StubbleJumper

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

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

So, in rough terms, this is accretive to FFH by about $6.5m/year, pre-tax? For the prefs it's an incremental 1.5% x $300m= $4.5m/year. And for the warrants, we expect Atco's stock price to increase by an average of about $2/year for the foreseeable future, so that's ~$2 x 1m= $2m/year. And in return, FFH has moved down the creditor pecking order? Okay, that's not too bad for one day of work. SJ

Yes, after further discussion, I believe you are correct that income earned on equity accounted investments is attributed to the carrying value and dividends paid are deducted from the carrying value. I actually did take a couple of courses in advanced financial accounting 25 years ago, so it's a bit embarrassing to have not retained that. SJ

It wouldn't simply be recognized as dividend income? So, debit cash, credit dividend income, no effect on Resolute holding value. You are thinking they would debit cash, credit the Resolute asset and it wouldn't pass through the income statement? I confess that my accounting courses are now many years in the past so maybe I'm not thinking about this correctly. SJ

I'm not sure that I would say that interest and dividend income is "growing." Unfortunately, FFH will continue to roll over a considerable portion of its treasury bonds into lower interest rates during 2021 and the interest element looks to be shrinking. Interest and divvies were lower by US$50m in Q1 compared to the same quarter last year. If you are brave enough to run-rate that for an entire year, that's a hole of ~US$200m. At least a special dividend of US$25m or US$30m from Resolute and something similar from Stelco will help fill that hole a bit. Thankfully, underwriting looks promising and investment gains might be very large during 2021. SJ

It kind of depends on what you believe BB is actually worth. If you believe that all of BB's future cashflows discounted back to today are only worth US$4 billion or US$5 billion, then today's market cap of US$9 billion is a screaming sell. Without a doubt it would be a beneficial thing for existing BB shareholders if management sold another 100 million or 150 million shares to a bunch of inexperienced kiddies at 2x fair value, but even in that case it would be far better for FFH to sell its shares at 2x fair value than to hold them and benefit from the minor value improvement from BB having picked some kiddies' pockets. If the BB share price holds above US$15 after the blackout period, there's no excuse if FFH doesn't sell, unless FFH actually comes out and states that they truly believe the POS is actually worth US$9B. SJ

I differentiate the common and debs only because I do not fully understand the mechanics of conversion and subsequent disposal. I know that FFH can issue a sell-order for the 47m common shares and they'd start flowing out the door within seconds of the sell-order, with a T+2 settlement. With adequate volume, perhaps 47m shares could be dumped over 2 or 3 trading sessions, and that would be the end of it. What I don't fully understand is the process of converting the debs and liquidating the resulting shares. Would it be possible to short 55m shares and then leisurely convert the debs and close the short position a week or so later using the shares provided by BB? Or would it be possible to exercise the conversion, obtain those 55m shares approximately immediately and sell them on the market? Once the conversion option is triggered, how many days does it take to actually receive those shares from BB (is it immediate? is it two days? a week? a month?). I have never read any prospectus or other filing from BB about those debs, so I confess to not really understanding the potential constraints (maybe they are convertible only under a full moon on Tuesdays when the temperature in Waterloo, ON exceeds 14 degrees celsius) and mechanics of conversion.... SJ

To be fair, I had never in my wildest dreams anticipated that the quiet period would be a problem for FFH to exit its BB position. I had not seriously contemplated the possibility that there would be a (possibly) transitory spike in BB's share price and that FFH would be prohibited from selling during that short period that gold falls from the sky. My concern was that the price could slowly rise to an acceptable level or that FFH would eventually capitulate and dump the shares for whatever they could get. In that type of scenario traditional volumes are a problem as it could take several days for FFH to move their 47m shares and the early-warning disclosure requirement for directors could signal the market to bid the stock price lower before the entire position could be liquidated (ie, the market usually doesn't like it when insiders liquidate a long-held position because we assume that there is some level of asymmetric information). Anyway, let's just hope that the price spike lasts for a full month this time and that FFH takes the opportunity to at least dump its position in the common shares. I don't expect the debs to be converted and sold, but I certainly wouldn't shed any tears if FFH completely washes its hands of BB by exercising the conversion and dumping the whole lot. It is possible that 2021 could provide the opportunity to dump both BB and Resolute. Keep your fingers crossed. SJ

Finally a bit of news about Toys R Us. They are too small to merit much discussion in the annual report, but it seems like they are adding clothing to their product offerings. I wish them luck with it, as I have never quite figured out which clothing retailers will thrive and which will crash and burn: https://www.theglobeandmail.com/business/article-toys-r-us-teams-up-with-canadian-fashion-mogul-joe-mimran-to-launch/

Above $15? I'd be deliriously happy if they were able to unload the equity position for US$12/sh, even if they elect to continue to hold the debentures. Cripes, I wouldn't even be upset if they realized an average of US$10/sh. Prem provided a valid excuse for not divesting that position during February, but it will be interesting to see what happens if the BB share price continues to rise as we work our way through the month of June. Will he act, or will it just be more excuses? SJ

Yes, I would say that we've been talking about Resolute a fair bit, and the discussion of the lumber market dynamics has been unprecedented on this site. The conversation seems to have boiled down to two competing views. One view is that this is just a temporary lumber price spike and FFH should divest RFP at the top-ish of the lumber cycle (ie, find a sucker to buy the whole company while the stock is high), while the other view is that this will be a longer-term price increase and FFH should hold its shares to milk the cash cow. I guess we could spill a bit more ink about which of those views is correct, but I'm not sure that would be helpful. Sanj, for FFH shareholders, it's worth celebrating that the RFP and BB positions have risen from the dead, but it's really not cause for patting Prem on the back when you consider the time-value-of-money. Some enterprising board member might wish to do some forensic research to construct a little spreadsheet that tracks RFP and BB share/note purchases, dividends and current market value which would enable the calculation of an IRR. But, I don't think we even need that sort of spreadsheet to tell us that we have not gotten a 8% or 10% return on either of those stocks for the period that FFH has been holding. Seaspan, on the other hand, is one where you might want to praise FFH management because I am guessing that the IRR calculation would be favourable. SJ

Maybe lightning will strike twice?

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

Viking, Clearly prices for dimensional lumber are insane. A 2x4 goes for like Cad$12 these days, which is nothing short of highway robbery. I have half a mind to clean out my garage to see whether there is any hidden treasure that I could sell... But, turning to more serious matters, as I understand it, the lumber companies buy the logs, saw them, and then market them. So, how are you thinking about how the economic rents get distributed between the many little primary companies that cut the logs and the mills that saw them? The mills will need to pony up cash to get the logs, so do the mills have enough market power or are do the mills effectively have a spatial monopsony that would allow them to extract a large portion of those rents for themselves rather than passing them on to the log suppliers (ie, does the milling margin increase, or is it mostly or completely competed away when the mills bid for logs?). It strikes me that if a supply constraint exists, it is not milling capacity, but rather availability of logs.... SJ