Fairfax Announces Acquisition of Shares of Reitmans

[ourkid8]

http://www.fairfax.ca/news/press-releases/press-release-details/2013/Fairfax-Announces-Acquisition-of-Shares-of-Reitmans/default.aspx

 

Fairfax Announces Acquisition of Shares of Reitmans

 

12/20/2013

 

Download this Press Release (PDF 62 KB) 

TORONTO, ONTARIO--(Marketwired - Dec. 20, 2013) - Fairfax Financial Holdings Limited ("Fairfax") (TSX:FFH)(TSX:FFH.U) announced today that it has acquired, through its subsidiaries, 2,000,000 Class A non-voting shares ("Class A Shares"), representing 3.9% of the outstanding Class A Shares of Reitmans (Canada) Limited ("Reitmans"), bringing its total holdings in the company to 7,066,100 Class A Shares or approximately 13.8% of the total Class A Shares outstanding. The shares were purchased through the facilities of the Toronto Stock Exchange at a price of $6.35 per Class A Share for investment purposes. Fairfax continually reviews its investment alternatives and may purchase additional shares of Reitmans from time to time in accordance with applicable laws.

 

Fairfax Financial Holdings Limited is a financial services holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management.

 

Contact Information:

 

Fairfax Financial Holdings Limited

John Varnell

Vice President, Corporate Development

(416) 367-4941

[Nnejad]

I like it.

[beerbaron]

Why did they disclose it if they were under 5% ownership?

 

BeerBaron

[ourkid8]

"bringing its total holdings in the company to 7,066,100 Class A Shares or approximately 13.8% of the total Class A Shares outstanding."  Their ownership is now 13.8%.

 

I am not that thrilled about this investment as I do prefer they focus their attention on higher quality assets but this is probably one of the analysts picks.  Retail is a tough business that we could do well or get slaughtered  e.g. Eddie Lampert  :)  (Sorry, just joking)

 

Tks,

S

 

Why did they disclose it if they were under 5% ownership?

 

BeerBaron

[NormR]

Humm, does iShares S&P/TSX Canadian Dividend Aristocrats Index Fund (TSX:CDZ) still hold a huge chunk of the stock? 

(It seems to have about $32 million worth based on the iShares website - or about 8% of its RET.A's market cap.) 

 

Since RET.A cut its dividend recently, the stock will move out of the index and then the ETF.  So, there should be a good amount of forced selling when that happens.  Anyone have an idea of when that might be? 

 

 

[StubbleJumper]

I like it.

 

 

Why do you like it?  I've always been of the view that clothing retailing is a crappy business.  I haven't paid enough attention to RET to know whether they bought a crappy business at a great price, or whether they've paid an average price for a crappy business.

 

 

SJ

[mcliu]

This worries me... Reitman's isn't exactly fashion forward..  ???

[stylized_fact]

Looks like the Canadian version of Syms/Filene's Basement.  Does anyone know about their real estate?

[kirkomi]

Reitmans is not a real estate play. They have a big distribution center, but the mortgage is only partially paid. Otherwise, they have 5.8M land on book and 52M in building.

 

They mostly have leased stores in malls. Here is a short introduction of the company. The author seems to be passing on the investment.

 

http://www.gurufocus.com/news/238741/reitmans-an-owner-operator-business-with-messed-up-expectations

[Uccmal]

The clothing retailer to older ladies, heavier women, and toddlers. 

 

Nnejad, This is one where being on the ground and knowing the stores helps out.  Very weak investment in the retail sector.  I am disappointed again by FFHs inability to buy cash flow machines.

[sigis]

I looked at them 2 years ago when they seem to be very cheap on paper but didn't like their declining cash-flow. Things got much worse since then, so it really seems the stock is cheap for a good reason, hard to see where FFH sees value here.

[beerbaron]

I looked at them 2 years ago when they seem to be very cheap on paper but didn't like their declining cash-flow. Things got much worse since then, so it really seems the stock is cheap for a good reason, hard to see where FFH sees value here.

 

I looked at them 2 years ago too and I found them really expensive... at the current price tough it's not a bad deal.

 

BeerBaron

[KFRCanuk]

The clothing retailer to older ladies, heavier women, and toddlers. 

 

There are lots of grannies and big girls out there.

[ourkid8]

https://www.fairfax.ca/news/press-releases/press-release-details/2019/Fairfax-Sells-Its-Position-in-Reitmans/default.aspx

 

They are tendering their stock at $3/share...

[petec]

Good. Nice to see some evidence (if that’s what this is) of the portfolio review that seems to be going in, and some limited evidence that they’re willing to look failure in the eye and cut losers.

[Cigarbutt]

There is another thread specific for Reitmans but there is the smell of blood and will take it from here.

https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ret-reitmans/msg273985/#msg273985

 

Long story short: Long story and very competent managers but retail is tough and all good things must come to an end.

Short-term problems are turning into intractable issues and I think that, given the present momentum, the turnaround will be very difficult.

This is a first shared shot at it and expect to potentially meet interesting entry points in the next few months.

 

3 scenarios:

1-They sell or turnaround the maternity segment and somehow save the brand; then market price should converge to book value.

2-They try and try and this becomes a value-trapped melting ice cube with accelerating negative cashflows (the transition from slow to fast may be short)

3-They decide to enter BIA, define a SISP pathway and rapidly liquidate through a receiver (the Danier Leather story)

 

For scenario 3, comparing Reitmans now to what Danier Leather looked like at the end of 2014 is instructive. There are balance sheet differences but IMO differences tend to cancel out in terms of the liquidation value. I assume Reitmans could terminate or assign leases in a similar way. I come to a liquidation value of +/- 1.40 per share if things go south in the next 6 months. I assume the liquidation and distributions would happen over a two-year period.

 

That's it for now and will reconsider with further developments or if/when share price goes below 0.70.

[longlake95]

More $$$ down a rat hole.

[longlake95]

My wife is my best unpaid retail analyst. If I had just more closely observed her shopping patterns, I'd be far wealthier. I'm learning. She hasn't set foot in Reitmans in 5 years. It's a goner.

[Cigarbutt]

The December 2019 post did not exactly trigger unbridled enthusiasm but there's been some action. With the superimposed virus wave, residual intrinsic value has been impaired and a fourth scenario needed to be defined: CCAA. They've just announced closure of the maternity segment and will liquidate related inventory (i assume this will be close to reported inventory value).

http://www.reitmanscanadalimited.com/news.aspx?AspxAutoDetectCookieSupport=1

 

The next step is financing and the natural move would involve a sale-leaseback transaction for the head office and distribution center (fair value well above reported book value).

The "safest" way to realize value would be to liquidate all inventory and go through BIA (effective way to deal with leases under the circumstances) but there is uncertainty about the duration related to the opening of stores enclosed in shopping malls and the management may have an emotional tie to the brand and its history.

The share trading has been suspended, for now.

 

Interesting fact: As part of the buyback in summer 2019, Fairfax sold its A shares (7.4M of them) at 3$ per share and then the share price declined by 97.5% when the trading was suspended 2 weeks ago.