A Canadian on Wall Street

Okay, another David Olive post — hey, the man knows his stuff and writes incisively. I’d rather every entry here be a link to one of his posts (at least on business or investing) than the kind of flippant commentary you tend to find in the financial media. This one’s on the difficulties facing large, once fast-growing companies.

The purchase of the privately held Standard Broadcasting by Astral Media announced over the weekend caught my attention, mostly because I had recently been invested in Astral for a short time around the time I owned Alliance Atlantis, buying some of the news about potential further consolidation in the Canadian media landscape. (Although, honestly, it was probably more likely that Astral would be the buyer in any deal — some speculated they’d buy Corus, but I had my doubts. As is usual, the buyer’s stock isn’t doing so hot this Monday morning, so I’m glad to have got out with a modest profit.) What with the planned merger of XM and Sirius Satellite Radio in the US (and its consequent fallout for their Canadian arms), the competition arena for radio shifts again.

It’s hard to say whether or not this Astral-Standard deal is really that much to be impressed by. Radio is fragmenting, and even with their new 81-station grip on the Canadian radio market (Corus Entertainment holding on to second with around 50-odd stations, I believe), it’s a little like that saying about exchanging deckchairs on the Titanic. Not that I think radio is dying, but with the surprising (to me) popularity of podcasts, streaming online radio, iPods and their own custom playlists and the sheer number of ways NOT to listen to the radio, I suppose it is somewhat impressive that radio, in either terrestrial or satellite form, is still alive and mostly kicking. With Google now in the radio ads realm (along with other players like Software Media Exchange and Bid4Spots) there are obviously some people who think radio will continue as a strong, stolid revenue source. It certainly won’t be a major growth industry (the attempted consolidation of satellite radio so quickly in that young industry, with its plateauing subscription numbers is an indicator of this) and I don’t know how practical it is to make bets on potential buyout targets, given that most of the public players have already bulked up considerably. Lately, I’ve been moving back to a more traditional value stance, and less about trying to exploit special situations, since these always seem much harder to call.

Sometimes I really wish we had America’s competition environment. Considering the number of trades I do in a month rarely breaks double digits, that would be an ideal account for me. (Also see: Zecco, but I think BoA has a bit more of a name.)

I really hate headline writers who work in business news, because you end up with stuff like this: Quadruple profits served up at Tim Hortons. In the entire body of the story, no mention is made of the fact that there were one time costs that depressed earnings in the previous year’s quarter. Even in this story, the mention is three-quarters of the way down the page:

Earnings a year earlier were cut by C$33.5 million to reduce goodwill and the value of assets after a 2004 acquisition in New England, Tim Hortons said.

And here, halfway down:

However, the earlier results had been dragged down by $42.5 million in one-time items partly related to its initial public offering.

Not even sure why those two explanations don’t jibe. Admittedly, it’s good news for the person who’s willing to do more reading than the average person, but it would almost be worth it to have a site devoted solely to debunking these kinds of news items. But it seems rare that the financial media has time for such in depth coverage, to the detriment of itself and those who read it without a keen eye.

Very comprehensive profile of Loblaw with some good points about its 80s-era resurrection, a nice anecdote-filled breakdown of the supply chain and logistics bungle that is Loblaw now, comments from Dave Nichols and some notes on Galen Jr, the untested ex-dauphin. It’s possible that Wal-Mart may not be the juggernaut that people seem to think, but I imagine it’ll be a few years before this all plays out and the weight on Loblaw’s stock lifts (or not). And it’s not like other food retailing competitors are standing still, either:

Other supermarkets have made their own moves in response to Wal-Mart’s advance and Loblaw’s drift. Sobeys Inc. and Metro Inc., the second- and third-biggest national players, respectively, have bolstered their fresh food offerings. And Metro became more of a force in 2005 when it scooped up A&P and its subsidiary Dominion chain in Ontario. Now these supermarkets, alongside Safeway and Overwaitea in Western Canada, are harvesting disgruntled Loblaw customers.

Overwaitea owns the Save-On Foods chain in BC and Alberta, and I wish they were public because they are, in my mind, an ideal mix of low prices and high quality products.

This Wikipedia page on the Baby Bells that were created after the breakup of the original AT&T in 1984 is fascinating, from a business standpoint. There’s so much jockeying in the telecom industry, especially in the US, that it’s hard to keep track of who’s who, but I didn’t realize how many of the old names I’ve heard have been subsumed into these newer companies, names like NYNEX, Bell Atlantic and GTE that remind me of the old BBS days. If it weren’t for BCE’s misguided forays into publishing (web and print) and television (both production, as CTV, and distribution) under Jean Monty, they might actually be a serious competitor on the world stage and a potential investor in foreign telcos. Or maybe I’m just dreaming. Well, I guess they had that failed investment in Brazil, but they pulled out of there if I recall correctly. It still amazes me how big companies like that have so much inertia that they can continue operating, poorly, and just due to sheer size stay alive, like elephantine zombies. It’s often hard to tell if a company is actually still “living” — is GM, a nice short play for me in late 2005, in the midst of a legitimate turnaround? Or is it just in a slow-motion death spiral? That last link seemed prescient at the time, but lately seems a little bit like James Kunstler predicting a return to hard, rural living from imminent oil shocks while prices settle in the low-to-mid-$50s. (Interestingly, David Olive, one of the few business columnists I usually find truly insightful and not prone to punditry, seems to think $150 barrels of oil might be in the offing; I still don’t really feel that comfortable investing in oil due to the complexity of the environment surrounding it and felt kind of like a dilettante investing willy-nilly in oil sands stocks early last year and I’m not even sure a situation that induced an oil shock like that would be investable, anyhow, unless you were really good at getting out of every other sector that would suffer.)

It’s kind of amazing to watch the firesale going on at Coolbrands. With the news that they’ve sold one of their major brands, Eskimo Pie, a desperation move for sure, I’m wondering how long they can really stave off bankruptcy and still maintain their business. Newsflash, Coolbrands: You’re Coolbrands! Without your brands you don’t have a business, as far as I can tell. I suppose this is an indication of the quality of management they have going there, although for a time in 2003 I missed out on what in retrospect seems like a hype ride, buying the stock I belief at $10, selling it when it dropped to $8 and then scratching my head ruefully while it rose to somewhere in the double sawbuck range, only to come crashing to earth when Weight Watchers dumped them. That was just the beginning of the long, dark night of the soul for Coolbrands, who probably should have declared “bankruptcy protection” a lot sooner, when there was something to salvage.

If I were going to look at a stock with “Brands” in the name, I’d check out Limited Brands, the American company that bought out LaSenza and owns the Victoria’s Secret brand, whose stock appears to have dipped significantly in the past while — I’ll go on record as putting a little bit of cash into this name just now, after writing this prompted me to look a little more at Limited Brands.