Globe And Mail: Stock is way oversold!MARIAN STINSON
The Globe and Mail; With files from Bloomberg and CP.
Wednesday, March 15, 2000
Investors dumped shares of Laidlaw Inc. yesterday, wiping out nearly half the company's value because of problems at its Safety-Kleen division.
Laidlaw stock closed yesterday at $1.49 on the Toronto Stock Exchange, down $1.40 from Monday. Volume was an eye-popping 61.4 million shares, making it the most actively traded stock in Canada. Laidlaw shares, which traded hands for more than $23 in early 1998, have now lost more than 80 per cent of their value so far this year.
+Investors were a bit spooked by announcements at Safety-Kleen in the last couple of days,+ said Catherine Payne, analyst with Dominion Bond Rating Service Ltd. +This may raise issues about Laidlaw's viability going forward.+
Burlington, Ont.-based Laidlaw owns 44 per cent of Safety-Kleen, a waste management company based in Columbia, S.C.
But the concerns may be overrated since Laidlaw's bus operations continue to have stable cash flow, which bankers will look on favourably, she said.
On Monday, Safety-Kleen announced it was not generating enough cash to fund its operations, after an internal investigation confirmed accounting irregularities.
The U.S. Securities and Exchange Commission is investigating.
These problems increase the likelihood that Laidlaw will have to write down its equity holding in Safety-Kleen, which was valued at $604-million (U.S.) at the end of November.
Laidlaw could write down as much as $250-million without renegotiating its loan covenants with its bankers, Ms. Payne said. A larger write down would put the company in violation of some of its $3.3-billion debt.
+There's no good reason the stock should be this low if you just look at the numbers without emotion attached to it,+ said Brendan Caldwell, president of Caldwell Securities Ltd., a Bay Street investment firm. +The problem is Safety-Kleen -- its waste management business -- is a millstone around Laidlaw's neck that has dragged the share price down.+
Laidlaw, once a favourite stock among investors, lost $1.2-billion in the latest fiscal year. In January, the company said its $2.6-billion buying spree in ambulances and related business in the past 10 years was a mistake.
Laidlaw spokesman Tag Watson said that under the company's agreement with its lenders, it would be in violation of its covenants if its debt-to-equity ratio exceeds 1.75 to 1.
Laidlaw is far from a bankruptcy filing, he said.
+We're a long way from any of those scenarios,+ Mr. Watson said. +A tripping of a bank covenant in and of itself does not lead to a default. There would always be a discussion stage between the bank and the borrower.+
Meanwhile, the company remains vulnerable to a takeover since its share price is so low. +The company is vulnerable to a strategic buyer here,+ Mr. Caldwell said. +You can buy Greyhound, and the school bus business -- the whole company -- for $500-million [Canadian] at current share prices.+
Safety-Kleen had no comment yesterday.