Some Smart Investors See Value In Mueller Water Products (MWA). They're Probably Right; But, Mueller Isn't The Kind Of Situation That Jumps Out At Me As A Clear Bargain I Can Understand. However, There Is Something Peculiar About This Situation That Makes It Worth Writing About. (Note: The Information In This Article Was Current As Of Friday, April 6th, 2007 - Please Consult Current Market Quotes).There Are Two Shares Of Mueller Water Product Common Stock - Series A Common Stock And Series B Common Stock. There Are Roughly Three Times As Many B Shares As A Shares. The A Shares And B Shares Have Identical Economic Rights. So, Ownership Of All Of The B Shares Would Provide A Roughly 75 Economic Interest While Ownership Of All Of The A Shares Would Provide A Roughly 25 Economic Interest.Here's Where Things Get Interesting. "Shares Of Series A Common Stock And Series B Common Stock Generally Have Identical Rights In All Material Respects Except Series B Shares Have Eight Votes And Each Series A Share Has One Vote Per Share." So, What's The Premium On The B Shares? There Is None. The Last Trade On Mueller A Shares (MWA) Was At 13.98; The Last Trade On Mueller B Shares (MWA.B) Was At 13.64. Buyers Of The A Shares Are Currently Paying 0.34 A Share More To Reduce Their Voting Power By 87.5. You Can't Convert A Shares Into B Shares Or B Shares Into A Shares. If You Could, There Would Be A Profit In Simply Buying, Converting, And Selling. Unfortunately, You Can't Do That. So, There's No "manual" Arbitrage Opportunity Here. Obviously, You Can Bet That The Discount On The B Shares Will Be Eliminated - But, The Market Has To Close The Gap For You. Regardless, There Is A Nonsensical Discrepancy In Price Between The A Shares And The B Shares.Anyone Looking To Make A New Investment In Mueller Should Buy The B Shares. There's No Reason To Touch The A Shares Until They Are Trading At A Discount To The B Shares. Owners Of Mueller A Shares Who Currently Hold Those Shares In A Manner That Would Cost Them Less Than 0.34 A Share To Sell Should Immediately Begin Selling Their A Shares And Putting The Proceeds Into The B Shares. Doing So Would Slightly Increase Their Economic Interest In Mueller's Business, Greatly Increase Their Voting Power - And, Over The Long-term, Possibly Provide Additional Appreciation In The Share Price, If And When The B Shares Consistently Trade At A Premium To The A Shares. Do The B Shares Have To Trade At A Premium To The A Shares? Technically, No. But, In The Future, It's Possible That Circumstances May Make The B Shares Far More Attractive To Certain Investors. The A Shares Are Extremely Unattractive To Any Large Shareholder Who Isn't Committed To Complete Passivity As Close To 96 Of The Votes Are Tied To The B Shares - The A Shares Are Essentially Non-voting Shares. Furthermore, There Are Fewer A Shares, So It Would Be More Difficult For A Large Investor To Acquire A Meaningful Economic Interest Via The A Shares Without Moving The Price Of Those Shares. While Some Investors Might Have Very Good Reasons For Buying The B Shares When They Trade At A Higher Price Than The A Shares - No One Has A Good Reason For Buying The A Shares When They Trade At A Higher Price Than The B Shares. Right Now, The Choice Seems Simple - Dump The A Shares; Buy The B Shares.
