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Here’s how Under Armour’s stock split will boost Plank’s control of company

Kevin Plank, President and CEO of Under Armour, speaks at the Under Armour 2012 shareholders meeting at Tide Point. (Maximilian Franz/The Daily Record)

Kevin Plank, President and CEO of Under Armour, speaks at the Under Armour 2012 shareholders meeting at Tide Point. Under Armour’s board of directors has approved a change in the company’s stock structure that would let the company continue to expand while letting Plank keep control. (Maximilian Franz/The Daily Record)

Under Armour’s board of directors approved a change to the company’s stock structure that would permit the company to continue expansion while also allowing founder and CEO Kevin Plank to maintain control.

The 2-for-1 stock split, which needs approval by shareholders at an Aug. 26 meeting before going into effect, would create a third class of stock with no voting power. Shareholders would receive one Class C share for each Class A or Class B share they currently own.

Under the current dual-class structure, Class B stock has 10 times the voting power of Class A stock, and Plank holds more than 90 percent of the more-powerful Class B shares.

Plank owns 16.8 percent of the overall stock and two-thirds of the voting shares. But if Plank’s portion of the overall stock drops below 15 percent, the company’s dual-class voting structure will dissolve.

The Baltimore Sun explained that Plank’s main form of compensation comes from selling shares—since the start of 2014, Plank has sold shares worth more than $190 million. Adding a third class would allow Plank to continue to sell shares while exceeding the 15 percent cutoff.

In addition, the new class would also allow the company greater flexibility in giving out shares for corporate use, including equity-based compensation and stock-based acquisitions.

“The dividend is designed to maintain our governance structure over the long-term, not result in any immediate changes to any stockholder’s voting power,” Plank wrote in a letter to shareholders on Monday.

“[M]aintaining our founder-led approach is in the best interests of Under Armour and all of its stockholders,” he added.

Plank also praised the company’s growth over the last decade. Since Under Armour’s IPO in 2005, the company’s revenue has grown from $281 million to $3.1 billion, and the stock price of Class A shares has increased by 2,401%, from $3.25 to $81.29 per share.

As Bloomberg discussed, the tactic of adding a new class of non-voting stock has become common in technology companies as founders seek to retain control of their businesses. More specifically, numerous analysts have compared this proposal to a recent move by Google, which conducted a similar split to create a third class with no voting share.

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“Google founders Larry Page and Sergey Brin have some company,” The Financial Times wrote.

USA Today was blunt in its comparison: its article’s headline read, “Under Armour pulls a Google.”

And Forbes spun a sports reference to compare the two moves, claiming that Under Armour was taking a page from Google’s playbook.

Google’s play “was met with criticism and complaints from shareholders,” Forbes said, but a legal challenge was settled in June 2013 and the new class came into effect in April 2014.

“Google’s voting Class A shares have fallen 4.4% since, while the nonvoting Class C shares are down 6.8% over the same span,” Forbes’s analysis added.

Recent misstep: Under Armour pulls ‘Band of Ballers’ shirt

Camilo Lyon, who analyzes Under Armour for Canaccord Genuity, said he doesn’t expect similar legal pushback from Under Armour’s shareholders because of how well the company has performed under Plank’s leadership.

“Kevin Plank is undoubtedly the heart and soul of Under Armour. He’s done extremely well for shareholders over the years by focusing on long-term goals and the direction of the brand. There’s no one else that I can think of that would be better suited for taking Under Armour to the next state,” Lyon said.

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Per financial news service TheStreet, Under Armour’s stock rose 0.37% in after-hours trading after the announcement of the split yesterday. The site’s rating team assessed Under Armour stock as one to buy, saying that although it is expensive compared to the rest of the industry, the company’s strengths justify the extra expense.

“The company’s strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, solid stock price performance and largely solid financial position with reasonable debt levels by most measures,” the rating report said.

Making strides in professional sports:  Under Armour challenges Nike with Curry in NBA Finals | Under Armour seeks to register marks associated with NBA star Curry | With Spieth, Under Armour scores a hole in one

Of course, with Under Armour’s top basketball endorser, Stephen Curry, just one game away from winning the NBA Finals, Twitter talk about the company was more focused on the surge in popularity the company might expect from its star athletes performing well.