Despite a debate over whether Under Armour’s proposed change in stock structure is good for shareholders, analysts who cover the company expressed confidence that strengthening founder Kevin Plank’s control would be a positive for the fitness and apparel maker’s future.
On Monday, Under Armour’s board of directors approved a change to the company’s stock structure in which current shareholders would receive a new, non-voting Class C share for each Class A or Class B share they currently own. The change needs to be approved by shareholders in an Aug. 26 meeting to go into effect.
Plank holds more than 90 percent of the Class B stocks, which have 10 times the voting power of Class A shares, giving him two-thirds of the voting shares despite just holding 16.8 percent of the overall stock. If Plank’s portion of the overall shares drops below 15 percent, the dual-class voting structure will dissolve.
Adding a third class would allow Plank to continue to sell shares while exceeding the 15 percent cutoff — permitting him to maintain control over the company’s future while Under Armour continues to expand.
“[M]aintaining our founder-led approach is in the best interests of Under Armour and all of its stockholders,” Plank wrote in a letter to shareholders.
Google’s tactic, too
This tactic has become increasingly common for technology companies, most notably Google, whose attempt to create a similar third class of stocks with no voting share led to a legal challenge from shareholders.
But Erik Schatzker of Bloomberg Television’s “Market Makers” expressed doubt that the “founder-led” strategy was a smart development for companies.
“In nobody’s book is this called good corporate governance,” Schatzker said.
“Under Armour stock has been a rocket ship to the moon. It appears to be a great company; he appears to be a great CEO. But why does he need to control the company? If he is as great as he appears to be, no board would ever want to get rid of him,” Schatzker added.
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 percent, from $3.25 to $82.78 per share.
Plank’s main form of compensation comes from selling shares. To complement a pay package of about $3.5 million last year, he has sold nearly $240 million of his own shares since the start of 2014.
Other analysts suggested that the addition of non-voting shares would take power away from shareholders.
Finance blog 24/7 Wall St. described the change as a “power grab” for Plank. “Management will have to answer even less [to shareholders] than they would have had to already,” 24/7 Wall St. editor-in-chief Jon Ogg wrote.
“If it seems like an underhanded move ultimately designed to chip away at shareholder power, that’s because it is,” wrote James Brumley of InvestorPlace.
But Plank’s track record should speak for itself, argued Camilo Lyon, who analyzes Under Armour for Canaccord Genuity, on the “Market Makers” program.
“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.
Sterne Agee analysts Sam Poser, Ben Shamsian and Elizabeth Bean agreed, pinning the company’s future on that “founder-led” approach.
“Mr. Plank’s long-term vision, patience, methodical growth, and commitment to the brand have been the recipe for the company’s (and stock’s) success,” the group wrote in a note.
“If you like what UA has done, you’ll want to keep the same game plan,” the note continued. “We believe that UA’s stock is largely based on the value of the brand, and the value of this brand is synonymous with its CEO.”
Under Armour’s stock rose 1.59 to 82.78 on Tuesday.