In a rough year for the TSX, Canadian Tire shares have been a winner, up more than 25 per cent through this week's trading.
An even better investment, however, has been Canadian Tire Corp. Ltd.'s thinly traded voting stock, also listed on the exchange. It has more than doubled in 2014.
It is a striking phenomenon. A number of other companies – Atco Ltd. and its listed subsidiary, Canadian Utilities, as well as Rogers Communications – all have both voting and non-voting shares trading on the Toronto Stock Exchange. For these, the premium the markets attach to the voting stock is slight, usually measured in the low single digits.
The premium for voting shares in Canadian Tire, however, has increased sharply in the past year and a bit, and is now hovering around 100 per cent. (The voting shares, listed under ticker CTC, closed Thursday at $252, versus the far more widely held non-voting shares, ticker CTC.A, at $125.18.)
The Canadian Tire voting premium was in the teens, percentage-wise, for about three years before starting an upward climb in the second half of 2013. The premium started the year around 25 per cent, stayed consistently above 50 per cent starting in August, and has been above 70 per cent since early November.
The bigger question, of course, is why.
I contacted a handful of analysts who cover Canadian Tire and didn't find too much excitement over the matter. (Daily volume in the voting shares can be zero, and rarely tops 1,000.)
Canadian Tire spokesman Duncan Fulton says since the two classes of shares have exactly the same economic rights (such as claims on dividends), "structurally, they should be trading at par."
However, he notes, there has been a price difference between the two classes for decades, and that difference has varied over time. (My research indicates there was a 100 per cent premium in early 2006, as well.)
"A number of people have asked the same question as you over the years, and put simply, no one can explain why there is a difference in price," he says. "And we're not aware of any reason why there should be a difference in price."
That's the problem, however: There's no economic reason for this to be happening. So whoever is bidding up the voting shares must believe that some sort of transaction is afoot.
While the public trades in the 76 million non-voting Canadian Tire shares, there are just 3.4 million voting shares.
Martha Billes, the daughter of the company's founder, owns 40.9 per cent of them, and her son Owen Billes owns another 20.5 per cent. Canadian Tire dealers and an employee profit-sharing plan own another 32.7 per cent. That leaves around 6 per cent of the shares, or a measly 200,000, available to trade on the TSX.
The Billes's voting shares are worth double what they were a year ago, making the stake $353-million for Ms. Billes and $176-million for her son. (Owen Billes also owns about 750,000 non-voting shares.) That's not chicken scratch, but it's just a sliver of what is a nearly $10-billion concern.
So, here goes: If someone wanted to buy the whole of Canadian Tire, would they be able to offer the same price to the Billeses as to the rest of the shareholders? Mmmm … probably not. How much of a premium would they have to pay? The market is clearly signalling that it's an awful lot more than the low teens.
Canadian Tire's corporate articles provide for a collapsing of the share structure and a vote for all shareholders if there's an offer that values the two classes of stock differently. The calculus for any buyer, then, is how much it can offer for the non-voting shares that will make the public shareholders happy enough to overlook whatever premium is given the Billeses and other insiders.
There are other possible transactions, one supposes, such as a collapsing of the share structure without a takeover, presumably better-executed than the expensive and controversial exercise carried out in 2010 at Magna International, or the company buying out the dealers' voting stake.
Those, or the idea of a takeover, is speculation, of course. And Mr. Fulton says Canadian Tire is not aware of any potential takeover bid. But I feel comfortable in saying this: If no one believed there was any prospect of some sort of transaction at Canadian Tire, there shouldn't be much of a premium on the voting shares at all. Somebody out there seems to think otherwise.