Lululemon Athletica Inc.'s surprise announcement last week that CEO Christine Day is leaving and that the company plans to delist its shares from the Toronto Stock Exchange on June 24 overshadowed strong earnings and sent its stock plunging 22% during the next two trading sessions.
Many analysts downgraded the company's stock (TSX:LLL; Nasdaq:LULU), citing a "void" at the top because the company also has three vacant vice-president positions.
Its delisting from Canada's big board made sense to some analysts because only one of Lululemon's largest 40 institutional investors, Scotiabank at No. 34, is Canadian. One is Norwegian and the rest are all American.
The company reacted swiftly to quell local fears that the new leaders at the yogawear giant would move the company's headquarters closer to its largest institutional investors.
"There is no intention of leaving Vancouver," stressed Lululemon's vice-president of communications Therese Hays.
Indeed, Lululemon spent millions in 2011 to buy and renovate its 130,000-square-foot headquarters at 1818 Cornwall Street, where more than 300 of its 6,383 employees work.
"This is where we belong and this is where we plan to stay," chairman and founder Chip Wilson said at the time.
Sterne Agee analyst Sam Poser told Business in Vancouver June 5 that a headquarters move would be as "devastating" as it would be unlikely for Lululemon because the transition would destroy the company's culture and relationships as staff quit.
"You can't be that disruptive," he said.
Precedent-setting large B.C. companies listed exclusively on U.S. exchanges include:
•Lions Gate Entertainment Corp. (NYSE:LGF);
•Teekay Corp. (NYSE:TK); and
•PMC Sierra Inc. (Nasdaq:PMC).
Lululemon cited low trading volume on the TSX as a reason for wanting to delist from the exchange. TSX data shows that Lululemon's minimum annual listing fee would be $95,000.
An average 123,020 Lululemon shares trade daily on the TSX; more than 3.5 million trade daily on Nasdaq.
Other large B.C. companies that have a similar trading disparity have no intention of delisting.
Mercer International (TSX:MRI.U; Nasdaq:MERC), which is B.C.'s 13th largest company ranked by revenue (see "Top 100 Public Companies" – page 19), only trades a few thousand shares a day on the TSX.
Mercer's CFO David Gandossi said being listed on the TSX is worth paying tens of thousands of dollars in annual fees because the company wants to expand beyond its institutional investor base and court retail investors.
"Mercer is a U.S. public company, but we're a bunch of Canadians who run it," he said. "So the typical investor who is interested in us would look to an American exchange to buy shares. In their minds the TSX is like the Frankfurt exchange. We're keeping the Toronto listing to expand our investor pool."
A similar psychology is likely in effect at B.C.'s largest company, Telus Corp. (TSX:T; NYSE:TU). More than 1.4 million Telus shares trade daily on the TSX compared with 128,000 on the NYSE.
The three next largest B.C. companies that trade on both Canadian and American exchanges (Teck Resources Ltd. [TSX:TCK.B; NYSE:TCK], Goldcorp Inc. [TSX:G; NYSE:GG] and Methanex Corp. [TSX:MX; Nasdaq:MEOH]) all have more volume south of the border than they do in Canada. •
As of March 31, Lululemon chairman and founder Chip Wilson owned about 10 million shares in the company. U.S. institutional investors hold the majority of Lululemon stock
Institutional investor
