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Sunday, August 13, 2017

Snap to be excluded from S & P 500 index

The S&P 500.SPX will begin next Tuesday to exclude from the index companies that issue multiple classes of shares. This would include Snap Inc (SNAP.N) that recently decided to issue shares with no voting rights.

The decision will not apply to existing components of the index that already had several classes of shares such as Alphabet parent of Google (GOOGL.O) and Berkshire Hathaway Inc (BRKa.N). The S&P said in a statement: "Companies with multiple share class structures tend to have corporate governance structures that treat different shareholder classes unequally with respect to voting rights and other governance issues."
The move reflects a toughening stance by the S&P and the investors they represent on the importance of governance rights. This will create problems for some high-growth companies, often in the area of technology, who worry about offering full voting rights when they go public as the early promoters and founders may lose control of the company.
Snap had launched a $3.4 billion initial public offering (IPO) last March, the third largest ever of a U.S. tech company. Some investors were taken aback by the company decision to offer new investors a common stock class that had no voting rights.
In a volatile session last Monday which allowed early investors to sell their shares for the first time since its IPO, the company's stock closed down one percent at $13.67 after declining in intraday trading up to 5.1 percent and hitting a record low.
The FTSE Russell has also said it planned to exclude Snap from its stock indices. So far Snap has refused to comment on developments. Inclusion in stock indices is an important milestone for young companies as it results in the shares being included in many funds.
Snap Inc is a U.S. technology and social media company founded in September 2011 by Evan Spiegel and Bobby Murphy. It is based in Venice, Los Angeles. It has four products: Snapchat, Spectacles, Bitmoji and Zenly. When it filed documents for its initial IPO in November of 2016 it estimated its market value at $25-35 billion. The company opened research and development facilities in Shenzen China in December of 2016. In January 2017 the company established international headquarter in London, UK. In May, Snap Inc acquired the location sharing app Zenly in a cash and stock deal.
Snap shares closed at new lows on Wednesday and short sellers closed out their bets after having made large profits. There are very high costs to borrowing Snapchat shares a factor that is preventing many short sellers from making bets on any further declines in the price of the stock.
On Wednesday short sellers had to pay about 65 percent annualized intererst rate to borrow Snap shares although 500,000 shares were reported to have just been loaned out at a 90 percent interest rate. The early investors Lightspeed Venture Partners were allowed to sell up to 400 million shares starting last Monday. Employee owners will be allowed to sell another 782 million shares as of August 14 just four days after Snap is to have reported it quarterly results according to Doug Anmuth an analyst at JP Morgan.


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