It's going to happen....in 2018Hi All,
There is considerably more upside than downside and smart investors are bidding up the share price while occasionally we have a few days when confidence is shaken for whatever reason. Years of being disappointed by the performance of management, the Board and the Voting Trust will have that effect.
Gordon Pape helped inform some investors and that gave a momentary lift to the shares. In many ways until the big investment firms take an interest the share price may languish for a while. They’ve had the same experience as many investors by being burned in the past and aren’t rushing to do any deep analysis of Torstar’s prospects. That’s perfectly okay in my opinion. I don’t have any real interest in badgering them to wake up and pay attention as the big jump in price will come when Fairfax makes its move. The loyal shareholders will be rewarded and no need to attract the carpetbaggers who come to the party at the very last moment.
I will repeat my thesis, much of which Gordon Pape said he couldn’t use because he thought it was speculation on my part. I couldn’t be bothered to debate the merits of these points because I believe they stand for themselves. When Fairfax makes its move, these points will be validated.
Fairfax will make its move because absolutely no investor acquires 40.6% of the non-voting shares without having a plan for control. The offer a year ago as reported by The Globe and Mail was obviously turned down, but there is no way Fairfax would have bought more shares unless some sort of understanding around the next steps was agreed upon with the Voting Trust.
I always come back to who owns that many shares and doesn’t demand a board seat unless they don’t want insider information or to be seen as compromised in the event of a privatization offer?
Why aren’t any insiders buying any shares and in particular the new CEO? The granting of options or RSU’s is a smokescreen to hide the fact he can’t buy shares as per the aforementioned agreement. You don’t hire a new CEO with an alleged background as a turnaround specialist and not provide a vote of confidence, do you?
Why does Canso hold more than 700,000 shares? They virtually control Postmedia and have hedged their bet with a significant investment in Torstar.
Why did Power Corp recently sell at $1.25 knowing the position held by Fairfax? They weren’t under any financial pressure to sell so why sell now unless you had a side agreement or some sort of future arrangement?
Why is Postmedia suddenly playing ball with swapping newspapers to reduce competition and improve profitability? Sure, they are both desperate to show some progress, but they’ve been desperate for years. Has Watsa knocked their heads together and told them what the future is going to look like under Fairfax?
Why is a company with assets far exceeding the value of its market cap trading for less than the value of VerticalScope? Year after year of disappointing performance in an industry severely disrupted can have that effect, but investors like Jeff Bezos, Warren Buffett and Carlos Slim see the future in different ways than the average investor. Is Watsa following the inspiration of Larry Fink of BlackRock who has demanded that CEO’s demonstrate more corporate social responsibility and is there no better way to show that than to save Torstar from itself?
How much longer can an aging Voting Trust with no real continuing family participation in the business hold-out? Honderich has a son in the business, but he is no Machiavellian chip off the old block and is not going to bring a third generation into leadership at Torstar. He will have to live off his shrinking inheritance like the rest of the Voting Trust family members.
I wouldn’t assign much value to the federal government throwing a potential modest lifeline in the way of some sort of handout to newspapers. Independent investors like Watsa will be wary of the government charity and the only ones that will cheer the news are flim-flam artists like Godfrey who ask for a charity with one hand while accepting 7 figure “retention bonuses” with the other without any notice of the hypocrisy. Godfrey is the architect of the mess at Postmedia and when he is compensated appropriately the government should offer some assistance.
Torstar is an investment that will continue to pay a reasonable dividend and Honderich needs to keep those dividends flowing to keep the wolves away from his chairmanship door. They may actually put up some decent number and increase the dividend, but this will only delay the inevitable. The Voting Trust families have lost any real connection to Torstar and will want their capital in more than 10 cent annual increments.
This stock may drift lower over the next while if the new management team fails to produce, but the assets are still going to attract an offer in the $6-7 range, especially if you already own 40.6%. Fairfax can afford to be patient as it wrote a large part of its investment off several years ago, but they will not wait forever. I still firmly believe something big will happen in 2018.