Shares of SunPower Corp., newly issued from former parent company Cypress Semiconductor, have begun to trickle onto the market this week.
Traded as "SPWRV," the Class B shares come with eight times the voting rights of the regular Class A shares trading on the Nasdaq under the ticker symbol "SPWR."
But despite their higher voting power, they have been trading at a lower price than the Class A shares - although the gap appears to be narrowing.
The Class B shares closed at $76.91 per share Tuesday, 12.1 percent less than the price of $87.51 per Class A share, and grew to $87.86 per share Thursday, or 7.4 percent less than $94.84 per Class A share.
"They are coming together; the gap is closing," Stephen Simko, an equity analyst at Morningstar, said Thursday.
The difference then widened slightly Friday as both stocks fell, possibly on the news that the U.S. House of Representatives passed a different renewable-energy tax-credit bill than the one approved by the Senate, which effectively means that the credits have not made it through Congress. Class B shares were worth $75.69 per share Friday, 9 percent less than $83.16 per share for Class A holdings.
Of course, it's hard to draw conclusions from the price gap, considering the low trading volume – the Class B shares saw a trading volume of 518,765 Friday, which was more than six times the volume of 3.2 million for Class A shares - and the uncertainty around the number of shares available at this point.
Simko said he doesn't know why the Class B shares are cheaper and expects the prices to level out, unless it turns out the shares have a so-far-unapparent disadvantage.
"We're not expecting to see a whole lot of difference between the classes [aside from] the voting rights implicit in the Cypress shares," he said. "All things being equal, you'd think the new shares would have higher prices."
It could be that the shares simply aren't on traders' radars yet, particularly at the low trading volumes. Comments on several Yahoo Message Boards indicate that traders also are wondering what to make of the differential.
Earlier this month, Cypress (NYSE: CY) announced it would begin to give away its remaining stake in SunPower, effectively completing the spinoff it began in 2005, when it took thesolar-panel firm public (see Cypress Gives Away SunPower Shares). The newly freed shares, which are being distributed to Cypress' shareholders, make up 52 percent of the company but hold 88.5 percent of the voting power.
According to a research note from Lazard Capital Management earlier this week, the first of the shares hit the market Monday, trading on a "when-issued" basis. But the shares are expected to be fully distributed and to begin regular trading under a new symbol, "SPWRB" on Tuesday. The Class A shares now trading as "SPWR" will switch to the symbol "SPWRA."
The move had been long-expected, as Cypress has said it planned to fully spin off its subsidiary.
"All the investors have been told that Cypress was examining putting them on the market, so we don't expect a drastic share price [change]," Simko said.
That expectation seems corroborated by the trading on Sept. 10, when the announcement happened, as SunPower shares grew 4.6 percent to close at $79.01 per share, while Cypress shares grew 4 percent to close at $27.26 per share.
In a sense, the spinoff didn't make a big difference to shareholders, who already had owned those SunPower shares by owning Cypress, which owned the shares, Simko said. And the company ruled that giving the shares away was the most beneficial way to distribute the shares because of the tax benefits, he said.
Because the SunPower shares are being distributed depending on ownership of Cypress –stockholders will receive approximately 0.27 of a Class B share for each share of Cypress they owned as of Sept. 17 – it might be helpful to look at Cypress shareholders to see who stands to benefit most from the Class B shares.
But 93 percent of the shares are owned by institutional and mutual funds. Fidelity Management and Research LLC owns the most, with 21.2 million shares, and another Fidelity group – the Fidelity Growth Company Fund – owns nearly 15 million shares, bringing Fidelity to a total ownership of 26.14 percent. Janus Capital Group has the second-highest ownership – 24.79 percent – with Janus Capital Management LLC owning 21.2 million shares and five Janus mutual funds owning a total of 16.4 million shares.
While Simko said the spinoff might be a nice benefit for shareholders and might not impact SunPower much at all, Erik Kobayashi-Solomon, a senior equity analyst of semiconductors at Morningstar, said it could have a longer-term negative effect on Cypress.
Shareholders might have weighed Cypress higher than they would otherwise have done because of the company's ownership of SunPower, he said. And that could mean Cypress could be in for a fall.
"I don't think Cypress' business is a very good one," he said. "I think it has been sort of propped up and obfuscated by SunPower over the last couple years as it used SunPower as a piggy bank to keep operating. I could see Cypress going up and up because of their holdings in SunPower, but ... there's no arbitrage anymore. Most of Cypress business generates operational margins in the single digits and that's just too low. Would you rather own a U.S. treasury bond or a Cypress share when they return about the same thing?"
His fair value estimate for Cypress alone, without SunPower, is a mere $13 per share.
Still, he said Cypress had reached a point where a decision had to be made because -- as it gradually released shares -- it was nearing the point of no longer being the majority stakeholder but, because of the class structure, still having most of the control. That's not a situation SunPower or other shareholders would likely have condoned.