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After the spin-off of Hamilton Beach Brands from NACCO Industries I now own an equal number of A and B shares of Hamilton. Now here's the thing; the B shares have an interesting provision wherein they give a holder 10 votes a share (compared to 1 per share for A) but get converted to A shares if they are ever sold.

How is it possible to have a market for these shares? Anybody who "buys" a B share would actually get an A share. Is the market for these shares simply the market for the A shares, so you would sell your B shares at the market price of A?

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    Makes me wonder what happens if you gain ownership of these shared by other means (e.g. inheritance, marriage) – MSalters Oct 4 '17 at 19:13
  • @MSalters depends on the specific agreement. I don't recall which way it went in the last agreement like that I saw, but I'm pretty sure inheritance was explicitly mentioned. – Kevin Oct 4 '17 at 20:04
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Is the market for these shares simply the market for the A shares, so you would sell your B shares at the market price of A?

Yes that is correct.

The clause may be to get an advantage for holding share "B". This means that they can exercise more influence. Obviously for promoters this is good. As this can't be discriminatory, its offered to everyone. Eventually retail individual investors would sell these and they lose the voting power [while other promoters who hold continue to enjoy more voting power]. If there are more than one promoter blocks, they are locked; i.e. they can't exit easily as they can't fetch a premium for their block, in fact if one of the promoter block sells; the buyer promoter is at disadvantage as he loses the enhanced voting power.

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    From what I've read the hypothesis is that it was arranged like this to allow the founding family, who currently own just shy of 50% of the votes and aren't gonna sell, to get the controlling vote over time as other B shares get lost – Koen vd H Oct 4 '17 at 17:07
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    @koenvdh Facebook is/was trying to do the same to keep Zuck in charge while allowing him to sell shares. Split his shares into common ones and high voting power ones to let him sell the "bad" ones. – Mindwin Oct 4 '17 at 17:55
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They aren't destroyed, they are -- in your own words -- "converted". Thus, at the time of sale (which means "now", since you can sell them at any time), they'll have the value of A shares.

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    Small quibble - the B shares could theoretically hold more value than A shares, if the person currently holding them has some value gained by holding additional votes. This is not a value to a future buyer, but it could make the seller more hesitant to sell, thus raising their price above the equivalent A share value. Of course, if those votes are meaningless to you, this is a worthless attribute. – Grade 'Eh' Bacon Oct 4 '17 at 12:37
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    @Grade'Eh'Bacon But the higher value could never actually be monetarily realised, right? – Koen vd H Oct 4 '17 at 14:20
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    @KoenvdH Check out Dheer's answer below. In short, assume a company has 60,000 class B shares [so, 600,000 votes from B shares], and 400,000 class A shares [so, 400,000 shares from B shares]. For simplicity assume 1 person owns the B shares [they might be the original founder, who then took the company public], and the A shares are widely held by many individual investors. The B shares, in terms of straight value of ownership, own 60,000 / 400,000 of the company [if the company is worth $1M, their share is ~$130k]. However, they have full voting control. – Grade 'Eh' Bacon Oct 4 '17 at 14:30
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    Having voting control means the person with the class B shares could control the Board of Directors, and effectively appoint the CEO. This would impact their value so much, that people might even be hesitant to buy the class A shares, because their votes would be effectively meaningless. They would need to rely on the original founder to make proper decisions [he would be obligated, under corporate law, to not act in bad faith to harm the value of the class A shares]. Now this does happen, but all else being equal, the class A shares would rather have equal votes. – Grade 'Eh' Bacon Oct 4 '17 at 14:31
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    @Grade'Eh'Bacon Suppose there are 101 B shares and 1000 A shares. For someone without B shares the only way to ever get the majority is to reduce the number of B shares by buying at least 1 of them. This would make them worth more (you basically pay to get rid of other votes). Is that what you meant? – Christoph Oct 5 '17 at 8:02
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In theory there could be situations where the B shares would fetch a bigger price even if they get converted to A shares on sale, because someone might not like your voting power and could be willing to pay you to let go of those votes, thereby increasing their own influence, relatively speaking.

  • Right. Those who care about the voting power of the company may like to see as many B shares others hold as possible get converted to A shares. They might be willing to pay a premium to do it. – David Schwartz Oct 4 '17 at 23:49
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While you will sell your B shares at the market price of the A shares, extinguishing the additional voting rights of the B shares by selling them could increase the market value of A shares, so you would get the benefit of that increase.

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