thepremiumonvotingsharesandasubsequentreformofthe
law in 1999 reversed both effects.
58
Insummary,thepremiumforvotingsharesreflectsatleast
someof theexpectedvalueofcontrol.Therelatively large
premiumsinsomemarketssuggestthattheprivatebenefitsof
control are large in those markets and may very well
overwhelm the value of control.
ILLUSTRATION 13.5: Valuing Voting and Nonvoting
Shares
To value voting and nonvoting shares, we will consider
Embraer,theBrazilianaerospacecompany.Asistypicalof
mostBraziliancompanies,thecompanyhascommon(voting)
shares and preferred (non-voting shares).
Wevaluedthecompanytwice,firstunderthestatusquoand
nextunderoptimalmanagement.Withexistingmanagement
in place, we estimated a value of12.5 billion BR for the
equity;this wasbased ontheassumptionthatthecompany
would continue to maintain its conservative (low-debt)
financingpolicyandhighreturnsoninvestments(albeitwith
alowreinvestmentrate)atleastforthenearterm.Wethen
revaluedthefirmat14.7billionBR,assumingthatthefirm
wouldbemoreaggressivebothinitsuseofdebtandinits
reinvestment policy.
Thereare242.5millionvotingsharesand 476.7nonvoting
shares in thecompany and theprobability ofmanagement
changeisrelativelylow,partlybecausethebulkofthevoting
shares are held by insiders