That’s not how they are spinning it, of course. Officially, Constellation Brands said the Sands Family has proposed declassifying Constellation Brand’s common stock, a move that would lead to a single-class common stock structure. Each Class B common share would the converted to 1.35 shares of Class A commons stock.
But that’s the practical effect. Currently the Sands Family controls 59.5% of CBrands’ voting power. If the move is approved, it would reduce the collective voting power of the family to 19.7%. Anything less than 50.01% voting power means the company can be taken private regardless of what the Sands might say.
Why the family is proposing the move is not known. What is certain is that the move will result in the family losing absolute voting control, and that will most likely lead to lower returns to shareholders. Research over the years has found that, over the longer term, family-controlled public corporations tend to outperform non-family controlled corporations.
It is also a fact that once a business-controlling family sees its voting power dip below 50.1% of all shares, the company is open to a hostile takeover. That’s what happened to Anheuser-Busch, and it’s also what happened to the Cadbury chocolate company. The Cadbury family’s voting control dipped below 50%, and while the family, like the Sands family, remained the largest shareholder, Kraft bought up smaller shareholders until it became the largest shareholder, at which point it bought out the Cadbury family.
CBrands’ situation is much closer to that of Anheuser-Busch: 4.5% of shares are held by CBrands insiders, and 84.23% of shares are held by institutions. So the Sands Family just hung a “for-sale” sign on the company.
This is a different approach than taken by the Brown Family of Brown-Forman Corp. or the Ford Family of Ford Motor Co. The Brown family has been very clear that their No. 1 objective is perpetual family control, and their two-class stock structure is designed to ensure that happens.
As for Ford Motor Co., the Ford Family owns only 2% of all stock outstanding. But it control 40% of voting power, and Bill Ford Jr., the company’s chairman, directly owns 16.1 million, or 23%, of the Class B shares, which are only available to descendants of founder Henry Ford. That’s quadruple the roughly 4 million, or 5.7%, he owned in 2012.
“I think it’s really important that the family legacy continue. It gives us a face and maybe a humanity that a lot of other companies don’t have,” Bill Ford Jr., says.