Doubling down on dual class shares

As the old saying goes, there are no problems with dual class of share companies — until there are problems. All of which leads to the logical conclusion that such structures should not exist in the first place, or if they do exist then they should come with either sunset provisions, or a shareholder vote at say the company’s first meeting.

Indeed the ramifications of such a structure are being played out over the summer with two well-known Canadian companies. Later this month shareholders of Fairfax Fi

nancial will be asked to preserve, for 10 years, the 41.8 per cent voting power held by its founder Prem Watsa (irrespective of the voting power he actually has.) In return, certain restrictions are being placed on Watsa.

Now comes word that Quebecbased Alimentation Couche-Tard is also planning to put a motion to its shareholders at its upcoming annual meeting to amend its articles of association.

The company, like Fairfax, has been a success story both in terms of growing its business and in rewarding its owners. (How successful? An original shareholder in 1986 has gained 650 times on that investment.) Now it wants its shareholders to change the original articles put in place in 1995.

Under the original articles, the company’s dual class of share automatically terminated when all of its four founders reached 65. Of the four — Alain Bouchard, Jacques D’Amours, Richard Fortin and Real Ploude — two have already reached 65 with Ploude set to get there at the end of next month. The fourth member of the group, Amours, is 58 and will reach 65 some time in 2021. (Amours is the company’s second largest shareholder.)

The original agreement would also have automatically ended if and when the founders held less than 50 per cent of the voting rights. According to the circular for the Sept. 22 meeting, the founders own a healthy 60.36 per cent of the voting rights. The founders are also large shareholders owning 22.7 per cent of the outstanding shares.

Now the company, in a decision supported by the board and a special committee, wants a different outcome. If approved, the structure would automatically end on the date “on which no founder is a director of Couche-Tard.” As with the original plan, the structure would automatically end when the founders own less than 50 per cent of the votes. (If the proposal is approved, then the class B shareholders will get to vote 30 per cent of the directors starting in 2016.)

The first part of that proposal is not quite open-ended but there is no known end point. One of the four founders — and let’s hope for theirs’ and their family’s sake they do — could live a long time and remain a director. In Fairfax’s case there is a known 10-year limit.

And unlike Fairfax, which has been working on the process since early last year, the Couche-Tard proposal started in late May when the founders advised the company of their wish for a change to the articles. Two plus months later the proposal, which is less complex than Fairfax’s, was ready for shareholders.

As with Fairfax, Couche-Tard argues the proposal will allow the founders to build on the strong foundation that has been established and to maintain the corporate culture.