**Gamco's Bold Move: How Shareholder Activism Could Unlock Value at Lennar Corporation**

The Catalyst in the Crosshairs

Corporate governance isn't just about boardroom decorum-it's about unlocking value. And right now, Gamco Investors is making a compelling case that Lennar Corporation (NYSE: LEN) is leaving money on the table. The firm, which holds a 5.5% stake in Lennar's Class B shares, recently sent a Gamco letter to the board urging the inclusion of Class B shareholders in a proposed exchange of Millrose Properties Inc. shares. This isn't just a technicality; it's a strategic move that could reshape how Lennar balances its capital structure and treats its shareholders.

The Governance Quirk and the Discount Dilemma

Lennar's dual-class structure has long been a point of contention. Class B shares, which carry 10 votes per share compared to Class A's one, trade at a 7% discount despite having identical economic rights. According to AlphaSpread, Lennar's Cost of Equity is 7.29%, calculated using the Capital Asset Pricing Model (CAPM), while its Weighted Average Cost of Capital (WACC) is also 7.29%-a reflection of its 100% equity-based capital structure. This means the company's valuation hinges entirely on equity returns, making the Class B discount a glaring inefficiency.

The discount isn't just a number-it's a governance red flag. As highlighted in a Harvard Law School blog post, multi-class structures like Lennar's can distort shareholder democracy. Insiders, including Executive Chairman Stuart Miller, control 38% of voting power despite a smaller economic stake, skewing proxy vote outcomes. For example, Lennar's 79% approval rate for executive pay packages masks the reality that non-insider support likely hovers closer to 63%. This imbalance limits the board's accountability and creates a wedge between economic and voting power.

Gamco's Playbook: Capturing the Discount

Gamco's letter proposes a two-pronged solution. First, it wants Class B shareholders included in Lennar's exchange offer for Millrose Properties shares. Second, it suggests allowing Class B shareholders to convert their shares to Class A to participate in the deal. The logic is simple: By capturing the 7% discount, Lennar could generate immediate value for all shareholders.

This isn't just theoretical. Lennar's current exchange offer for Class A shareholders already offers a 6% discount for swapping shares into Millrose stock, according to Marketchameleon. If Class B shareholders were included, the company could potentially monetize the existing discount between its share classes, reducing the gap and boosting overall shareholder equity.

The Strategic Investor's Take

For investors, this situation presents a textbook case of governance-driven value creation. Here's what to watch:

1. Board Response: Will Lennar's board listen to Gamco's call for inclusivity, or will it double down on its current structure? A refusal to act could signal a lack of commitment to shareholder value.
2. Discount Compression: If the exchange is expanded, the 7% discount between Class A and B shares could narrow, creating a tailwind for Class B prices.
3. Proxy Fight Potential: The Harvard analysis shows how dual-class structures can mute dissent. If Gamco's push fails, it could embolden other shareholders to challenge Lennar's governance norms.

The Bottom Line

Gamco's letter isn't just a shareholder demand-it's a catalyst. By spotlighting the disconnect between Lennar's governance structure and its capital valuation, the firm is forcing the board to confront a simple truth: Shareholder value isn't just about profits; it's about fairness. As the debate unfolds, investors should keep a close eye on Lennar's next moves. In a market where governance is increasingly tied to performance, this could be the moment that defines the company's trajectory.