Inferior Class Activist says "No" to Family Discount

Discovery Equity Partners LP is hoping institutional investors recognize that investors are being kept down by a dual-class structure at a Florida broadcaster, Spanish Broadcasting System Inc. Now the insurgent fund manager has some high-profile help.


The insurgent fund manager's "just vote no" campaign targeted at the board of the Coconut Grove, Fla.-based broadcaster received the support of the influential proxy adviser Institutional Shareholder Services Inc., according to regulatory filings late Thursday.

Discovery Equity Partners, which owns a 9.8% Spanish Broadcasting stake, launched its "vote no" campaign in April based on its argument that the company has a "family discount" because control of the board is placed in the hands of the company's CEO, Raul Alarcon, through a super-majority voting structure. This leaves institutional and individual investors, who hold a huge chunk of the broadcaster's economic value, out in the cold.

The insurgents recognize their "just vote no" campaign won't have any binding impact on the company's board, but it could just embarrass the CEO into effecting some change for shareholders prior to the business' June 3 annual meeting. The activists want Spanish Broadcasting to establish a special committee, hire an investment banker and consider a sale.

"Discovery recommended that the Board establish a Special Committee to hire an investment bank to pursue three specific options; going private, a sale of the company, and a revamping of the Company's corporate governance," the activists wrote. "Based on its meetings with several major media players, Discovery believes that industry consolidation has made Spanish Broadcasting a prized and highly strategic target for takeover."

Their efforts may be boosted by a study released in May 2008 by professors at Harvard, Yale and Stanford, which examines "the inferior class" and why companies set up dual-class voting structures. - Ron Orol