/article/facebook-shareholders-approve-creation-of-class-c-shares-cm638528 http://www.nasdaq.com/g00/article/facebook-shareholders-appr...