When Score Media jumped more than 100 per cent last month on a takeover bid from Rogers Communications, one investor was particularly delighted.
For years, Montreal money manager Stephen Takacsy had been publicly pounding the table for Score, arguing that an acquisition was inevitable because major media companies coveted the company’s sports-loving audience. He loaded up on the stock, convinced that shareholders would eventually be rewarded with a lucrative takeover offer.
Was it luck or prescience? In Mr. Takacsy’s case, it looks like the latter. While Mr. Takacsy, the chief investment officer at Lester Asset Management, isn’t a household name in the Canadian investment circles, he’s developing an uncanny record of success in spotting companies that eventually become takeover candidates.
In just the past year, he’s profited from seven takeover deals – those for Score, Viterra Inc., Mosaid Technologies, Provident Energy, Afexa Life Sciences, Neo Material Technologies and Marsulex Inc.
“We’ve been pretty good at picking companies that end up getting acquired. Anything that is undervalued, eventually something happens,” Mr. Takacsy said of his value-oriented style of stock picking.
Mr. Takacsy’s good fortune on the takeover front isn’t a recent development. In the year before the 2008 market crash, he had a similar rash of companies in his portfolio snapped up by acquirers.
Good takeover calls have helped boost the performance of his fund, which has gained 84.3 per cent after fees since July 2006, when he began to manage it, compared to 22.4 per cent for the TSX composite in the same period. Lester has about $190-million under management.
Mr. Takacsy thinks he’s spotted other companies likely to be bagged by rivals. Shoppers Drug Mart, for instance, would be a logical choice for a big U.S. drug store chain, like Walgreen Co., should it want to enter the Canadian market.
TransAlta Corp., the unloved Alberta-based utility, might also make a tempting target. Currently loathed because of low electricity and coal prices, TransAlta has strategic assets in Alberta and a big renewable energy portfolio that Mr. Takacsy thinks would be a natural fit for a bigger, expansion-minded rival like Fortis Inc. He points to TransAlta’s share price of more than $35 before the crash, during a previous bout of takeover speculation, as a sign of the potential value imbedded in the company, which is now trading for $14.13 a share.
In the media and telecommunications space, he thinks an acquisition of Corus Entertainment is all but inevitable because it makes no sense for the controlling Shaw family, owner of Shaw Communications Inc., to have two similar, publicly traded companies with broadcasting assets. Mr. Takacsy says an acquisition offer for Corus would be north of $30 a share, based on the metrics used in BCE’s recent acquisition of Astral Media. The stock is now at $23.26.
In a similar analysis, Quebec broadcaster TVA Group would be a natural fit for Quebecor Inc., two companies controlled by the Péladeau family. Mr. Takacsy pegs the value of TVA at more than $16 to $17 a share compared to its current level of $7.10.
Asian Television Network is also takeover bait, in his view, because major media companies desire its demographics in the new immigrant community. He’s looking for an premium similar to that paid for Score of about 100 per cent, which would put the takeout price around $6 a share.
Turning to the telecom sector, he says that Manitoba Telecom Services will eventually be acquired by Telus or BCE.
Similarly, he believes Bell Aliant will be acquired by BCE, which already owns about 44 per cent. “Meanwhile, you earn a 7-per-cent-plus dividend yield,” he says.
FP Newspapers, publisher of the Winnipeg Free Press among other titles, might attract a bidder because it makes little sense to have a stand-alone newspaper chain in Manitoba. In the meantime, shareholders are paid a 14.8-per-cent dividend to wait.
Many people have soured on newspapers, but Mr. Takacsy thinks FP’s holdings resemble a community newspaper business, an area of the publishing sector that has managed to better resist declining advertising revenue than its big-city counterpart. Plus, it makes sense for big media companies to buttress the offerings on their various platforms and FP Newspapers could be a tempting source of content. “The media is ripe for consolidation,” he says.