|Shares Out. (in M):||38||P/E||NA||NA|
|Market Cap (in $M):||760||P/FCF||NA||NA|
|Net Debt (in $M):||0||EBIT||0||0|
Hi, guys --20.48
Long RUSHB/Short RUSHA. Probably personal account only.
Rush Enterprises, the nation's largest commercial truck dealer, has two classes of stock: A shares and B shares. From the proxy, "Each share of Class A common stock ranks substantially equal to each share of Class B common stock with respect to receipt of any dividends or distributions declared on shares of common stock and the right to receive proceeds on liquidation or dissolution of us after payment of our indebtedness and liquidation preference payments to holders of any preferred shares. However, holders of Class A common stock have 1/20th of one vote per share on all matters requiring a shareholder vote, while holders of Class B common stock have one full vote per share." So the B shares are worth more than A shares.
Yet I see that on Friday, RUSHA closed at $20.48, RUSHB at $17.06; A is 20% higher than B. This is to be understood, if it's understandable at all, as a liquidity/obscurity discount:
The end result is that, according to Yahoo!, class A trades around 120K shares/day, class B only 10K -- which is why this is a PA idea, although it might be possible to put on in bigger size.
Why do two classes even exist? There used to only be one, but the dealership agreements with the truck manufacturer required the Rush family to maintain a certain amount of voting control. The stock was fairly split into A and B so that capital could be raised, options granted, and liquidity provided to Marvin without breaching the agreements.
This is an arb. At some point the A and B shares will trade at parity or better. Sooner or later the company will go broke, get bought out, start paying dividends, issue new stock (which will be class A) or resume it's buyback program (they'll be buying class B). In addition, the spread currently wide:
, so simple mean reversion should make this profitable.
But I own a ton of the B shares, and instead of just waiting for "some point", I'm going to get off my ass tomorrow and contact the CFO, who I've talked to in the past. I'll point out that this looks bad, like they really don't care about their shareholders, and request that they restart their buy-back program, which will allow them to cut compensation expense by purchasing cheap B shares, or at least let B shares be converted to A shares. Either one will narrow the discount in a hurry. They're determined to "grow the company", so the buyback is unlikely to happen, but I can't conceive of any objections to B/A convertibility.