In January, which felt like a very long time ago, I wrote about Torstar. In fact, at one point I owned shares in the company, but during the CoronaCrisis, I dumped my small stake (which to my mystification, was one of the few companies to receive a bid at the time) simply because the rest of the stock market was on sale.
What is ironic, however, is that a couple business days ago, I put in an order to buy in the low 30’s, but never got hit.
A couple trading days ago (Monday, May 25, 2020), the stock rocketed up from about 33 cents up to 48 cents on about 150,000 shares of volume (this is really unusual for Torstar stock, which is very slow moving):
On first glance, this appears like blatant insider trading. How could it not?
Today (May 26, 2020), the stock buying tapered and some people clearly not in the know dumped stock:
And finally, Tuesday evening, the announcement that NordStar will be buying Torstar for 63 cents per share, cash. NordStar is run by a prominent former Fairfax executive (that still sits on the board). Fairfax already owns about 40% of the non-voting Class B shares and got the consent of the Class A owners, who cashed out at a price that is magnitudes different than how things were a decade ago.
I am guessing Fairfax’s involvement will be acquiring some media clout for a relatively inexpensive price. At 63 cents per share, NordStar is paying $51 million (minus FFH’s ownership, $33 million) in exchange for a company with $69 million in unrestricted cash on their balance sheet, with relatively little on the liability side on their balance sheet. The big black eye is the 56% equity investment in VerticalScope, which is barely generating cash but has a $150 million debt on their balance sheet (I suspect when the ownership changes, that NordStar will be jettisoning this anchor in short order). Operationally speaking, however, I suspect advertising revenues are going to continue to crash and it will be interesting to see how NordStar can re-purpose this investment.
Finally, it isn’t quite clear how much influence Fairfax will have in this, but something makes me suspect there is more behind the scenes.
While I am slightly unhappy that I did not get some Torstar shares in the low 30’s (I was rather late to pulling the trigger), the number of shares I was looking to purchase would not have been material even if I had received an execution on my order. Basically I was caught sleeping and this was another instance of a company that had pulled away from my limit orders.
At least I can take this thing off my watchlist now.
I looked at Torstar about ten years ago but didn’t invest, not because of any great foresight but just one of those things. iirc it was in the low teens back then. I haven’t been following it since so I’m stunned at where the valuation of the company is now. I remember thinking that they had the Harlequin romance biz, and that should pull them through in the long term.
https://www.canadianbusiness.com/business-news/torstar-corp-sells-harlequin-book-publishing-company-to-harpercollins-for-455m/
Ironic how they got $455 million of value for fiction, and $51 million for their attempts at non-fiction!
The real margins in publication as everybody knows are in university textbooks…
“Hamblin Watsa Investment Counsel Ltd. (“HWIC”), a wholly-owned subsidiary of Fairfax Financial, has entered into a voting support agreement (the “Voting Support Agreement”) with NordStar and agreed to vote all of the Class B non-voting shares owned or controlled by Fairfax Financial in favour of the transaction at the Special Meeting. Fairfax Financial currently owns and controls, directly and in the investment portfolios of its insurance subsidiaries, 28,876,337 Class B non-voting shares, representing 40.3% of the outstanding Class B non-voting shares. ”
Fairfax Financial will have no ongoing with Torstar. This transaction takes them out. Paul Rivett was indeed the former CEO of Fairfax Financial but he stepped down last year to pursue other interests. Nordstar is clearly one of those. The fact that Paul remains a friend of Fairfax and on the board is inconsequential to Torstar going forward.
“Finally, it isn’t quite clear how much influence Fairfax will have in this, but something makes me suspect there is more behind the scenes.” – legally other than the connection of Rivett and Fairfax’s directorship, there isn’t anything going forward, but surely this can’t be as straightforward as somebody stepping down from FFH to run a … newspaper???
“but surely this can’t be as straightforward as somebody stepping down from FFH to run a … newspaper?”
Why not? This is what Prem had to say in the release when Paul retired …
“Paul told me recently that for family reasons, he wanted to retire as President of Fairfax. It was with great sadness that I accepted his decision. For 17 years, Paul has given his all and has been instrumental in our success over that time. I have had the pleasure of working very closely with Paul all those years and I will miss him greatly. He retires with our gratitude and best wishes to him, his wife and his children in his retirement …”
Rivett spent almost two decades investing float and retained earnings at Fairfax and Nordstar is “controlled by Jordan Bitove and Paul Rivett and wholly-owned by the Bitove and Rivett families” according the article linked. It makes sense that Rivett would continue to invest his family wealth in the equity of businesses he understands. Torstar would fit that bill.
It just doesn’t seem the Fairfax style to muck about after an exit.
You might be right, it just might be an excuse for Prem to wash his hands and to get a savings of capital losses on their tax returns. I guess this COVID-19 environment has made my conspiracy theory part of my brain overly stimulated.
https://www.theglobeandmail.com/business/article-toronto-private-lender-canso-funds-torstar-takeover-bid-after/
Canso is posting up the debt funding for the acquisition. The plot thickens! (Canso owns most of the Postmedia debt). Can anybody say “consolidation” despite them claiming it’s not happening?
[…] I posted above this possibility the day after the announcement. […]
Any thoughts on how this might end now that a competing bid has surfaced? Looks like the board still prefers the original group so a match to the competing bid may be all that is needed to close the deal.
If I held any shares of this thing I’d be dumping them right now.
Final conclusion to this story is that the 63 cent bid was raised to 74 cents in a counter-offer; NorStar had a right to match it, which they did. In the last day before the deal closed, some other group offered 80 cents, but Torstar basically said it’s over, and the deal closed at 74 cents. Have fun liquidating the operation!