How much is a vote worth? Rogers Class A vs. Class B Shares

As the Canadian election trail continues, media frequently comments on the dropping voter turnout over the past few elections. There may be an economic reason for the drop in turnout – mainly that as electoral districts increase in population, the value of a vote is subsequently less.

Trying to quantify the value of a vote in an election (e.g. if you could “sell” your vote, which is illegal) has always been an interesting academic exercise. However, there is real market data that could give some sort of insight to the matter. The data can be obtained from companies that have dual classes of shares which share the economic interests, but split the voting interests in the firm.

One example of this is Rogers Communications (TSX: RCI.A / RCI.B). Each class of shares has the same dividend and economic interest in the corporation, while the Class A shares give you one vote in the election to the board of directors. Rogers’ voting shares is 90% owned by a family trust and hence the shares trading are in a minority position. However, in the event of a buyout offer, Class A and Class B shares can receive different economic consideration.

Class A shares are relatively illiquid – they trade about 5,500 shares a day, while Class B shares are very highly liquid. However, the voting rights with Class A shares, offset by the liquidity penalty that the shares would have, trade approximately $1-2 higher than Class B shares. Measuring the ratio of Class A to Class B share values, you have the following rather interesting chart:

Over the past three years, the ratio has gone from about a 10% price differential to as low as 1%, and there has been some badly placed orders that have brought the ratio below 1 – which gives you the economic interests AND voting interests – presumably this is a discount for illiquidity.

Shaw Cable (SJR.A / SJR.B) also has a similar structure, with the voting shares having a slightly lower dividend than the non-voting B shares. The spread there, however, is about 20% and the voting shares are highly illiquid.

Although both of these examples are not a precise comparison since the voting shares are majority-owned and thus your vote in the voting shares are meaningless, it is an interesting exercise in measuring the value of a vote. I am sure readers out there can come up with better examples of companies that have dual class structures that do not have majority ownership on the voting shares.

Exercise in marketing

Cam Hui‘s thoughts on re-branding the oil sands is brilliant, especially the following:

* The jungle (think hot, steamy and snake infested) has now become the rain forest.
* Swamps (aligators and mosquito infested, etc.) are now wetlands.

I will add another example: Global warming becoming Climate Change. This way you do not necessarily have to have the climate warming in order to score your political points.

More relevantly to the financial domain, perhaps “Financial Advisers” should be re-branded to “Financial Salespeople”.

Priszm Income Fund declares bankruptcy

Priszm Income Fund (TSX: QSR.UN) has finally bit the bullet and gone into creditor protection. They will be liquidating the assets of their business.

Units of the trust and debentures (TSX: QSR.DB) have been suspended and will be delisted out of the TSX. They were last trading at around 9 cents on the dollar and as you might glean, does not anticipate much, if any recovery whatsoever.

I had written on the episode of my quick trade in and out of the debentures in earlier posts on this site; I retained the minimum face value ($1,000) of debentures as a “lottery ticket” ($90 market value) that evidently will not be winning. I eagerly anticipate the huge stack of documents in the mail that will politely inform me that my debentures are worthless.

Lulu – Gaga

Although I like looking at fashion companies for their financial statements, when it comes to the wares they are selling, I am absolutely clueless. I have to ask others that know much more about the fashion aspect of clothing companies for their anecdotal opinions.

Never have I been so wrong about Lululemon:

Obviously this train ride has to end somewhere, but I just look at this chart with my jaw open. Reference my December 2010 post when I was questioning the high $2.8 billion valuation. Today: $6.3 billion.

Canada hits the polls

Canadians will be subject to relentless federal election advertising over the next 5 weeks as the major parties try to win seats in the House of Commons.

The big financial question will be: Can the Conservative government achieve a majority government? The House of Commons has 308 seats and thus 155 seats are required for a majority. The Conservatives were able to win 143 seats in the prior election.

If the Conservatives do not win a majority, it is more likely than not that the Liberals, NDP and Bloc Quebecois will try to form a coalition government. One of the first items on their legislative agenda will be to raise corporate income taxes, which will have a negative effect on valuations of profitable Canadian companies, in addition to causing capital outflows.

This uncertainty will have some indirect impact on the Canadian markets, and the Canadian currency. In essence, some proxy bets can be made on the outcome of this election. Now that the UBC Election Stock Market is unfortunately not open to allow people to take direct bets on the election, there will only be a limited way for investors to speculate on the outcome.

Just as a word of warning for readers – I do have heavy political involvement and because of this my writing will slow down considerably until the beginning of May (when I presumably will have recovered). There is zero chance of me finding suitable investment candidates in the meantime!