U.S. investor buys big stake in Sask Pool

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Published: February 16, 2006

A large chunk of one of Saskatchewan’s most economically and historically important companies has been bought by an American investor.

Third Avenue Management LLC, an investment firm and fund manager based in New York City, is now the biggest single shareholder in Saskatchewan Wheat Pool.

As of Jan. 31, accounts managed by TAM held approximately 14,007,850 shares in the Regina-based grain company.

That represents about 17.1 percent of SWP’s 81.8 million issued and outstanding common shares traded on the Toronto Stock Exchange.

Under stock exchange rules, companies are required to issue a public notice when they acquire 10 percent of a publicly traded company.

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A TAM spokesperson said the company will not use its ownership stake to try to direct the pool’s business operations.

“We have no intention of meddling with the way the company is run,” said TAM portfolio manager Amit Wadhwaney.

“They have one of the best balance sheets in the industry, one of the better governance structures and one of the best network of assets.”

Colleen Vancha, vice-president of investor relations for SWP, said the news of the TAM investment explains the heavy trading activity in pool stock in January.

More than 16 million pool shares changed hands in the nine trading days ending Jan. 31, driving the price up by 13 percent to $8.25. By Feb. 10 the price had settled back to $8.09.

Based on an average price of $7, the 14 million shares purchased by TAM would have cost about $100 million.

Vancha said it should also dispel rumours that had been circulating in the grain industry about a possible takeover bid against SWP by a multinational grain company or a possible takeover of a smaller Canadian firm by the pool.

With a significant U.S. investor, SWP is now in a similar situation to its main competitor and Canada’s largest grain company, Agricore United, which has 23.5 percent of its shares owned by U.S. agricultural giant Archer Daniels Midland.

One big difference is that ADM is an operating company that is involved in joint business arrangements with AU and has seats on the company’s board of directors, while TAM is simply a financial investor and fund manager.

TAM, which is the investment adviser to Third Avenue Funds, is known as a value investor, meaning it typically buys a stock and holds it for at least several years. The company does not actually own the shares; rather it manages and controls them and has investment authority from individual investors in its funds.

Vancha said that’s exactly the kind of shareholder SWP wants.

“One of our objectives is to see the shareholder base evolve to more longer-term value investors and this is certainly a good sign that that’s taking place.”

Wadhwaney said TAM’s investing philosophy is based on two principles: the company must have strong finances, competent management and an understandable business; and the stock must be priced at significantly less than its intrinsic value.

“We tend to buy things we think are cheap, but they also have to be well-capitalized and have what we call staying power.”

An investment is sold only when there has been a fundamental change in the company’s business or capital structure, or irresponsible management decisions.

The statement filed by TAM said the shares were purchased “for investment purposes with no additional present intentions.”

Wadhwaney said TAM is satisfied with its 17 percent share and has no immediate plans to increase that stake.

The head of TAM is Martin Whitman, a legendary figure in the investment business.

“He is one of the most famous and successful investors in the world,” said Greg Boland, manager of a Toronto-based fund that had been SWP’s biggest shareholder prior to TAM.

He suspects the investment is based in part on an expectation the grain industry will be deregulated and restructured under the new federal government, resulting in mergers and acquisitions, the possible end of single desk selling, increased efficiency and higher profits for surviving grain handlers.

However, Wadhwaney said that’s not the case, adding that even if there are no changes in the grain industry, the pool is still a good investment.

Boland said he also expects that despite its denials, with such a large ownership stake in the pool TAM will want to have input and influence over Sask Pool business and policy decisions.

“Not necessarily as a member of the board of directors, but (Whitman) would certainly seek to act as a catalyst in restructuring the business,” Boland said.

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Adrian Ewins

Saskatoon newsroom

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