Blue Apron’s IPO: New Recipe for Founder-Led Firms?

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By Andrea Vittorio

Blue Apron Holdings Inc.’s three-tiered stock structure could provide a model for other young firms looking to maintain founder control even after going public.

The meal-kit delivery company plans to issue 30 million shares of common stock at $15 to $17 each in its upcoming initial public offering, according to a June 19 regulatory filing. Those shares will each carry one vote while Blue Apron’s chief executive officer and other holders of a second share class get 10 votes each, giving them control of voting outcomes. A third class of stock without voting power is not being sold now but could be later.

Stock structures with unequal voting rights have become more popular in recent years with companies from Facebook Inc. and Fitbit Inc. to GoPro Inc. and Google. Snap Inc., the company behind the Snap Chat messaging app, recently became the first in the U.S. to go public with stock lacking any voting rights. Those shareholders have no say in company matters such as board elections and pay policies.

The flak that Snap got from institutional investors who favor a one-share, one-vote policy likely played into Blue Apron’s thinking.

New Model?

“I think what you see with Blue Apron will be a lot more typical than what you saw with Snap,” David Berger, a Palo Alto, Calif.-based partner at the law firm Wilson Sonsini Goodrich & Rosati, told Bloomberg BNA. Berger helped Google, now part of Alphabet Inc., with its precedent-setting adoption of non-voting stock a decade after its IPO.

Unlike Google, Blue Apron won’t have to get approval from public shareholders to create no-vote shares. And unlike Facebook, it could avoid a lawsuit from minority shareholders, who took issue with the board’s process for approving a new share class that lets founder Mark Zuckerberg maintain voting control even if he sells most of his stock.

The Council of Institutional Investors’ executive director Ken Bertsch said Blue Apron’s approach is also “slightly better” than Snap’s because initially offering voting shares means it will have to provide more disclosures and hold annual shareholder meetings.

“Some of our members think that’s quite a significant difference,” Bertsch told Bloomberg BNA. “Others think it’s a difference but not terribly significant.”

Stemming Tide

Since Snap’s IPO, the council has been appealing to index providers to bar non-voting stock from their benchmarks. S&P Dow Jones Indices is seeking feedback from the investment community on the subject, as are FTSE Russell and MSCI Inc., both of which have put forward proposals to establish a voting power threshold for companies to meet.

The world’s third-largest asset manager doesn’t think index providers should be held responsible for stemming the tide of companies that “marginalize their investors” by issuing shares with unequal voting rights. Profit-seeking stock exchanges that compete for company listings aren’t likely to restrict issuances of no- or limited-voting rights either, State Street Global Advisors said in a recent paper.

“We think there should be some regulatory review of these practices and whether they’re in the best interest of the public investor,” Rakhi Kumar, head of environmental, social, and governance investments and asset stewardship at State Street Global Advisors, told Bloomberg BNA. Kumar spoke out on the importance of equal voting rights earlier this year at a meeting of an advisory committee for the Securities and Exchange Commission.

An SEC spokeswoman declined to comment on what the commission took away from that meeting. It doesn’t seem likely the agency will step in, since its new chairman, Jay Clayton, has been vocal about the need to reverse the decline in the number of publicly traded companies and IPOs in the U.S. Clayton’s first high-level hire at the commission was an attorney who worked on the IPO for Alibaba Group Holding Ltd. and a number of other companies with dual-class stock.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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