Torstar Corp president and chief executive officer David Holland.MARK BLINCH
In all the discussion of what BCE Inc. could gain (or lose) from acquiring CTV Inc., there's been little focus on the two players who are cashing out: Torstar Corp. and Ontario Teachers' Pension Plan.
But analyst Scott Cuthbertson at TD Securities said investors should keep their eye on Torstar because it stands to make big gains from the deal.
For starters, he thinks Torstar's 20 per cent stake in CTV was never fully priced into its stock. Although it was hard to work out exactly how much of it was factored, "we are confident that it was significantly less than the $345-million which we expect to be received next summer," Mr. Cuthbertson wrote in a note.
On paper, Torstar is getting back less than the $378-million it initially paid for its position in CTV. But that value had been written down to $200-million and even after that TD approximated its net book value around $170-million in the second quarter of 2010.
Moreover, "because the CTV stake was held as an investment, the $378-million in original cost was represented by debt on the balance sheet but no corresponding EBITDA was recognized," Mr. Cuthbertson wrote.
Once Torstar gets its cash, TD said there's a chance the company could be debt free by the end of 2011. Mr. Cuthbertson also noted there will be more room for digital acquisitions, share buybacks or dividend increases.
Investors are happy, too. Since last Thursday's close, Torstar's stock is up 25 per cent.
Tim Kiladze