Companies with Centralized Voting Power

[no_free_lunch]

I am looking at a company where there is a dual class structure with 99% of the voting being controlled by the founders.  I think they only control 10-20% of the equity.  Any thoughts as to what kind of discount should be applied based on this?

[Packer16]

It depends upon the character of management, if they are good capital allocators, do not take excessive comp & treat shareholders fair 5% is sufficient if not then a much larger discount is warranted.  One way to look at this discount is capitalize management's excessive benefits/salary @ 10% and divide by the market cap.

 

Packer

[LC]

Hey Keith, what does the 11% signify? I usually shy away from these kinds of situations unless mgmt is really special, but I think it's still a good skill to have (estimating controlling discount).

[Packer16]

The 11% was a typo for 10%.  10% is a rate of return for corporate expenses.

 

Packer

[LC]

Ah ok - makes sense now. Thanks

[no_free_lunch]

Thanks Packer. 

 

To avoid completely throwing away my research, I was working on Carvana based on a VIC write-up.  Company's growth rate is ~100% and at 2x sales it could be a multi-bagger.  However there is this weird ownership structure where the senior management have effectively all the voting.  Very interesting situation but hard to get a grip on profit margins and then this management thing.  For now I will just watch.

[Gregmal]

I've never really had an exact formula and usually just go with my gut instinct. Some companies with this type of voting structure are nearly worthless, others(ie FB) it really doesn't matter.