Details about  KREUGER & TOLL 1 "B"share - Swedish Engineering Company

KREUGER & TOLL

1 "B" share

Stockholm 1928

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B-Shares

Kreuger financed his activities by selling shares and bonds of his companies as well as through large bank loans, mainly the last two. The use of debt in addition to equity is called leverage and it magnifies both gains and losses.

With respect to selling shares, he invented Dual Class Ownership shares since he did not want to lose control of his companies. He called the class of shares with reduced voting power B Shares. One of Kreuger's biographers, Frank Partnoy, called it "an ingenious piece of financial engineering." Ivar began with Swedish Match where he divided the common shares into two classes. Each class would have the same claim to dividends and profits, but the B Shares would carry only 1/1000 of a vote, compared to one vote for each A Share. In this way Ivar could double the size of his capital, while diluting his control by just a fraction of a percent.

Presently such shares are sometimes called A Shares with the B Shares having more voting power, as is the case with Google for instance where they carry ten times more voting power than the A Shares.

As already stated, these types of shares are used to this day although, unlike in Kreuger's time, there are often restrictions in some markets and/or jurisdictions nowadays. The New York Stock Exchange, for example, allows companies to list dual-class voting shares. Once shares are listed, however, companies are not allowed to reduce the voting rights of the existing shares or issue a new class of superior voting shares.

There is a wide range of dual-class share structures and their use between countries. In Canada, for example, an estimated 20% to 25% of companies currently listed on the TSX make use of some form of dual-class share structure or special voting rights. In the United States on the other hand, where rules on dual-class shares are much more restrictive and investor opposition is more vocal, just over 2% of companies issue restricted shares.