I saw a mention today that Canadian Utilities is offering to covert it’s thinly traded class B voting shares to Class A non-voting shares on a one-for one basis. The parent ATCO Inc. controlled by the late Ron Southern’s family owns 97.4% of the B shares. The comment I saw recommended owners of the B shares accept the conversion offer.
From a sort of purist point of view it sounds better to have owned the voting shares. But from a practical perspective the votes of the 2.6% public owners counted for nothing and the thin trading is a disadvantage in buying and selling. (Larger bid/ask spread, higher volatility).
I have not looked in detail but checking prices at end of January, February and March 2023 it does not appear that the voting shares traded at a consistent premium. Basically it appears that the market did not place any additional value on the votes given the 97.4% majority owner.
That makes sense and I recall a few other cases over the years where a thinly traded share class had more votes but the market did not provide much if any premium.
But Canadian Tire has been an exception to that going back I believe to the late 80’s.
Canadian Tire’s thinly traded voting shares CTC on Toronto have traded at a very large premium over the non-voting heavily traded CTC.A shares. As of right now I see CTC at $271, up 6.25% total on just 228 shares traded. That’s a HUGE premium of 87% over the non-voting CTC.A shares at $145.09 up 2.1% on 48,627 shares traded as of 1:22 pm eastern.
So why do Canadian Tire’s thinly traded voting shares consistently trade at a huge premium? That’s a mystery. The “non-voting” shares actually now get to elect three directors in a change that was made I believe a few years ago. That should reduce the premium on the voting shares but it has not. Also the dividend on the non-voting shares is one penny higher per year but that’s pretty minor.
Martha Billes, daughter of a founder of Canadian Tire, together with her son Owen Billes, owns 61.4% of the voting shares. The Dealers Association owns 20.6% of the voting shares (and they may or may not have an agreement to have a Dealer or three on the Board and there are currently three dealers on the Board). The employees share owners plan owns 12.2% of the voting shares. This leaves only about 6% of the voting shares available for trading.
I’ve looked into this and it appears that the three main owning groups have made an agreement not to buy additional voting shares as their percentages have remained constant for a long time.
And, importantly, there is a “coattail” provision (see note 26 of the annual financial statements) whereby if there is a bid to buy “all or substantially all” of the voting shares then the non-voting shares become voting. That should mean they would not pay a big premium for the voting shares. Given this I was surprised that there is a big premium on the voting shares. But , I suppose this leaves open the possibility for someone to just buy control from Martha Billes (with or without Owen Billes shares) without triggering the coattail and that may explain the premium. Then again would they have to buy the public’s shares? Or maybe the thinking is that one of the three controlling owner groups would buy out the public shares at a big premium at some point without triggering the coattail.
In the end it remains a long-standing mystery. In my view it is risky to hold the voting stares. There is probably a far bigger chance that the premium goes away at some point as opposed to someone buying the A shares at a big premium.
In summary, there are complexities when there are voting and non-voting shares and the usual advice for investors is not to pay much premium for voting shares. And if you do not intend to hold long term then stick with the higher volume share class.