Under Armour's (NYSE:UA) pricing discrepancy between the "A shares" and the "C shares" (UA.C) has been a hot topic of conversation lately, even though the convergence between the two during the last week or so was fairly unimpressive. I mentioned the gap about two weeks ago, and fellow contributors Benjamin Kwasnick and Stone Fox Capital have commented on the pricing discrepancy over the past few months. A Wall Street Journal article explaining the trade just happened to come out this morning. Voting rights certainly have some value, but at a company like Under Armour, where CEO and founder Kevin Plank holds a supermajority, I feel voting rights deserve a very small premium, if any.
The company's management team was also clearly aware of the pricing discrepancy. In what I believe is a move to facilitate a closing of the value gap, Under Armour is changing the Class C Common Stock ticker from "UA.C" to "UA," while the Class A Common Stock will change its ticker from "UA" to "UAA." I think this morning's Journal piece may have been more than just a coincidence.
It goes without saying that this change has absolutely no impact on the fundamentals of the company. However, for whatever reason, there simply was not widespread recognition of the pricing discrepancy. Under Armour's ticker change should close this gap for two reasons. For one, the press release announcing the change was broadly disseminated and should hit the radar of arbitrage traders. Secondly, changing the ticker of the Class C Common Stock to "UA" will drive greater investor interest. As simple as it may be, investors and traders default to "UA" when looking at the company. I believe many market participants will now default to the Class C rather than the Class A.
In spite of today's rally, a wide spread between the two stocks still exists, as the Class C shares closed at $26.29 versus $31.17 for the Class A shares. I am long both, as I believe Under Armour is undervalued, but I would opt for the C shares at this time given their existing discount, coupled with evidence that the spread will close.
Disclosure: I am/we are long UA, UA.C.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.