Chipotle Mexican Grill: A Share/B Share Arbitrage Opportunity

There have been a couple of Seeking Alpha posts recently about the mispricing of Chipotle (CMG) A shares relative to B shares.

On Wednesday, the A shares closed yesterday at $82.30, and the B shares closed at $76.34.

From the Chipotle 10-K:

The restated certification of incorporation authorizes the issuance of an aggregate 230,000 shares of common stock consisting of 30,000 shares of class B common stock with a $0.01 par value and 200,000 shares of class A common stock with a $0.01 par value. Prior to Disposition, each share of class B common stock was convertible at the option of the shareholder into one share of class A common stock, and each share of class B common stock generally also converted into one share of class A common stock if a transfer of ownership occurred. Shares of class B common stock are no longer convertible beginning October 12, 2006. Shares of class B common stock participate equally in dividends with shares of class A common stock. Shares of class B and class A common stock generally vote as a single class of common stock. Shares of class B common stock shares have ten votes per share whereas class A common stock shares have one vote per share, except that for purposes of approving a merger or consolidation, a sale of substantially all property or dissolution, each share of both class A and class B will have only one vote.

It seems clear that the B shares should trade equal to, or higher than, the A shares. However, the spread has persisted for quite a while.

CMG 1-yr chart:

Comments

[borisb:]

they both have a $9 to $10 dip and this is one of the actionable keys.

2007 Jun 28 08:25 AM

[borisb:]

dip expands to generous $6.50

2007 Jul 05 09:10 PM