In the whole cake-and-eat-it-too realm of investing, nothing tops dual-class shares. As the name suggests, companies with two share classes usually also have two classes of shareholders: those who get to vote at annual meetings, and the lowly rest. Investors in Torstar’s Class B (non-voting) shares were reminded of that last week.
The Thall family of Toronto, one of the five clans that control Torstar through a voting trust, have said they plan to sell some or all of their Class B shares in the Toronto Star publisher. The sale could reap $38 million. But the family vowed to keep the voting shares in the trust. Set up to ensure the newspaper retains its social justice bent, the trust controls 98 per cent of Torstar’s votes. So at a time when the paper faces extreme challenges, the Thalls have dramatically reduced their financial exposure, while maintaining the right to control its destiny.
Dual-class shares are a thorny topic for corporate governance types, “ft comes down to a question of fairness in the capital markets,” says Peter Chapman, executive director of the Shareholder Association for Research and Education. “Voting control and economic interest aren’t in proportion with dual-class shares.” The structure is common in media companies, including Rogers Communications, which owns Maclean’s. The complaint with the Torstar case is that the family has reduced their exposure without giving up any control.
The Thalls bailing out of the Class B shares comes at a difficult time for Torstar’s Class B shareholders. The newspaper industry is in turmoil, and some analysts believe an activist investor may eventually take a hostile run at the media company. They’re no doubt thinking of the pitched battle News Corp.’s Rupert Murdoch waged to gain control of Wall Street Journal publisher Dow Jones, which was similarly controlled by the Bancroft family. As crucial decisions are made about Torstar’s future, the Thalls have ensured they’ll be there at the table—even if much of their money isn’t. M
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