Buy the MCDTA shares, instead of the MCDT shares, if one is
going to buy either one.
--------------McData (MCDT) 31.25 -3.74 (MCDTA) 25.80 -3.95: One company, two tickers. McData is by no means the only company to have more than one class of common stock being publicly traded. But the situation is nevertheless unique.
The MCDT ticker refers to the class B shares that were issued when this EMC (EMC) spin-off conducted its IPO on Aug 7, 2000. The MCDTA ticker is associated with the class A shares that were distributed to shareholders of EMC on Jan 24, 2001. The two classes of stock have the same relative rights with the exception of voting rights. Each class A share is entitled to 1 vote. Each class B share is entitled to 1/10th of 1 vote. Voting rights are certainly not the primary concern of most investors, but they do carry value. Determining just what the value is of the extra voting power of MCDTA vs MCDT is difficult, but we can at least state with confidence that the value is greater than zero. In other words, the additional voting rights of the class A shares should result in these shares trading at a premium to the class B shares. The reality is that the class A shares currently trade at an 17% discount to class B.
Explanations for this oddity generally involve theories about the supply of each class. Some suggest that the class B shares are not as readily available for short-selling (there are less class B shares outstanding: 29 mln vs 81 mln class A), others argue that the higher float of the class A might be creating excess supply (and a lower price) relative to the B class. Neither of these explanations are satisfying (explanations for irrational behavior seldom are). One additional possibility is that the media and analysts (Briefing.com included) have routinely reported on MCDT but not MCDTA. Because the MCDT shares were the first to be traded, it's not hard to see how this started, and perhaps it has significantly impacted relative demand for the two stocks.
Whatever the reason for the gap, new investors in McData should opt for the MCDTA shares given the discounted price and added voting power, and current MCDT investors should consider swapping into MCDTA. We have seen several cases of irrational market pricing in recent years, mostly related to spin-offs and tracking stocks, and they have always been corrected. It is more important to understand the strong pull of rationality in the long-term than to understand the reasons behind the current irrational behavior. - Greg Jones, Briefing.com |
