Robert McEwenLouie Palu/The Globe and Mail
When Robert McEwen decided to give up his multiple-voting shares of Goldcorp Inc., he hoped the move would bolster the company's share price. It worked beyond all his expectations.
"I felt one way to turbo-charge our stock was to give up control," said Mr. McEwen, who has since left the company and now runs exploration firm Minera Andes Inc.
He was right - Goldcorp's shares climbed 12 per cent in the first five days after he announced his plan in 2000 and continued to climb over the longer term.
Magna International Inc. saw a similar reaction Thursday after founder Frank Stronach announced he was willing to give up his multiple-voting shares in Magna, pushing the company's shares up 14 per cent on the Toronto Stock Exchange.
Now investors are scanning the long list of remaining dual-class companies in Canada to see who may be next to abandon the unpopular ownership structure for the lure of a share-price boost. The guessing game may not find an explosion of copycats, however, with many of Canada's remaining family-owned companies still firmly attached to the protections offered by dual-class shares.
Ted Johnson, spokesman for Power Corp. of Canada, controlled by Montreal's Desmarais family, says his firm has faced no recent pressure from investors to abandon its dual-class structure, which has been in place since 1925.
He said public focus on the issue "seems to have simmered down" over the past five years, and investors appear less bothered by dual-class shares when controlling shareholders also have a large equity stake.
"It seems not to be a front-burner issue," Mr. Johnson said.
While rarely used in the United States, multiple-voting shares and other shares with unequal voting rights are still common in Canada.
Including Magna, 10 companies in the elite S&P/TSX 60 index have some form of uneven voting shares, including Bombardier Inc., Brookfield Asset Management Inc., Canadian Tire Corp., Metro Inc., Power Corp., Rogers Communications Inc., Shaw Communications Inc., Teck Resources Ltd. and Telus Corp.
More broadly, 33 of the 222 companies in the benchmark S&P/TSX composite index - 15 per cent of the membership - have unequal voting shares.
In announcing his decision Thursday, Mr. Stronach touted the merits of dual-class shares for entrepreneurs.
"We have a few world-class companies in Canada with the multiple vote," he said. "It was only via the multiple vote could they have achieved that. And we achieved that."
Enthusiasm for dual-share conversions seems to have waned after 2005 as Canadians saw numerous iconic companies such as Alcan Inc., Inco Ltd., Falconbridge Ltd., Stelco Inc. and Dofasco Inc. all sold to foreign buyers.
"It's led to a more balanced position on dual-class shares," says Bill Dimma, a former chairman of Home Capital Corp. who headed the board when the company's founders eliminated their dual-class shares in 2003.
But Stephen Griggs, executive director of the powerful Canadian Coalition for Good Governance, which represents most of Canada's largest institutional investors, said prominent investors have been quieter about dual-class structures in recent years mostly because they've decided they cannot win the battle.
"The controlling shareholders have not expressed much of an interest in having more traditional governance structures," he said.
If it can be copied, Magna's example may be persuasive, however. Mr. Stronach stands to make $863-million (U.S.) for giving up his dual-class shares - a far higher premium than in past conversions.
When controlling shareholders of Gildan Activewear Inc. and Home Capital gave up their multiple-voting shares, they received nothing for converting their shares to regular common shares.
Mr. Dimma said Home Capital CEO Gerry Soloway told the board he would reap his reward after the conversion.
"Their argument was that this was going to be good for all shareholders, including us, and the share price will be affected positively by this decision," Mr. Dimma said. "And that's precisely what happened."
Janet McFarland