Corona beer-maker Constellation dumps dual-class shares to the benefit of investors like us

Published Thu, Nov 10 20221:02 PM ESTUpdated Thu, Nov 10 20222:32 PM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Constellation Brands (STZ) is officially eliminating its dual-class share structure, an important corporate governance change in the interest of investors like us. The company announced late Wednesday that shareholders approved the termination of the Corona beer-maker's Class B shares, which follows the board of directors signing off on the proposal back in June . The Class B shares will officially stop trading at the end of Thursday's session. The stock reclassification removes an overhang on the Class A shares, which could help boost Constellation's valuation in the long term. The Class A shares were trading up more than 2% on Thursday, at roughly $245 apiece, participating in a broad rally on Wall Street after lighter-than-expected October inflation data. The news Roughly 75% of Constellation's Class A shareholders agreed to scrap the company's super-voting Class B shares, which were owned by members of the founding Sands family. They are relatives of the late Marvin Sands, who started the company now known as Constellation in 1945. As part of the transaction, the Sands family will receive one Class A share for each of its Class B shares, plus a cash payment of $64.64 for each Class B share. That's a 26.5% premium based on the Class A closing price of $243.63 per share on June 29, the day before Constellation's board approved the plan. In total, the cash payment amounts to roughly $1.5 billion. Class B shares had carried 10 votes per share, giving the Sands family the majority of voting power. Now, with a single-share structure in place, it will be one share, one vote for all investors. As part of the Class B elimination, Robert Sands and Richard Sands — the founder's sons — are retiring from their executive positions at Constellation, saving the company between $15 million and $20 million per year in salary and benefits, according to management. We welcome those cost savings. The end of Constellation's Class B shares is not the only corporate governance improvement the company has made in recent weeks. In late October, Constellation reached an agreement with Canopy Growth , which changes the structure of its investment in the cannabis firm. The new structure reduces the impact of Canopy Growth's losses on Constellation's earnings. The Club take This week's news is a meaningful development for shareholders and serves to bolster our confidence in Constellation going forward. We've been anticipating this move since May 5, when we started buying up shares of Constellation Brands . We see the company as attractively valued, with a growth-oriented alcoholic beverage portfolio that's likely to remain resilient despite an economic slowdown. Now that Constellation's dual-class share structure is going by the wayside our investment case has only been sweetened . The elimination of the super-voting shares likely broadens the base of investors that may consider buying into Constellation. Institutional investors like pension funds, in particular, are critical of dual-class stock arrangements , believing the outsized and entrenched influence of founders over the long run increases the risks for regular shareholders. As a result, a single-share structure could ultimately boost Constellation's price-to-earnings multiple. With investors seeing less risk on the governance side, they may be more willing to pay up for Constellation's future earnings streams, thereby increasing the stock's multiple. Constellation currently trades at 19.7 times forward earnings, below their five-year average of 20.7 times, according to FactSet. (Jim Cramer's Charitable Trust is long STZ . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A case of Constellation Brands Inc. Corona beer sits on a shelf in a cooler during a delivery in Ottawa, Illinois, U.S., on Tuesday, April 2, 2019.

Daniel Acker| Bloomberg | Getty Images

Constellation Brands (STZ) is officially eliminating its dual-class share structure, an important corporate governance change in the interest of investors like us.