Two Classes of Stock, One Outrage

This column was originally published on RealMoney on Jan. 9 at 10:58 a.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

"Emmis Investor Seeks End of Dual-Class Stock" is the headline on a Wall Street Journal story about Martin Capital Management trying to get Emmis'(EMMS Quote) Jeff Smulyan, CEO and chairman, to eliminate the main obstacle to takeover, the A and B shares.

Of course, dual classes protect management. In this case, Smulyan has control of 66% of the votes with less than 20% of the shares.

That's a similar situation to the one of the activists who're trying to change the voting control provisions at The New York Times(NYT Quote).

Fools.

The reason management set up the two classes of stock is because they never want anyone to have control other than themselves. Undoing it is like saying, "We want to lose control." Why would they want that?

When we started TheStreet.com(TSCM Quote), the bankers asked us if we wanted to have two classes of stock, because many media companies desire such a structure so they can insulate themselves from pressure.

I asked them, in my own ridiculous bluntness: "Are you out of your minds? Why would I want to hose our own shareholders?"

That's what these two classes of stock do. I think they are an outrage. One man, one vote should be the only standard.

What I don't get is who in heck would want to own one of these companies, especially when the only way out when they go bad is to sell your own stock, not to sell the company? The notion of value is hidden and never to be unlocked.

I believe that those who are trying to wrest these companies away from their owners are wasting their time. Go get other stocks. And those who are speculating that these stocks are worth getting into, now that these managements are being pressured?

Don't waste your time.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Emmis Communications to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.