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Experts weigh in on Brian Hill's $70M Aritzia stock sale

Company’s founder sold shares to diversify assets, get cash for philanthropy
brianhillhands
Brian Hill founded Aritzia in 1984.

Aritzia Inc. founder Brian Hill caused a ripple in his company’s share price on Tuesday after the company’s chairman and former CEO announced that he was selling $70 million in shares.

The bought deal that saw CIBC Capital Markets buy 1.36 million Aritzia shares left Hill with an 18.7-per-cent stake in the women’s fashion retailer, down from a 20-per-cent stake.

Those who have experienced Hill’s phenomenal business success and those who advise ultra-high-net-worth individuals say the transaction should not have caused Aritzia’s shares to fall — even though Hill sold his shares below market value.

Hill’s shares sold for $51.60 each, which was about 4.6 per cent below their $54.08 closing price on Monday. 

Aritzia’s share price tanked more than five per cent Tuesday morning before rebounding to close down 0.8 per cent on a day when the Toronto Stock Exchange gained nearly 0.4 per cent

“The minute you indicate you're going to sell, the value of your stock drops because people are going ‘Why is the owner selling?’” Lululemon Athletica Inc. founder Chip Wilson told BIV after Hill’s announcement.

"'Oh my God! Everyone else should sell because the owner is selling.' That's one of the most bullshit lines ever."

Indeed, Aritzia made clear that Hill was not selling his interest because he had lost faith in the company. It said in a release that he planned to use his proceeds “for estate planning, investment diversification and charitable giving purposes.”

One of Hill’s philanthropic donations has been, along with wife Andrea Hill, to provide $5 million to help fund building a new Vancouver Art Gallery.

Wilson said that he too was encouraged to sell Lululemon shares to diversify his assets when he owned more than one-quarter of the company.

He did, he said, but then had second thoughts.

“I pulled my money out — maybe too much,” he said. “I went, ‘What am I going to do with it?’ And then, the only thing I wanted to do with it is put it right back into Lululemon. So I didn’t do a very good job of pulling my money out.”

Some of Wilson’s philanthropy has been to donate, along with wife Summer (Shannon) Wilson, $100 million to the B.C. Parks Foundation to help protect and enhance the province’s nature. He also donated $100 million to help fight the disease FSHD, from which he suffers.

Wilson has often stirred controversy.

This may be why in 2014, when he announced that he was going to roughly halve his stake in Lululemon, to 13.85 per cent, the yogawear maker’s shares immediately jumped in price by nine per cent

Wilson one year earlier had drawn blowback for saying that the yogawear maker’s products “don’t actually work” for some women’s bodies.

He then clashed with Lululemon’s board of directors.

Now with a nine-per-cent stake in Lululemon, Wilson remains the company’s largest single shareholder.

Wilson’s bigger occupation is with his 20-per-cent stake in the global sportswear giant Amer Sports, which is known for brands such as Arc’Teryx, Armada and Peak Performance.

“It could be bad advice [for Hill] to diversify,” Wilson said. “He’s got a hell of a business there. I’m really impressed by it.”

Thane Stenner, who has made a career out of advising ultra-high-net-worth individuals, said his best suggestion is for uber-successful corporate founders to diversify assets while they can.

The senior portfolio manager and senior wealth advisor at Stenner Wealth Partners, which is part of CG Wealth management, told BIV that one scenario he witnessed about 15 years ago crystalizes the importance of diversification.

Two Ontario brothers had built a business worth more than $1 billion, and each had stakes in the company that were approximately 12 per cent.

“Let’s call it $125 million each,” Stenner said.

“They were in their mid-50s and one brother wanted to diversify, and sell out his position, so we helped him do that on a tax-deferred basis. The other one said, ‘No, I think the company has way more upside.’ The sad story is that over the next five years that company went to zero. So one brother diversified his position and grew it a little bit. The other one didn’t, and got a bit greedy. Basically, it cost him, and quite candidly, it actually created some conflict between the brothers.”

Stenner said large shareholders wanting to diversify assets should telegraph that to the market in advance.

That is what Microsoft Corp. co-founder Bill Gates did, he said. Gates years ago said that he was going to consistently sell a set amount of shares each quarter so the market would be prepared for regular announcements.

One thing many corporate founders do not know, Stenner said, is that Canadian tax law allows them to diversify publicly traded stock into a diversified portfolio on a tax-deferred basis.

“I've done this hundreds of times,” he said.

Stenner’s company participated in the bought deal that saw Hill sell his shares to CIBC.

He said a smart way for founders to sell large blocks of shares is to do this via a bought deal, or an institutional block sale.

This is in part because when a company hints that shares may be sold through a public stock exchange, its share price can get hit.

On Sept. 22, Andrew Peller Ltd. said that a holding company intended to sell up to 569,851 of its shares that had been owned by former principal Jeff Peller, until he died in 2021.

On an average day, approximately 26,600 Andrew Peller shares trade on the TSX.

The shares, the wine producer said, “may be sold privately, through the facilities of the TSX, or a combination thereof.”

The company’s share price then fell more than 11 per cent as of yesterday, despite the TSX Composite Index rising more than five per cent during that same time frame.

BIV asked Andrew Peller in an email why some of Jeff Peller’s former shares might be sold on the public market, instead of necessarily being bundled up and sold as one entity to a single buyer. The company did not respond.

Hill, who founded Aritzia in 1984 with a store in Vancouver's Oakridge Centre, rarely gives interviews. Aritzia did not respond to a request from BIV to interview Hill.

gkorstrom@biv.com

twitter.com/GlenKorstrom

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