Snap's (SNAP) unprecedented move to issue non-voting shares in its IPO represents the latest in an ongoing effort by technology companies to repel activist hedge fund managers, a top Silicon Valley attorney told a room full of big investors and regulators at the Securities and Exchange Commission on Thursday.
"Technology has become the sector that is most targeted by activists," Wilson Sonsini Goodrich & Rosati partner David Berger told an investor advisory committee that meets periodically at the SEC. "Activists are quick to target technology companies that may have missed a product cycle or technology transition, often with the encouragement of the institutional investors who hold the company's shares and frequently would rather sell the company and obtain the certainty of a premium for their stock.."
Palo Alto, Calif. -based Berger did not represent Snap in its IPO. However, he advised Google with its precedent-setting adoption of non-voting stock in addition to its voting shares, a key predecessor to the Snap issuance.
However, his view was decidedly a minority viewpoint among those gathered at the SEC. The panel was considering a broad range of institutional investor worries that Snap's non-voting share structure makes it unaccountable to its shareowners and impervious to activist institutions or insurgent hedge funds at its gate because its board makeup is controlled primarily by co-founders Evan Spiegel and Bobby Murphy. According to the Council of Institutional Investors, which is opposed to the structure, insiders will continue to control more than 90% of the votes at the developer of the popular disappearing-message app Snapchat, even as their ownership interest declines over time.