Fairfax 2020

[bearprowler6]

Where's Exxon? I could have sworn he said Exxon on the call, even mentioned what the dividend was yielding at the time (I think 10%).

 

 

Prem did mention Exxon by name at the Annual Meeting conference call.  He made reference to a 10% dividend rate.  If they bought it in March and already sold it a few weeks later, they might have made a quick 20% or 25%.

 

 

SJ

 

Could it be that they purchased after March 31st which is the current filing date? The call was few weeks after that, right? That could explain why it isn't showing.

 

 

Yep, that would be a sensible explanation.  Of course, that would also mean that they are probably only ahead by 0-10% if they bought in April. I guess it's better than a kick in the pants.

 

 

SJ

 

It is also possible that Fairfax did not buy Exxon and Prem misspoke. Something similar happened on a quarterly call not that long ago when Prem referred to Brookfield and yet no transaction involving Brookfield had occurred. I know I have been bashing Prem and the team at Fairfax quite hard recently however in my view it is warranted. It seems to me that Prem has failed as an effective communicator which has resulted in frequent situations such as this where investors do not really know what has gone on. Fairfax is no longer a small little truck insurer run by a bunch of investment professionals with a value investing bias. It is a multi billion dollar global enterprise that needs and quite frankly deserves a fully staffed and professional run Investors Relations team.

 

In addition to the poor investor communication my other concerns remain including too much debt, numerous long standing equity investments that are under water and not being dealt with and an aging management team with no obvious succession plan in place.

 

[Thrifty3000]

Where's Exxon? I could have sworn he said Exxon on the call, even mentioned what the dividend was yielding at the time (I think 10%).

 

 

Prem did mention Exxon by name at the Annual Meeting conference call.  He made reference to a 10% dividend rate.  If they bought it in March and already sold it a few weeks later, they might have made a quick 20% or 25%.

 

 

SJ

 

Could it be that they purchased after March 31st which is the current filing date? The call was few weeks after that, right? That could explain why it isn't showing.

 

On page 17 of the recent quarterly report it says:

 

"During the first quarter of 2020 the company entered into $676.3 notional amount of long equity total return swaps for investment purposes following significant declines in global equity markets in the quarter. At March 31, 2020 the company held long equity total return swaps on individual equities for investment purposes with an original notional amount of $1,138.3 (December 31, 2019 - $501.5)."

 

I have a hunch the Exxon investment was via a total return swap.

[Xerxes]

Thanks Thrifty

That would be awesome, though given that he was referring to the dividend, it kinda tells me he was thinking as an equity position and a contributor to his $1 billion interest/dividend target.

 

Those equity swap seem like an interesting way to take a directional bet on the market with minimum upfront outlay, but if a market bounce is your bet, I think the swap are best employed against the overall market, rather than individual names. What is the point of doing that unless you were doing on technology "stay-home" specific names.

 

Anyways, these swaps are completely outside my plain vanilla area of expertise, not that I am an expert in plain vanilla investing either.

 

but I do know common sense.

[Thrifty3000]

Thanks Thrifty

That would be awesome, though given that he was referring to the dividend, it kinda tells me he was thinking as an equity position and a contributor to his $1 billion interest/dividend target.

 

Those equity swap seem like an interesting way to take a directional bet on the market with minimum upfront outlay, but if a market bounce is your bet, I think the swap are best employed against the overall market, rather than individual names. What is the point of doing that unless you were doing on technology "stay-home" specific names.

 

Anyways, these swaps are completely outside my plain vanilla area of expertise, not that I am an expert in plain vanilla investing either.

 

but I do know common sense.

 

A total return swap entitles the buyer to receive payments for capital gains and dividends (the total return).

 

https://www.investopedia.com/terms/t/totalreturnswap.asp

[Cigarbutt]

...I hadn't seen the article from Insurance Journal, so that is interesting in particular.  A couple of the more elaborate industry level loss estimates gives a bound for Zenith.  It looks like perhaps 16 loss points, before reinsurance and government funding, might be the reasonable estimate, with a bound of perhaps 50 loss points.  So, for an outfit like Zenith that writes $750m of premium, that would be maybe ~$120m before reinsurance and government funding, but possibly as much as $375m .  As you said, it's probably not an existential question, but it's curious that no provision was taken in the first quarter.

SJ

Relevant follow-up about potential costs (workers comp in California) which is important for Zenith. The ongoing development (not in the sense of recognized reserve development but in the sense of the social inflation threat) is definitely positive. Absent future adverse legislation, costs appear more and more manageable. Even if there is unusual flexibility to submit claims, Zenith will have to opportunity to rebut the claims and influence case law. It appears that Zenith will be able to report reasonable estimates in the coming quarters.

https://www.wcirb.com/sites/default/files/documents/rb-covid19-cost_impact_of_governor_executive_order_0.pdf

[StubbleJumper]

...I hadn't seen the article from Insurance Journal, so that is interesting in particular.  A couple of the more elaborate industry level loss estimates gives a bound for Zenith.  It looks like perhaps 16 loss points, before reinsurance and government funding, might be the reasonable estimate, with a bound of perhaps 50 loss points.  So, for an outfit like Zenith that writes $750m of premium, that would be maybe ~$120m before reinsurance and government funding, but possibly as much as $375m .  As you said, it's probably not an existential question, but it's curious that no provision was taken in the first quarter.

SJ

Relevant follow-up about potential costs (workers comp in California) which is important for Zenith. The ongoing development (not in the sense of recognized reserve development but in the sense of the social inflation threat) is definitely positive. Absent future adverse legislation, costs appear more and more manageable. Even if there is unusual flexibility to submit claims, Zenith will have to opportunity to rebut the claims and influence case law. It appears that Zenith will be able to report reasonable estimates in the coming quarters.

https://www.wcirb.com/sites/default/files/documents/rb-covid19-cost_impact_of_governor_executive_order_0.pdf

 

 

Thank-you for sharing that document.  The document was a nice walk through on how the costs can rapidly accumulate.  So in California, they are estimating a mid-point of 7 loss points and a bound of 10 or 11 points, and that's before any government programming or reinsurance.  If that applied across the US, that would be no problem at all for Zenith.

 

Beyond that, on a personal level, I am surprised at how small the indemnity is for a health care worker fatality.  Only $400k each and that includes medical costs as well as 5 or 10 years of economic support to surviving spouses and children?  The bulk of the workers dying must be personal support workers who don't earn so much?  I think I trotted out an assumption of about 5X as large, but admittedly, I just pulled that out of my ass because I know so little about WC.

 

 

SJ

[bearprowler6]

https://www.torstar.com/images/Torstar_press_release_-_May_26_2020.pdf

 

Paul Rivett comes out of “retirement”!

 

Paul Rivett joins Jordan Bitove in taking Torstar private at $0.63 per share or approx $52 million in total.

 

Fairfax Financial fully supports the take private transaction and will vote its 28.9 million class B Torstar shares in favour of the transaction. Fairfax will realize proceeds of $18.2 million on the sale of its shares.

 

So let me get this straight....Rivett retires from Fairfax 3 months ago in order to spend time with his family and now comes out of retirement 3 months later in order to take Torstar private which results in a massive realized loss for Fairfax on its Torstar investment?

 

How massive a loss? Well Fairfax acquired its 28.9 million Torstar Class B shares over several years including in the following transactions:

 

- Nov 6/17 ---- 9.4 million shares @ $1.25 per share

- Aug 25/16 --- 2.6 million shares @ $1.40 per share

- June 3/16 --- 939,400 shares @ $1.77 per share

- Mar 14/14 --- 2.4 million shares @ $5.35 per share

-      Earlier purchases were done at much higher per share values

 

BTW at March 31, 2020 Torstar had more than $78 million in cash on its books and no debt!

 

Thoughts or comments?

 

[Cigarbutt]

...

https://www.wcirb.com/sites/default/files/documents/rb-covid19-cost_impact_of_governor_executive_order_0.pdf

...

 

...

Beyond that, on a personal level, I am surprised at how small the indemnity is for a health care worker fatality.  Only $400k each and that includes medical costs as well as 5 or 10 years of economic support to surviving spouses and children?  The bulk of the workers dying must be personal support workers who don't earn so much?  I think I trotted out an assumption of about 5X as large, but admittedly, I just pulled that out of my ass because I know so little about WC.

SJ

This is a result partly from the compromise reached whereas the employers will not likely encounter tort litigation for the large majority of deaths (at least that was the case before CV) and the employees' survivors will receive funds relatively automatically corresponding, in substance, to the economic losses (varies across jurisdictions). For CV, there is a risk that the employer is considered or found 'negligent' versus Covid mortality (with the potential for 'nuclear' verdicts) and this would likely bypass the insurance intermediate such as Zenith. The indemnity to dependents is fixed as a percentage of salary (often two-thirds) and there is often a cap (absolute amount or duration) that may be related to the 'ability' to work for the surviving spouse and children no longer qualify for benefits when they reach adulthood (remember the age group of the typical CV death). Also, the indemnity owed by the insurance carrier may be lowered by corresponding amounts that may result from Medicare rules (surviving spouse). So there are a lot of mitigating factors.

 

An interesting spill-over effect though are the additional costs that employers will accrue (to eventually be passed on the customer) when prevention measures will be applied (equipment and protocols) in order to prevent workers from getting sick when businesses reopen (think restaurants, hospitality, healthcare etc). If i were part of Zenith, i would make sure that future coverage will be conditional on firms following state regulations being presently drafted for going back to work protocols. A lot of potential grey areas and this will not help productivity of the services sector..

[StubbleJumper]

https://www.torstar.com/images/Torstar_press_release_-_May_26_2020.pdf

 

Paul Rivett comes out of “retirement”!

 

Paul Rivett joins Jordan Bitove in taking Torstar private at $0.63 per share or approx $52 million in total.

 

Fairfax Financial fully supports the take private transaction and will vote its 28.9 million class B Torstar shares in favour of the transaction. Fairfax will realize proceeds of $18.2 million on the sale of its shares.

 

So let me get this straight....Rivett retires from Fairfax 3 months ago in order to spend time with his family and now comes out of retirement 3 months later in order to take Torstar private which results in a massive realized loss for Fairfax on its Torstar investment?

 

How massive a loss? Well Fairfax acquired its 28.9 million Torstar Class B shares over several years including in the following transactions:

 

- Nov 6/17 ---- 9.4 million shares @ $1.25 per share

- Aug 25/16 --- 2.6 million shares @ $1.40 per share

- June 3/16 --- 939,400 shares @ $1.77 per share

- Mar 14/14 --- 2.4 million shares @ $5.35 per share

-      Earlier purchases were done at much higher per share values

 

BTW at March 31, 2020 Torstar had more than $78 million in cash on its books and no debt!

 

Thoughts or comments?

 

 

You hadn't already mentally written this off?  If FFH were to hold this for another 5 or 10 years, what do you figure would be their cashflows from the investment?  Approximately zero?  At least with this arrangement, FFH gets $18m and a tax carry-forward and they can focus on something else.  Maybe they'll also be able to recuperate a bit of capital from Resolute and Toys too?

 

Past decisions have been regrettable, but moving on isn't necessarily a bad thing.

 

 

SJ

[Parsad]

https://www.torstar.com/images/Torstar_press_release_-_May_26_2020.pdf

 

Paul Rivett comes out of “retirement”!

 

Paul Rivett joins Jordan Bitove in taking Torstar private at $0.63 per share or approx $52 million in total.

 

Fairfax Financial fully supports the take private transaction and will vote its 28.9 million class B Torstar shares in favour of the transaction. Fairfax will realize proceeds of $18.2 million on the sale of its shares.

 

So let me get this straight....Rivett retires from Fairfax 3 months ago in order to spend time with his family and now comes out of retirement 3 months later in order to take Torstar private which results in a massive realized loss for Fairfax on its Torstar investment?

 

How massive a loss? Well Fairfax acquired its 28.9 million Torstar Class B shares over several years including in the following transactions:

 

- Nov 6/17 ---- 9.4 million shares @ $1.25 per share

- Aug 25/16 --- 2.6 million shares @ $1.40 per share

- June 3/16 --- 939,400 shares @ $1.77 per share

- Mar 14/14 --- 2.4 million shares @ $5.35 per share

-      Earlier purchases were done at much higher per share values

 

BTW at March 31, 2020 Torstar had more than $78 million in cash on its books and no debt!

 

Thoughts or comments?

 

Interesting...very interesting!  Congratulations to Paul.  Cheers!

[Cevian]

https://www.torstar.com/images/Torstar_press_release_-_May_26_2020.pdf

 

Paul Rivett comes out of “retirement”!

 

Paul Rivett joins Jordan Bitove in taking Torstar private at $0.63 per share or approx $52 million in total.

 

Fairfax Financial fully supports the take private transaction and will vote its 28.9 million class B Torstar shares in favour of the transaction. Fairfax will realize proceeds of $18.2 million on the sale of its shares.

 

So let me get this straight....Rivett retires from Fairfax 3 months ago in order to spend time with his family and now comes out of retirement 3 months later in order to take Torstar private which results in a massive realized loss for Fairfax on its Torstar investment?

 

How massive a loss? Well Fairfax acquired its 28.9 million Torstar Class B shares over several years including in the following transactions:

 

- Nov 6/17 ---- 9.4 million shares @ $1.25 per share

- Aug 25/16 --- 2.6 million shares @ $1.40 per share

- June 3/16 --- 939,400 shares @ $1.77 per share

- Mar 14/14 --- 2.4 million shares @ $5.35 per share

-      Earlier purchases were done at much higher per share values

 

BTW at March 31, 2020 Torstar had more than $78 million in cash on its books and no debt!

 

Thoughts or comments?

 

Optics is not good on this one. I don't like it. In Feb 2020 Prem commented, “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".

 

I've been a big proponent of Prem and hold a lot of shares. Going forward, I'll have to approach any such comments with greater skepticism.

[bearprowler6]

https://www.torstar.com/images/Torstar_press_release_-_May_26_2020.pdf

 

Paul Rivett comes out of “retirement”!

 

Paul Rivett joins Jordan Bitove in taking Torstar private at $0.63 per share or approx $52 million in total.

 

Fairfax Financial fully supports the take private transaction and will vote its 28.9 million class B Torstar shares in favour of the transaction. Fairfax will realize proceeds of $18.2 million on the sale of its shares.

 

So let me get this straight....Rivett retires from Fairfax 3 months ago in order to spend time with his family and now comes out of retirement 3 months later in order to take Torstar private which results in a massive realized loss for Fairfax on its Torstar investment?

 

How massive a loss? Well Fairfax acquired its 28.9 million Torstar Class B shares over several years including in the following transactions:

 

- Nov 6/17 ---- 9.4 million shares @ $1.25 per share

- Aug 25/16 --- 2.6 million shares @ $1.40 per share

- June 3/16 --- 939,400 shares @ $1.77 per share

- Mar 14/14 --- 2.4 million shares @ $5.35 per share

-      Earlier purchases were done at much higher per share values

 

BTW at March 31, 2020 Torstar had more than $78 million in cash on its books and no debt!

 

Thoughts or comments?

 

Optics is not good on this one. I don't like it. In Feb 2020 Prem commented, “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".

 

I've been a big proponent of Prem and hold a lot of shares. Going forward, I'll have to approach any such comments with greater skepticism.

 

 

Yes optics are terrible.....moving on is not a bad thing...but getting robbed by a former executive of the company who was apparently in retirement is quite something else.

 

Why the hell would Fairfax agree to a buyout of Torstar at $0.63....the cash balance (and no debt) alone is worth more.

 

The rest of the what Torstar owns....newspapers, several media properties (Torstar paid $190 million for their investment in Vertical Scope only 4 years ago and own 15% of Blue Ant Media etc) are worth considerable more than zero.

 

Fairfax shareholders (and Torstar shareholders but who cares about them) should be outraged....but all we have here is largely silence from Fairfax shareholders....

 

I agree with Sanjeev on this one.....good for Paul Rivett....but this should not be allowed to happen....

 

As for the tax loss carryforwards this sale will create for Fairfax....these are only of value if you have investment gains to offset them which is not something that has been in abundance at Fairfax recently.

 

BP6

 

 

[cwericb]

“Paul Rivett joins Jordan Bitove in taking Torstar private at $0.63 per share or approx $52 million in total.”

 

“BTW at March 31, 2020 Torstar had more than $78 million in cash on its books and no debt!”

 

Given that we have been mourning the loss of Paul Rivett from Fairfax due to family reasons and now this, in what way does this pass the smell test?

 

Just wondering what I am missing and why this is worthy of congratulations?

 

 

[bearprowler6]

“Paul Rivett joins Jordan Bitove in taking Torstar private at $0.63 per share or approx $52 million in total.”

 

“BTW at March 31, 2020 Torstar had more than $78 million in cash on its books and no debt!”

 

Given that we have been mourning the loss of Paul Rivett from Fairfax due to family reasons and now this, in what way does this pass the smell test?

 

Just wondering what I am missing and why this is worthy of congratulations?

 

I never bought into the retirement story for Rivett and stated as such on here numerous times over the last several months. I hate to be proven right.....

 

The congratulations for Rivett is simply because he has picked Prems pocket on his way out the door. If this sale goes through at $0.63 per share than it will go down as one of the greatest corporate deals of all time....from Rivetts perspective alone.

 

I am outraged....and other Fairfax shareholders should be as well...Fairfax holds more than 40% of the class B shares of Torstar. They have huge input into any takeover of the company. A takeover of Torstar does not occur unless Fairfax agrees. This deal should not go through at $0.63 per share. Wake up Prem!

 

Something is very very wrong at Fairfax....this is just another example....

[cwericb]

Once again, a new application of the "Fair and Friendly" motto of Fairfax.

[NormR]

Keep in mind that Paul will likely have to do many unpalatable things at Torstar to have a chance of stopping the red ink. A bunch of them, like firing workers, will eat cash. The required repair job would likely have significant negative publicity value if FFH bought it instead - and the results probably wouldn't move the needle at FFH. There is a reason why Buffett got out of the liquidation business.

 

I wish Paul the best of luck in his new endeavor.

 

       

[Pedro]

I'm expecting the ongoing monetization of smaller investments/non core/non insurance assets to be at losses. Hope I'm wrong and there's a multi-bagger in there.

 

I hope they use the $18M to buyback shares.

 

 

[bearprowler6]

Keep in mind that Paul will likely have to do many unpalatable things at Torstar to have a chance of stopping the red ink. A bunch of them, like firing workers, will eat cash. The required repair job would likely have significant negative publicity value if FFH bought it instead - and the results probably wouldn't move the needle at FFH. There is a reason why Buffett got out of the liquidation business.

 

I wish Paul the best of luck in his new endeavor.

 

     

 

Norm, none of that justifies accepting, on behalf of Fairfax shareholders, the $0.63 takeover price. Fairfax is in the liquidation business. You don't suddenly get cold feet and give away considerable value (that will take some work to unlock) within Torstar to a former executive of Fairfax who supposedly retired. Please stop defending Prem....he needs be held accountable for yet another one of his Fair and Friendly deals.

[cwericb]

Thanks for the input Norm, but the optics are not good here with the numbers and the story surrounding Rivett leaving Fairfax. I doubt many shareholders would be impressed with what looks like a ‘sweetheart deal’.

[StubbleJumper]

https://www.torstar.com/images/Torstar_press_release_-_May_26_2020.pdf

 

Paul Rivett comes out of “retirement”!

 

Paul Rivett joins Jordan Bitove in taking Torstar private at $0.63 per share or approx $52 million in total.

 

Fairfax Financial fully supports the take private transaction and will vote its 28.9 million class B Torstar shares in favour of the transaction. Fairfax will realize proceeds of $18.2 million on the sale of its shares.

 

So let me get this straight....Rivett retires from Fairfax 3 months ago in order to spend time with his family and now comes out of retirement 3 months later in order to take Torstar private which results in a massive realized loss for Fairfax on its Torstar investment?

 

How massive a loss? Well Fairfax acquired its 28.9 million Torstar Class B shares over several years including in the following transactions:

 

- Nov 6/17 ---- 9.4 million shares @ $1.25 per share

- Aug 25/16 --- 2.6 million shares @ $1.40 per share

- June 3/16 --- 939,400 shares @ $1.77 per share

- Mar 14/14 --- 2.4 million shares @ $5.35 per share

-      Earlier purchases were done at much higher per share values

 

BTW at March 31, 2020 Torstar had more than $78 million in cash on its books and no debt!

 

Thoughts or comments?

 

Optics is not good on this one. I don't like it. In Feb 2020 Prem commented, “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".

 

I've been a big proponent of Prem and hold a lot of shares. Going forward, I'll have to approach any such comments with greater skepticism.

 

 

Yes optics are terrible.....moving on is not a bad thing...but getting robbed by a former executive of the company who was apparently in retirement is quite something else.

 

Why the hell would Fairfax agree to a buyout of Torstar at $0.63....the cash balance (and no debt) alone is worth more.

 

The rest of the what Torstar owns....newspapers, several media properties (Torstar paid $190 million for their investment in Vertical Scope only 4 years ago and own 15% of Blue Ant Media etc) are worth considerable more than zero.

 

Fairfax shareholders (and Torstar shareholders but who cares about them) should be outraged....but all we have here is largely silence from Fairfax shareholders....

 

I agree with Sanjeev on this one.....good for Paul Rivett....but this should not be allowed to happen....

 

As for the tax loss carryforwards this sale will create for Fairfax....these are only of value if you have investment gains to offset them which is not something that has been in abundance at Fairfax recently.

 

BP6

 

 

Bearprowler,

 

If this is truly a sweetheart deal, should we not expect to see additional suitors appear on the market?  I understand your concerns about the fact that Torstar is being bought at far below book -- and in fact as you said, below cash.  But, if it's an obvious steal, we should expect other offers, right?

 

I expect no other offer because Torstar appears fundamentally broken.  Newspapers are a dying industry and Torstar is competing in a market that is shared with the Toronto Sun, the Globe and Mail and the National Post.  The only worse newspaper market in Canada is Montreal!  So are Torstar shareholders getting screwed?  I guess there's a couple of ways to try to measure that:

 

1) Discount the cash from operations - when you look back 3 or 4 years, it seems pretty evident that Torstar has generated essentially no cash from operations, and that's ignoring the need for maintenance capex.  From a basic discounted cash flow sniff-test, how much cash from operations would Torstar need to be worth $100m?  Maybe they'd need about $15m cash from ops (maybe even $20m), understanding that maintenance capex is unavoidable?  Is there any reasonable prospect of getting that kind of cash from ops?  The trend has been really unfavourable, and were it not for a cash infusion from the federal government, would Torstar still even be in business?  I am having trouble seeing any prospect that a future owner could extract annual cashflows from Torstar, but hey, maybe they have some excellent management plan that will turn things around?  From a discounted cashflow perspective, it looks roughly like a zero.

 

2) Sum of the parts - your point about selling Torstar for less than its cash is spot on.  But, is it feasible for a management team to sell the assets, settle the debts and walk away with more than $52m?  Most of the assets appear to be worth nothing.  If you were to shut down Torstar, under Ontario law you would be on the hook for severance costs of probably 6 months to a year of pay for each of Torstar's hundreds of employees.  My guess is that alone would eat down that cash balance to below the $52m purchase price, and then the employees would go to court to try to have the rest of that cash seized to satisfy the pension plan deficit.  If you liquidate, it's likely a zero, or close to it.

 

 

Torstar is a stinker and has been for a long time.  The other one on FFH's books that is also likely a stinker is Toys R Us, but we don't ever see enough disclosure to know for sure.  FFH bought Toys with the notion that the real estate alone was enough to underpin the purchase price, but I am guessing that Toys is losing money from an accounting perspective and I question whether it too is cash flow positive.  And once again, to extract any value out of Toys, FFH has to either find a greater fool, make it profitable enough to pay divvies to FFH, or liquidate it.  And, just like Torstar, it's really tough to liquidate Toys and extract much value from the assets.

 

The first best option would have been to have never bought crappy assets like these in the first place.  The second best option is to recognize your mistake, try to salvage whatever value you can and move on.

 

Perversely, I don't view this development as a bad thing.

 

 

SJ

[petec]

A few things that jump out at me.

 

1) We do not have the evidence to justify the claim that Rivett has "come out of retirement". A company he jointly controls has made an acquisition. Perhaps he will be heavily involved in the management of this acquisition, or perhaps he will be no more heavily involved than he is at (say) Fairfax, where I believe he remains on more than one board.

 

2) Fairfax support this deal. This gives rise to two possibilities: a) Fairfax are deeply corrupt and are giving a freebie to a friend, against their own best interests and those of their controlling shareholder, or b) Fairfax (like the broader market) have come to disagree with BP6 on the intrinsic value of Torstar shares (or the likelihood of realising that intrinsic value in a reasonable timeframe) and have decided to move on. I know which I think is more likely.

 

3) A board which believes Prem cannot admit mistakes, and which has been calling for Prem to crystallise losses and move on, even in stocks which are highly likely to be worth more than their current trading prices, is now horrified that Prem has admitted a mistake/crystallised a loss/moved on at a 67% premium to the current trading price (of the B shares, admittedly).

 

 

[mcliu]

Not sure about optics with Paul Rivett, it is a little perplexing.

 

But the deal itself is not a "sweetheart deal". If anything, Torstar's fairly/overvalued at these prices. There's cash, but also a lot of liabilities, AP, provisions, pension liabilties.

FCF in 2019 was ($9M) and ($20M) after capex. There's no indication that'll stop. They'll probably have to inject more working capital if the bleeding continues or accelerates, especially with this whole COVID situation. VerticalScope made $18M in 2019, maybe less this year, but has close to $145M in net debt, so equity is probably not worth very much. It's nowhere near the $100M that they're carrying it at on the books. If you adjust the balance sheets and net out liabilities, there's really not much equity left.

 

Also, advertising $ is going to take a big hit. Very few newspapers will survive and this is the Toronto Star, not NYT or WSJ.

It was a stupid investment to begin with, so they're lucky to get some money out.

[petec]

Not sure about optics with Paul Rivett, it is a little perplexing.

 

 

It really isn't that perplexing. At Fairfax, Rivett had a reputation for working extremely hard. People like that don't just stop.

[cwericb]

None of us here has a better insight into the value of Torstar than Paul Rivett. If Torstar is such a dud, why would Rivett want to have anything to do with it at the risk of his personal funds?

 

On the other hand if he has a plan to reinvent Torstar, why didn’t he put it in place while Fairfax was still paying him for his expertise?

[bearprowler6]

Were other bidders even given a chance? Seems they have been prevented from bidding on Torstar because the Bitove/Rivett offer was accepted and a break up fee agreed to without testing the market.

 

The pension issue at Torstar was dealt with. The pension liability was moved off the books in late 2019. Non-issue here.

 

Sure the newspapers are a dying business however Torstar is much more than its newspapers.....its investments in Veritical Scope and Blue Ant are surely worth something. The 40% of Veritical Scope was bought 5 years ago for $190 million and has grown (albeit with a lot of debt) since than and as for Blue Ant....well Fairfax owns a large chunk of this directly as well so lets hope its not a zero.

 

If the value of all the other assets of Torstar net to a negative value please explain how the auditors signed off on the BV of the company only a few months ago. Covid has not changed things that much.

 

Back to the other bidders.....why not Fairfax itself. Sure turnarounds and liquidations are terrible but why give away any potential value that such actions could surface to Bitove/Rivett.

 

Enough said. I am pleased that Fairfax has dealt with its Torstar mistake but in my view the price is too low. Others disagree. As for the optics around Rivett's involvement. I will leave that to each of you to decide on for yourselves.

 

BP6