Imagine a case where Google's business tanks, shareholders wish to oust Larry Page, Larry & Sergey obviously won't budge, but activist shareholders manage to get Eric Schmidt on board. Eric + virtually all of the class A shares is enough to get voting control of the company (when the class C shares were created, it was because the voting rights of Larry + Sergey were just barely over 50%).

In this scenario, the class C shares will fall dramatically because the financial value of Google will be nearing nothing, but it's likely that the value of class A shares will skyrocket. Because an activist needs virtually all of them to rest voting control from the founders, there's a "corner the market" situation where the last few remaining holders can demand very large prices for their shares.

The difference in share price won't be that big. Your analysis isn't wrong, but you haven't followed it all the way through.

If there is a big difference in price then that's an arbitrage opportunity for somebody, in the end all shares have the same claim on the company and will get the same payout if Google is bought or split up. In this case there would be a bunch of people buying class C shares in anticipation of the activist shareholders winning. Additionally, the price of the voting shares won't go up that much because the activist investors can't pay more than what they perceive the value of the company to be.

There's a very different risk profile for the buyers of class A shares vs. class C shares in the scenario above. The activist shareholder is trying to make the future happen; the passive shareholder is trying to predict which future will happen. The activist shareholder has a lot more information available to him, notably how close he is to winning control of the company. Some of that information may leak via the stock price and cause a run-up of class C shares, but a passive shareholder faces significantly higher risk when trying to assess the likelihood of activist shareholders winning a proxy battle, because they don't know how many shares the latter has.

It's much like how Porsche cornered the market in Volkswagon shares. Until the last couple hours, the market at large had no idea how close they were to a corner.

Also, remember that the price of a stock is set at the margin, but the value of one's holdings is an average. Imagine that an investor has amassed 100M shares of Google at an average price of $20. If they get to 100,001K, the value of Google will shoot up to $50. It is rational for them to pay any price up to $3M for those last 1000 shares, because their profit if they get them all is $3B, but if they are missing even one of them, they get nothing.

Same reason eminent domain laws exist: without them, it is rational for a large organization to pay any amount up to the total value of the project to the last few holdouts that are preventing it from being completed.

The only flaw in such a strategy is that Larry and Sergey control the dominant share of all the voting stock. No outside investor can do a hostile takeover.

It'd require one of the two of them to defect for such a scenario to come to fruition.

The scenario above assumes that one member of the trifecta defects and votes with the activists. Looking at the numbers [1], I was wrong in remembering that Eric Schmidt (46M votes) + all class A shares (280M votes) could outvote the founders (460M votes total). But the scenario still holds if Sergey is the defector - it'd have to be him (230M votes) + 160M Class A shares (roughly 60% of the company) against Larry + Eric. Pretty unlikely scenario, but conceivable, particularly as the founders get older and their interests diverge.

[1] http://www.forbes.com/sites/chuckjones/2014/04/02/google-sto...

In certain circumstances, the price of nonvoting shares may not move with the price of voting shares. Consider a circumstance in which an activist investor seeks to gain control of a company. The voting shares will rise in value as a result of increased demand for the shares, while the nonvoting shares may not move at all.

When one of the holders of the B shares (the Google Trinity) dies and the shares are dissipated due to estate tax compliance.

The A shares are essentially inconsequential right now because voting is controlled and concentrated by the B share owners.

When and only when either the knowledge or preferences/valuation is different between the two groups. The other answers are just subsets of this.