Private and Social Benefits in Dual Class Share Unifications – Evidence from Italy

An increasing number of firms with dual class shares are deciding to unify their shares around the world. Though the return to “one share one vote” is usually considered good news, the unification can give rise to a wealth transfer between the two classes of shares, especially in the presence of high voting premia and no form of compensation to voting shareholders. These conditions characterize most of Italian dual class unification (DCUs) made in the 1982-2005 period. Italian DCUs, differently from any other country, gave rise to a significantly negative reaction of the voting shares and no significant variation in the firm’s overall value. The actual reactions on the two classes of shares also appear well aligned with what expected from a wealth-transfer framework developed in the paper. Changes in firm’s value are positively correlated with larger ownership of the largest and second largest shareholders, while negative correlated with high voting premia and large fractions of nonvoting equity Unification as a new form of (minority voting) shareholders’ expropriation is further confirmed by five case studies where the majority shareholder buys relevant blocks of nv-shares, sells voting shares or approves stock option plans on nv-shares just some months before the unification announcement.