Snap Inc. (SNAP) , Blue Apron Holdings Inc. (APRN) and companies hoping to avoid activist investors in the public markets received a major blow after the company behind the S&P 500 Index moved Tuesday to exclude businesses that issue multiple classes of shares giving insiders control of votes from participating in the firm's indices.
Specifically, S&P Dow Jones Indices LLC said that starting on Tuesday companies listing with dual-class or multi-class shares that give insiders control or a measure of control will no longer be permitted to participate in their indices, including the S&P 500, S&P MidCap 400, and the S&P SmallCap 600. (The S&P Mid Cap 400 and S&P Small Cap 600 are the most recognized indices for small and mid-cap companies).
The move is a big deal because many big index funds, exchange-traded funds, index funds and public pension funds invest passively following major indices, such as the S&P 500. As a result, major institutional investors including big pension funds won't invest in companies that aren't part of the index. S&P notes that there is about $7.5 trillion benchmarked against its indices as of Dec. 31.
Existing multi-class companies, such as Alphabet, the company behind Google, and Facebook (FB) , will be grandfathered in, which means they can continue to list on the index. However, Snap, the company behind the Snapchat app, will not be included once it otherwise would have been eligible to participate. It took a step that was unprecedented in modern times by issuing only non-voting shares as part of its IPO, a move that represented the tipping point for institutional investors who had become dissatisfied with companies listing with dual-class structures. Blue Apron, which issued shares with multiple classes giving insiders control, also won't be eligible to participate. As a result, many major investors won't be investing in either anytime soon.