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Jerome Hass of Lightwater Partners thought The Brick was underpriced so he bought in, but also shorted Leon’s, which resulted in a big win when The Brick’s stock rose and Leon’s fell. MISSISSAUGA, ONTARIO: March 12, 2012 - The Brick in Mississauga is seen here Monday March 12, 2012. (Tim Fraser for The Globe and Mail) (For ROB story by Marina Strauss)Tim Fraser/The Globe and Mail

Here's a crazy thought to start the week: would The Brick's shareholders be best served by going it alone, without Leon's?

I know. There's a 62 per cent share premium on the table.

But if you look back just three months, The Brick traded north of $4 per share. If you assume there was some profit-taking involved in its fall to about $3.50 per share, the premium no longer looks as juicy. RBC analyst Tal Woolley notes Leon's valuation of 7 times estimated fiscal 2012 earnings before interest, taxes, depreciation and amortization is right in line with The Brick's peers.

And you have to wonder how much of a threat new U.S. competitors really will be. The friendly takeover bid from Leon's is being marketed as the best way for the two companies to handle the looming arrival of the likes of Target, but just a few months ago, Vi Konkle, The Brick's chief executive officer, didn't seem worried whatsoever.

On the company's quarterly conference call, Ms. Konkle was asked specifically about this, and she said her board was in the process of putting together their strategic plan and were actually quite optimistic.

"We don't see ourselves making major adjustments in terms of who we are in light of who the competitors are who are coming… I think for us, we have just so many opportunities for growth inside our own business in terms of who we are and what we do that if we pursue the strategies that we have got in place, we will – we think we have a very, very positive future going forward without having to adapt or change materially based on who we see coming into the market."

This may have simply been reassuring rhetoric aimed at shareholders. But there wasn't really much worry in her voice.

Of course, there's a legitimate counter-argument. The Brick has been doing well, no doubt, but its rebound from the depths of the financial crisis was starting to stagnate. The company has some financial flexibility now that it's out from under the grips of the 12 per cent debentures it took on as emergency financing, but same store sales aren't really growing. Over the past few quarters, they've hovered just above and just below zero per cent growth.

And no one really knows – not The Brick, not Sears, not Canadian Tire – just what effect competitors like Target will have on the Canadian market. So pairing up with Leon's could ultimately provide a necessary balance sheet cushion.

But it sure would have been fun to see what happened to The Brick had its stayed on its own. Just last month, management paid its first dividend since the crisis, offering investors 2 cents per share, which would amount to 8 per cent annually, or a yield of 2.3 per cent.

That's not going to happen now. The Brick already has support from two-thirds of its shareholders, the majority of which came from Fairfax Financial Holdings and founder Bill Comrie. Both have been invested for some time, and they're more than happy to cash in to reap profits for the risks they took during the crisis. For instance, in May 2009, Fairfax invested $40-million and Mr. Comrie invested $20-million in a private placement that launched when The Brick's stock was trading at $1.15 per share.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 4:00pm EDT.

SymbolName% changeLast
FFH-T
Fairfax Financial Holdings Ltd
+1.16%1537.53

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