Under Armour Inc. plans to create a new class of stock without voting rights, mimicking a tactic by Google Inc. that will preserve the sway of founder and Chief Executive Officer Kevin Plank over the company.
The Class C stock will be distributed to owners of Class A and Class B shares, having the same effect as a 2-for-1 split, the Baltimore-based maker of athletic apparel said in a statement Monday. The ticker symbol and record date for the new shares haven’t been set yet.
Moving to three classes of stock helps maintain the company’s “founder-led” approach, Plank said in a letter on the Under Armour website. The current dual-class voting structure was set to end if his stake fell below 15 percent, a prospect that was becoming more likely, he said.
“Dilution from regular employee equity-based compensation and other possible dilution, such as stock-based acquisitions or equity financings, as well as any sales of stock by me, bring us closer to this 15 percent sunset provision,” he said, “and could ultimately undermine our current governance structure.”
Investors sent the shares up in Tuesday’s trading, suggesting that they didn’t generally oppose the move. The stock, which had already gained 20 percent this year, climbed 1.2 percent to $82.15 as of 11:32 a.m. in New York.
Creating two and three classes of shares has become an increasingly common way for founders to maintain power at businesses, especially technology companies. The approach has attracted controversy, though. When Google moved to create a third class of stock, it faced criticism and a legal challenge.
In Under Armour’s case, the dual-class structure will end if Plank leaves the company. He also signed a noncompete agreement for the first time, a move that could reassure investors the 42-year-old isn’t going anywhere.
“I would be very surprised if he stepped down,” said Corinna Freedman, an analyst at BB&T Capital Markets in New York. The recent departure of Chip Wilson, founder of Lululemon Athletica Inc., may have prompted Under Armour to consider the noncompete clause, Freedman said.
Wilson, who had battled the company’s management over strategy, resigned as a board member in February, saying he planned to spend more time on a luxury performance clothing company his wife and son founded.