| Some smart investors see value in Mueller Water | | | | Regardless, there is a nonsensical discrepancy in price |
| Products (MWA). They're probably right; but, Mueller | | | | between the A shares and the B shares. |
| isn't the kind of situation that jumps out at me as a | | | | Anyone looking to make a new investment in Mueller |
| clear bargain I can understand. However, there is | | | | should buy the B shares. There's no reason to touch |
| something peculiar about this situation that makes it | | | | the A shares until they are trading at a discount to the |
| worth writing about. (Note: The information in this article | | | | B shares. |
| was current as of Friday, April 6th, 2007 - please | | | | Owners of Mueller A shares who currently hold those |
| consult current market quotes). | | | | shares in a manner that would cost them less than |
| There are two shares of Mueller Water Product | | | | $0.34 a share to sell should immediately begin selling |
| common stock - Series A common stock and Series | | | | their A shares and putting the proceeds into the B |
| B common stock. There are roughly three times as | | | | shares. Doing so would slightly increase their economic |
| many B shares as A shares. The A shares and B | | | | interest in Mueller's business, greatly increase their |
| shares have identical economic rights. So, ownership of | | | | voting power - and, over the long-term, possibly |
| all of the B shares would provide a roughly 75% | | | | provide additional appreciation in the share price, if and |
| economic interest while ownership of all of the A | | | | when the B shares consistently trade at a premium to |
| shares would provide a roughly 25% economic | | | | the A shares. |
| interest. | | | | Do the B shares have to trade at a premium to the A |
| Here's where things get interesting. "Shares of Series | | | | shares? Technically, no. But, in the future, it's possible |
| A common stock and Series B common stock | | | | that circumstances may make the B shares far more |
| generally have identical rights in all material respects | | | | attractive to certain investors. The A shares are |
| except Series B shares have eight votes and each | | | | extremely unattractive to any large shareholder who |
| Series A share has one vote per share." | | | | isn't committed to complete passivity as close to 96% |
| So, what's the premium on the B shares? There is | | | | of the votes are tied to the B shares - the A shares |
| none. The last trade on Mueller A shares (MWA) was | | | | are essentially non-voting shares. |
| at $13.98; the last trade on Mueller B shares (MWA.B) | | | | Furthermore, there are fewer A shares, so it would be |
| was at $13.64. Buyers of the A shares are currently | | | | more difficult for a large investor to acquire a |
| paying $0.34 a share more to reduce their voting | | | | meaningful economic interest via the A shares without |
| power by 87.5%. | | | | moving the price of those shares. |
| You can't convert A shares into B shares or B shares | | | | While some investors might have very good reasons |
| into A shares. If you could, there would be a profit in | | | | for buying the B shares when they trade at a higher |
| simply buying, converting, and selling. Unfortunately, you | | | | price than the A shares - no one has a good reason |
| can't do that. So, there's no "manual" arbitrage | | | | for buying the A shares when they trade at a higher |
| opportunity here. Obviously, you can bet that the | | | | price than the B shares. |
| discount on the B shares will be eliminated - but, the | | | | Right now, the choice seems simple - dump the A |
| market has to close the gap for you. | | | | shares; buy the B shares. |