Monday, November 16, 2009 9:12 AM
What's cooking at George Weston
Andrew Willis
Put yourself in Galen Weston's shoes for a moment. They're handcrafted brogues, they'll feel real comfie.
The grocery and baking tycoon faces one of the single most difficult and defining decisions of an illustrious career. The chairman of George Weston and controlling shareholder in Loblaw Cos. is sailing through the recession with $3.8-billion of cash in the bank - courtesy of a well-timed U.S. bakery sale - and a conglomerate structure that doesn't suit the times.
Okay, it's not exactly a killer dilemma: Billionaire business owner with beautiful and brainy wife and kids ponders the future of cash-rich George Weston. And that future is one of the public markets' more captivating questions, but with a touch of empathy and a dash of common sense, we can solve Mr. Weston's problem.
Let's start by nailing down just what the issues are. Mr. Weston actually has two corporate problems: One is the strategic focus at George Weston WN-T that everyone talks about, and the other is how to allow the family to more fully participate in the rebound of Loblaw L-T.
Before we dive in, consider for a moment how this decision will actually get made.
The Weston family is that rare beast in business: A clan that successfully builds wealth from one generation to the next. What's Galen's secret?
Part of Mr. Weston's long-term success can be traced to the fact that the executive surrounds himself with smart business people, who don't look to the grocery magnate for their next meal. He gets advice from individuals with more than enough personal wealth to tell the Westons exactly what they think, without regard for repercussions.
First among equals in this circle is Anthony Graham, who serves as president of the family holding company, Wittington Investments. In a previous life, Mr. Graham ran, then sold, a successful Montreal investment dealer. He may not quite be in Mr. Weston's tax bracket, but he's close. Highlighting a few other faces from the George Weston and Loblaw boards, you've got former Oshawa Foods CEO John Lacey, retired BMO Nesbitt Burns deal maker Peter Eby, ex-TD boss Charlie Baillie and a guy named Tony Fell from RBC Dominion Securities who has provided more than a little wise counsel over the years.
Now, what is this august group telling Mr. Weston right now?
Well, they all know that uncertainty over its strategic plans weigh heavy on George Weston. Options facing the company include acquiring more food companies, delving into new fields, a whacking big special dividend, or buying out minority shareholders in Loblaws. So what's coming?
This brings us to the more subtle concern that's likely to drive what happens next.
For several years, Mr. Weston and son Galen G. Weston - chairman of Loblaw - have been wrapped up in the most public of turnarounds, trying to fix a grocery store chain that they busted. This isn't a story that needs to be explained by equity analysts: Everyone who shops knows that Loblaw lost its way in chain-wide redesign, messed up its supply system, and is only now back on the rails.
The problem for Mr. Weston - senior and junior - is they won't fully participate in a Loblaw turnaround that, again, every shopper knows will play over the next three or four years. The family's ownership of the chain is diffuse.
Through a privately-held Wittington, the family holds 62.5 per cent of George Weston. This publicly-traded company in turn owns a 61.9 per cent of Loblaw.
If the Weston clan truly believes Loblaw will return to its glory days - and there's every indication they do - then the smart move is to buy out minority shareholders in George Weston, an acquisition that would cost something in the neighbourhood of $3-billion and would be dead simple to finance. Taking 100-per-cent control of the holding company means the family can capture far more of the upside in Loblaw, while still rewarding public shareholders who have stuck with the grocery chain.
Unless Mr. Weston spies a strategic acquisition in coming months that requires the flexibility granted by a publicly-traded George Weston, a going-private transaction is the common-sense course of action. Put yourself in the billionaire's place: Isn't that what you'd do?
