OT: Torstar benefits from VerticalScope IPO

[StubbleJumper]

FFH shareholders will recall the saga of Torstar being taken private last year at a price that some thought was inadequate.  In this forum BearProwler was apoplectic that the assets were being sold for less than cash on hand, and his view was later supported when alternate, higher takeover bids for Torstar were made and then rebuffed by TS management.  With the IPO craze that has been occurring for the past year, it now appears that there is yet another asset on Torstar's books that may be monetized at a considerable valuation as VerticalScope is being IPO'd:

https://www.theglobeandmail.com/business/article-new-torstar-owners-eyeing-windfall-return-as-majority-owned/

 

As time passes, it has become plainly obvious that BearProwler called this one correctly, and the TS buyout price was inadequate.

 

SJ

[Xerxes]

Torstar buyers set to book huge gain as VerticalScope goes public on TSX - The Globe and Mail 

 

"VerticalScope Inc. is set to go public Tuesday on the Toronto Stock Exchange at $22 a share, giving the digital media company’s largest shareholder, NordStar Capital LP, a stake valued at $173-million.

That is almost three times the $60-million NordStar paid last year for Torstar Corp. (excluding unfunded pension liabilities), which owns the Toronto Star and 76 other daily and weekly newspapers across Ontario and which also included the stake in VerticalScope."

 

 

Edited June 15, 2021 by Xerxes

[StubbleJumper]

The really disappointing thing about this is that FFH and the other major Torstar shareholders refused an offer which included contingent value rights, and instead accepted an arguably inferior offer from NordStar (there was much discussion about that on this forum last year).  At this point, it appears as if those contingent value rights might have been of significant value to FFH shareholders.

 

 

SJ

[Xerxes]

So much for those hoping that FFH have some Grand plan on Resolute, involving restructuring, roll-up etc., and that we, mere mortals, just cannot see the masterpiece taking shape.

 

FFH has some great things going for it, but finding partners for business outsides its area of competencies ain't one of them.

[bearprowler6]

Sadly, the Torstar / Vertical Scope saga is just another in a long list of examples where the minority shareholders at Fairfax were disadvantaged! No need to go over all the examples again...any long time shareholder of Fairfax knows them only all too well.

 

As I have stated before, the market has long caught onto Prem and the games he plays and is no longer interested. For any of you who doubt this...just look at Fairfax's share price over the last 8-10 years. It has gone no where and in fact it is even still well below the value on January 1, 2020. Sure the shares have rebounded off the March/20 covid induced low but not any more or any less than a number of other financials and in fact has underperformed several other companies that are discussed else where on this site.

 

There are a number of good things at Fairfax but in my view the bad clearly out ways the good. Good luck to those of you who still believe in Prem and what Fairfax may become. I expect that you will have a very long wait! Paul Rivett got tired of waiting and moved on to greener pastures. I would suggest any existing shareholder would be well served by coming to the same conclusion as Rivett did.

Edited June 15, 2021 by bearprowler6

[petec]

I really can't understand this from Fairfax's perspective. It's not like they're unwilling to IPO things, as we have seen recently. They could easily have done this themselves. And I simply can't see what their incentive would have been to sell Torstar to Rivett well below value. The only rational explanation is that they disagreed with him on Torstar's value, and were wrong. But that feels pretty feeble. I am bemused.

[glider3834]

Looks like Fairfax had realised loss of $52 mil on Torstar (from 2021 AR) so there would have been a tax benefit - potentially one motivation - in addition to cash offer for their shares but agree that definitely would have been better if they could have somehow partnered with NordStar rather than selling to them.

 

I doubt Fairfax could have predicted that VerticalScope would generate an IPO return of 3x the sale price for Torstar - the IPO market was dead in May-20 & we were in the middle of covid - whereas now IPO market is extremely strong.

 

Torstar aside, I am definitely sitting on the bullish side of the fence when it comes to Fairfax over the next 12 mths 

 

- hard insurance market continuing to drive UWP

- Riverstone Barbados sale on closing further strengthening their capital position

- unrealised gains on equity portfolio returns continuing in Q2 2021 (eg RFP, BB, STLC)

- interest income potential tailwind from higher interest rates if not in 2021 then potentially early/late 2022

- further potential IPO/monetisations of investees over 2021

- increasing their ownership of Digit from 49% to 74% & Digit position appears to be carried conservatively compared to recent Jan funding round.

- non-insurance sub operating businesses should continue to post improved performance

- Fairfax India stake is undervalued (well below BV) & Fairfax INdia recently announced tender offer/buyback will further increase FFH ownership 

- Fairfax's warrants in both BB & ATCO carried off their books - could be potentially monetised

 

 

 

 

 

 

 

 

 

 

[StubbleJumper]

45 minutes ago, glider3834 said:

Looks like Fairfax had realised loss of $52 mil on Torstar (from 2021 AR) so there would have been a tax benefit - potentially one motivation - in addition to cash offer for their shares but agree that definitely would have been better if they could have somehow partnered with NordStar rather than selling to them.

 

I doubt Fairfax could have predicted that VerticalScope would generate an IPO return of 3x the sale price for Torstar - the IPO market was dead in May-20 & we were in the middle of covid - whereas now IPO market is extremely strong.

 

No, I don't think that many of us expected there would be a bat-shit crazy IPO market that would lap up nearly any old crap if it was tech-related.  That has been manna from heaven for many companies, including FFH which has IPOed a couple of the turds lingering on its balance sheet.  The successful VerticalScope IPO does remind us, however, that Torstar management and the major Torstar shareholders appeared to have taken an objectively inferior buyout offer from Nordstar rather than taking what appeared to be a higher offer from another outfit.  That higher buyout offer included contingent value rights.  Well, part of that "contingency" includes the possibility of windfall profits from a crazy IPO market.  Failing to anticipate the crazy IPO market is not really an error, but not insisting that Torstar shareholders accept the best buy-out offer is definitely an unforced error.  And, the size of that unforced error just got larger with this IPO.

 

 

45 minutes ago, glider3834 said:

Torstar aside, I am definitely sitting on the bullish side of the fence when it comes to Fairfax over the next 12 mths 

 

- hard insurance market continuing to drive UWP

- Riverstone Barbados sale on closing further strengthening their capital position

- unrealised gains on equity portfolio returns continuing in Q2 2021 (eg RFP, BB, STLC)

- interest income potential tailwind from higher interest rates if not in 2021 then potentially early/late 2022

- further potential IPO/monetisations of investees over 2021

- increasing their ownership of Digit from 49% to 74% & Digit position appears to be carried conservatively compared to recent Jan funding round.

- non-insurance sub operating businesses should continue to post improved performance

- Fairfax India stake is undervalued (well below BV) & Fairfax INdia recently announced tender offer/buyback will further increase FFH ownership 

- Fairfax's warrants in both BB & ATCO carried off their books - could be potentially monetised

 

 

 

Agreed that there are definitely many good things working in FFH's favour at the moment.

 

 

SJ

[Gregmal]

1 hour ago, glider3834 said:

I doubt Fairfax could have predicted that VerticalScope would generate an IPO return of 3x the sale price for Torstar - the IPO market was dead in May-20 & we were in the middle of covid - whereas now IPO market is extremely strong

 

 

 

 

 

 

 

 

 

 

While thats one take, the other side is that basically all of their other investments required a batshit crazy market/event in order to work. If we give them the benefit of the doubt for being "prudent" here, they deserve quite a bit of the other side of the coin for all the other stuff thats been done over the years. Ultimately, it seems like this was exited for what is ultimately a rather insignificant sum for FFH...which begs the question, why was it necessary at all? Meanwhile they have very meaningful, long held, turdco positions that they refuse to monetize. Which I cant help but think is another "look how smart I think I am" move by Prem....aka more of the same behaviors of the past. 

[bearprowler6]

The issue is not whether Fairfax could have anticipated the hot IPO market and the public market price that Vertical Scope (VS) could have achieved.

 

When Fairfax decided to tender its Torstar shares to the Rivett lead NordStar offer it ascribed ZERO value to Torstar's investment in VS. Strange really given that Torstar net investment into VS was $178 million only a few years earlier (see link to article on the investment below).

 

https://www.thestar.com/business/2015/07/29/torstar-buys-stake-in-digital-media-company.html

 

There is simply no way VS was worth ZERO at the time Fairfax tendered its shares in Torstar to the inferior NordStar offer only one year ago!

 

Regardless of Prem's motives here...accepting the offer from NordStar was simply the wrong thing to do and represents yet another example where Prem did not look out for the best interest of the company's shareholders!

[bizaro86]

I think an investment in Fairfax basically requires you to assume that management will take advantage of minorities. This is one in a long list of examples. If you think the discount is big enough then maybe it makes sense as a "trading sardine." But the appropriate discount for a controlled company where management takes advantage of minorities is very, very high.

 

They took an objectively inferior offer at the time. Is there any way that can be spun as taking care of fiduciary duties to shareholders? This just makes it look egregious. 

Edited June 30, 2021 by bizaro86

[petec]

Bizaro, why do you think management took advantage of minorities here? For that to be the case (in my view) management would have had to have benefited. I don’t see why Prem benefited. 
 

I don’t think selling Torstar at this price was in minorities’ best interests, but I don’t think it was in Prem’s either. Do you disagree?

[RichardGibbons]

One can gain social standing by acting magnanimous, and it's possible that, once one reaches a certain level of wealth, the value of the social standing gained can exceed a relatively tiny economic loss.

 

(I have no idea if this applies to Prem because I don't know the guy, but it's possible. It's also possible that he just screwed up.)

[petec]

Being charitable can improve social standing. I’m not sure gifting an asset to an (already wealthy) ex-employee and being made to look a fool in the process has the same impact. 

[Gregmal]

Another feather in the hat, fo sho.

[bizaro86]

8 hours ago, petec said:

Bizaro, why do you think management took advantage of minorities here? For that to be the case (in my view) management would have had to have benefited. I don’t see why Prem benefited. 
 

I don’t think selling Torstar at this price was in minorities’ best interests, but I don’t think it was in Prem’s either. Do you disagree?

 

There was an objectively better offer on the table, and Prem refused to engage with it in favour of selling to a long-time employee (friend?)

 

Unless you think Prem is a fool (which seems improbable) he must have had some other motivation.

[RichardGibbons]

1 hour ago, petec said:

Being charitable can improve social standing. I’m not sure gifting an asset to an (already wealthy) ex-employee and being made to look a fool in the process has the same impact. 

 

Yeah, I didn't mean within broad society. I meant within the community to whom he is personally attached. Like, "I'm happy to help out my friends."

[petec]

8 hours ago, RichardGibbons said:

 

Yeah, I didn't mean within broad society. I meant within the community to whom he is personally attached. Like, "I'm happy to help out my friends."

Yes, point taken. I have to say it doesn’t really make sense from my POV, but that’s just me. Prem knows that if he does this, suddenly every senior executive wants a piece. Weird. 

[bizaro86]

On 7/1/2021 at 11:29 PM, petec said:

Yes, point taken. I have to say it doesn’t really make sense from my POV, but that’s just me. Prem knows that if he does this, suddenly every senior executive wants a piece. Weird. 

The biggest thing is everyone is reaching for explanations because from a shareholder perspective it makes no sense.

 

All we really know is:

 

1) there was a better offer on the table.

2) Prem took the offer from a former employee anyway.

 

I can't see an explanation where that comes out looking shareholder friendly, whatever his inner motivation was.

[petec]

1 hour ago, bizaro86 said:

The biggest thing is everyone is reaching for explanations because from a shareholder perspective it makes no sense.

 

All we really know is:

 

1) there was a better offer on the table.

2) Prem took the offer from a former employee anyway.

 

I can't see an explanation where that comes out looking shareholder friendly, whatever his inner motivation was.

No, that’s fair.