Google’s Non Voting Rights Shares and DVRs

by Manshu on April 13, 2012

in Investments

Google announced an unusual move today where they introduced a new class of shares that have no voting rights at all. Google already had two classes of shares – A shares that have one vote per share and B shares that have 10 votes per shares.

The founders own the bulk of the B shares and that gives them the ability to issue new stock without diluting their control over the company. The new class of shares they have issued is called the C class, and these shares won’t have any voting rights at all.

The way they are going to issue these new shares is to give a stock dividend of one C class share to each owner of a A class share, so everyone who owned one Google share will now own two shares – one class A and one class C.

Just like a regular split, or bonus issue – the stock price should drop by about half but in this case since the class C shares don’t have voting rights, they should trade at a lower price than the class A shares. Whether this will really happen or how deep the discount will be is anybody’s guess.

In an Indian context, this can be used to understand the concept of DVRs or Differential Voting Rights shares. Differential Voting Rights also mean that the owner of one class of share will have different voting rights from the owner of another class of shares.

Tata Motors is the most famous example of DVRs in India because it was the first one to issue DVRs, and it trades at a big discount to the Tata Motors ordinary share, something that it has done for quite some time. In the case of Tata Motors  – one DVR share has only one tenth the voting right of an ordinary share.

Currently, the Tata Motors DVR trades at Rs. 158, while the ordinary share trades at Rs. 285. The Financial Express had a story about this wide gap last year and how this was expected to close down, but for some reason this gap doesn’t seem to close.

The Tata Motors DVR also pays a higher rate of dividend than the ordinary share, and has a fairly good dividend yield as well.

These DVR type shares are a lot more common in the tech companies in the US than they are in India as Indian companies have probably not felt the need for protecting themselves against dilution of equity, and they’d much rather conserve cash than give it away in the form of higher dividends.

As far as retail investors are concerned, I don’t see how voting rights make much difference to them, and if you are the kind of person who likes to pick stocks and is looking for some stocks with good dividend yields that you can hold for long – the DVR space might offer some opportunities.

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{ 4 comments… read them below or add one }

aditya April 13, 2012 at 8:29 am

true manshu

the larger market still fancies tata motors shares nd give dvrs a miss.

may be in long run we can count on DVRs offering superior returns

for now, the gap remains…

Reply

Adithya Uday April 13, 2012 at 2:37 pm

Will these DVR have same divdends issued as normal share counterparts.

Reply

No2 April 13, 2012 at 4:27 pm

If the new C class shares have no voting-right and you get no dividend for it, why should they have any value? Who would buy them?

Reply

Ashok April 14, 2012 at 11:25 am

The C-Class shares will get dividends. Often the dividend yields are much better since the shares trade at a discount to the normal shares.

Reply

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