Sunday, May 1, 2011

Amar Bose's billion-dollar donation

Former MIT Professor Amar Bose has decided to make a large bequest to his former employer and alma mater, the Massachusetts Institute of Technology. (I give to the same alma mater, but my donations are about about 0.00001% as much).

Bose announced Friday he’s giving to MIT a majority of the shares of his privately held company, Bose Corporation. In the fiscal year ending April 2010, the company had an estimated $2.2b in revenues and 9,300 employees.

The stock comes with restrictions: MIT cannot “participate in the management or governance of the company.” Thus, the NY Times (eager to invent scandal where none exists) imagines this is some sort of tax dodge.

Instead, it’s an attempt to split the economic benefits of ownership from voting control. The Times should understand, since the New York Times Company (like many family owned media companies) has a publicly traded Series A stock and a privately held Series B supervoting shares that give the Sulzberger family control of the company.

The terms of the restrictions have not been publicly revealed, and may never be so revealed. It would make sense for the company to formalize the two classes of stock, which would then make Bose a large ESOP in which the voting shares are held only by current (and former?) employees.

What is Bose Corp worth? Probably at least $3 billion. Harmon International (NYSE: HAR) — a smaller and less profitable specialty audio competitor — seems to sell for about 1.4x trailing sales.

So even with the stock restrictions, a majority of the Bose Corp. shares have to be worth over a billion dollars. Microsoft pays a 2.5% dividend and Intel a 3% dividend, suggesting the Bose shares should pay MIT an annual dividend of $25 million or more.

That’s not a huge number for a nonprofit with a $2.4b annual operating budget, but it is more than 10% of the Institute’s $238m annual tuition revenues.

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