Share equality a hot issue in Canada

Even as the Securities and Exchange Commission in the United States considers unequal voting rights by shareholders, a Canadian case involving nonvoting shares has irked the powerful Ontario Securities Commission. Some 361 independent Canadian Tire dealers want to buy Canadian Tire from the Billes family. The dealers have bid for 49 percent of the 3.4 million voting shares of Canadian Tire at a cost of C$271 million (US$195.2 million).

If the dealers had bid for 50 percent or more, they would have had to abide by a provision in the company's bylaws which convert nonvoting shares to voting ones. The dealers already own 17.4 percent of the Canadian Tire stock. This bid, if successful, will leave them with a controlling 66.4 percent. The holders of 81.8 million nonvoting shares would be shut out.

In the US, the New York Stock Exchange has proposed that it abandon its one-share, one-vote rule - or that all companies large enough to be part of the national market system be forced to comply with one-share, one-vote.

General Motors, Dow Jones, General Cinema, the New York Times, Wang Laboratories, and other companies have issued shares with unequal voting rights. The NYSE is worried that, without a provision for unequal rights, companies might migrate to other exchanges where rules on shareholder voting are not so strict.

But shortcomings of unequal voting rights are apparent in the Canadian Tire case.

The two classes of Canadian Tire stock usually trade at about the same price. For instance, Canadian Tire Class A, or voting, stock and the nonvoting common both traded in the C$15 range in the first three months of this year, with the voting shares usually trading about C$2 ahead of the nonvoting.

Today, Canadian Tire voting shares are trading at C$71, the nonvoting at C$13. The dealers are going to pay three members of the Billes family C$160.24 a share for their holdings.

But the Ontario Securities Commission opens a hearing into the issue today and plans to argue that the Billes family has a moral obligation to the nonvoting shareholders. By selling only 49 percent, they have circumvented the ``coattail'' provision, which would benefit nonvoting shareholders as well.

Shareholder groups say they will fight the takeover bid.

If the deal does go through, the Billeses will still be the second-largest voting shareholders in Canadian Tire. They will keep 900,000 shares, or 26 percent. And even if the deal fails, the Billes family will be richer, having received C$30 million in nonrefundable deposits from the Canadian Tire dealers.

Many people, including William Allen, president of Allenvest, a Toronto brokerage, have contended that investors should boycott nonvoting shares. If no one buys them, no one will issue them.

But nonvoting shares have been a way for existing owners to keep control of a company while raising debt-free money through share issuances. Thus the Ontario Securities Commission - like the US Securities and Exchange Commission - will feel the pressure from big corporations to allow nonvoting shares to remain.