George Armoyan is a man who could tell you a thousand stories, and the people of Nova Scotia have at least as many tales about him. Some are true, others embellished or wrong.
It's true, for example, that Mr. Armoyan, as the head of one of Atlantic Canada's largest home builders in the 1990s, antagonized the locals with his tactics. He was famous for jumping the gun on developments, mowing down trees to get ready for projects that local officials hadn't approved yet. One time, his methods earned him a $10,000 fine from Halifax County; less than three months later, he caused a stir by showing up with an excavator at a different site where he'd tried, but failed, to get permission for a new subdivision. When nearby resident named Rob Kirby complained, Mr. Armoyan told a newspaper reporter: "Mr. Kirby is a pain in the ass, and you can quote me on that."
The most outrageous Armoyan story -- one that's not true -- is that he tried to cut himself a piece of the action from kids' bake sales. In the 1990s, Mr. Armoyan built some public schools in a partnership with Nova Scotia's provincial government. As part of the deal, his company received part of the cafeteria revenue, and was accused in 2001 of trying to extend it to cover chocolate bars or brownies sold inside the school at fundraisers. Mr. Armoyan says it was all a misunderstanding -- "a bunch of bullshit" -- and sued the education department and Halifax's The Daily News for defamation. (He dropped the matter after reaching "an amicable resolution.")
"I had an image of a villain out there -- very aggressive, will fight things," Mr. Armoyan says. "Patience wasn't one of my virtues . . . I am very persistent. I didn't give up easily. And these guys were used to somebody just accepting the word, 'no.'
"I never accepted 'no' that easily. I am a very bad loser."
What Nova Scotia tree-huggers have known for years, Bay Street is just starting to discover. Mr. Armoyan has handed the reins of the property business to his brother and turned his bulldozers on the boardrooms of Corporate Canada, acquiring a reputation as a pugnacious and shrewd fixer of busted companies and messed-up income trusts. He is often described as a bottom-fisher, and there's a lot of truth in the description, but it offers only part of the picture.
Though he's not Canada's richest activist investor, he might be its pushiest, and is certainly one of its most effective. And his influence seems certain to grow with the rising number of broken trusts. No fewer than 36 business income trusts have cut or suspended their distributions in the past five years, according to Blackmont Capital analyst Barbara Gray. For some investors, this is a disaster, an ugly outgrowth of the income trust fever of 2001 to 2005, when investment bankers found it easy to sell trusts at inflated prices. But for an astute bargain hunter, it represents the opportunity of a lifetime.
As a result, Mr. Armoyan, a 46-year-old Syria-born immigrant, has developed a growing cadre of fans and followers who put their own money beside his. The list includes people like Michael Bregman, the Toronto entrepreneur who used to own the Second Cup coffee chain, and John Risley, the Atlantic Canada seafood king, who predicts great things ahead for his friend. "He's got a great sense of value and a really good financial mind and an appetite to do bigger deals," Mr. Risley says. "This guy is absolutely going to be a material player on the Canadian business scene over the course of the next few years."
Mr. Armoyan will even put a number on his ambition: He wants to turn Clarke Inc., a $150-million public company that serves as his primary investment vehicle, into a $1-billion entity by 2010.
How? By replicating the strategy he has used in the past five years: finding income trusts and small-capitalization companies whose earnings and market values have plunged; buying a significant stake (often 10 or 15 per cent); getting a seat on the board; and using the force of his will to improve them, or, just as often, sell them.
Yesterday, Entertainment One Income Fund, a DVD distributor in which Mr. Armoyan controls a 12.6-per-cent stake, announced it had hired Genuity Capital Markets to explore "strategic alternatives." It is at least the fourth Armoyan-related company in the past two years to go on the auction block. When he gets his teeth into a company, stuff happens, and woe to the person who stands in his way.
"If you are going to win a fight with George," Mr. Risley says, "it's because you've killed him."
There's probably no better example of Mr. Armoyan's modus operandi than how he captured control of Clarke. In the early part of the decade, Mr. Armoyan took an interest in Halterm Income Fund, which runs a huge shipping terminal at the Port of Halifax. He was thinking of building a larger stake, but was put off by one thing: Clarke, an Ontario trucking and logistics company, held the contract to manage Halterm.
Mr. Armoyan found the arrangement unwieldy and expensive, and approached Roy Rideout, Clarke's chairman and chief executive officer, to buy out the contract. "The guy really pissed me off," Mr. Armoyan says. "He wouldn't sell me the contract at any price."
Big mistake. Mr. Armoyan started poking around Clarke, and saw the company had been a poor investment: It went public in 1998 at $6.87 a share and had dropped below $4 by early 2001 (both prices are adjusted for a later share split). Through his private holding company, Geosam Investments, he began to buy stock. By September, 2001, he had grabbed 16.6 per cent of the company, and he asked for a seat on the board.
"They gave me a bit of the runaround, but finally I told them if they don't put me on the board, I'll have a proxy fight." He was allowed in, but it wasn't an easy relationship. "I was a very active board member," he says, grinning. "Always a critic. And he [Mr. Rideout]was frustrated. There was so much bullshit and bureaucracy going on there, you know?"
The tension came to a boil when Clarke's board enacted a poison pill, to be triggered when any shareholder acquired more than 20 per cent. Mr. Armoyan, who by then had bought 18.3 per cent and owned more stock than all the other directors combined, campaigned against it and got it defeated at the annual meeting in August, 2002.
Within a week of that victory, he'd raised his stake to 27 per cent. Mr. Rideout, who declined to comment for this article, left two months later. His replacement lasted a bit more than five months before bailing out, and Mr. Armoyan became the CEO. He has been busy, selling parts of the transportation and logistics business, buying real estate and a container ship, the MV Shamrock, and Clarke's share price has risen 133 per cent since he became CEO.
But three-quarters of his time is spent on his investments in other public companies. It's an eclectic mix that includes a hotel operator ( Royal Host Real Estate Investment Trust), a wholesaler of DVDs and CDs (Entertainment One Income Fund), a Quebec furniture maker ( Shermag Inc.), a cold-storage warehouse company ( Versacold Income Fund) and a manufacturer of oil tanks ( Granby Industries Income Fund). It may seem they have little in common, but each fits into the bargain-hunting process he has devised through years of trial and error.
First, Mr. Armoyan scours the newspapers and wires for stocks that have plunged. But not just any stocks: He's looking for companies with hard stuff -- real estate, plants, equipment -- that might support their share prices. Businesses with a lot of "soft" assets, such as brands and customer relationships, don't interest him much.
Then he and his team begin sleuthing, testing the balance sheet. Are inventories overvalued? Will factories have to be written down? Recently, he began stalking Spinrite Income Fund, an Ontario yarn manufacturer that has been one of the worst case studies of a trust catastrophe -- the stock has fallen almost 90 per cent since the February, 2005, initial public offering.
"I sent somebody to buy some inventory from them, just to feel what it was like," Mr. Armoyan says. "They don't know it was me." In late September, he was trying to buy the stock for 90 cents, but it staged a small recovery (it closed yesterday at $1.25).
Another Armoyan trick is to phone a company's suppliers, to see if they're being treated well and getting paid on time. Or he'll talk to competitors, industry contacts or former employees. When Entertainment One parted ways with chief financial officer Chris Jamieson in August, Mr. Armoyan says he tried to hire him as a consultant. "Who would know more about the company than him?"
He's obsessive about the China factor, and wants to see that management has a plan for dealing with it, as in the case of Shermag. The firm's share price has been crushed, falling from $16 in late 2003 to $2.60 yesterday. "I think they were probably a little bit slow in reacting to the eventuality that stuff has to be manufactured in places like China," Mr. Armoyan says. "But I think they've finally realized some of these issues." When he disclosed that he'd bought 11.6 per cent of the company in August, the shares rose more than 30 per cent in the next three days.
That doesn't mean Mr. Armoyan's arrival is universally welcomed, though, because for executives, his interest comes at a price. He demands influence, even in companies where he has a high regard for management, like Shermag, where he has asked for a board seat. "It's a typical French response, I guess: 'Monsieur Armoyan, you have to come for interviews, we'll consider you next year.' I'm a big shareholder, but they want to give me the runaround! I was not happy."
But then, he's acquiring a reputation. Share prices may rise when Mr. Armoyan enters the scene, but job security for incumbent CEOs and directors often plummets. His tactics at Royal Host may have accelerated the departure of not just the top executive, but the founding Royer family and most of the board, too. Mr. Armoyan built a 17-per-cent stake in the hotel operator and caught nearly everyone off guard when he nominated his own slate at the May, 2005, annual meeting.
It was "a sneak attack," but perhaps a necessary move, says Michael Smith, National Bank Financial's real estate analyst, who was at the meeting. "It was a terrible REIT," Mr. Smith says. "I think what he has done is install a discipline on the management." The hotel trust has raised its distribution and bought back shares. Mr. Armoyan is talking about selling off underperforming hotels -- probably a precursor to auctioning the firm, Mr. Smith says.
Even Greg Royer, who replaced his brother Randy as Royal Host's CEO in 2004 and left the firm himself this past summer, says he has respect for what Mr. Armoyan has done. The differences between the largest shareholder and the family were overstated, Mr. Royer says: "My focus always on the company was I wanted to clean it up, and George and I agreed 100 per cent on that. I think he and I disagreed on how to grow it, but it wasn't a big deal."
Despite his knack for sharp elbows, though, Mr. Armoyan says he is really not the type to enjoy a fight. His first business venture, as a young man out of Dalhousie University, was as a boxing manager; he says he failed at it because he couldn't stomach the sight of blood. In business, he's aware of the consequences of playing too rough.
"We're a very gentle, easy-going society. We trust everybody. We think everybody is there for the good of all shareholders. I don't think that's a fact," he says. "I'm emotionally attached and I care about the people who work [at these companies] But I am there to make money. There is no doubt."
1. Watch for small companies that have been killed in the stock market, but have hard assets with real value. 'I prefer seeing stuff with bricks and mortar, inventory, things I like to touch. We really put zero value on goodwill.'
2. Start sleuthing to see if the assets are really worth what the balance sheet says. Talk to customers and suppliers, place an order with the sales department. 'There's a lot of trench work.'
3. Check to see if management and the directors are on the same page as shareholders. Are insiders buying stock? Or has the board bought a large insurance policy to cover its mistakes? 'There's a lot of board members who fall asleep in . . . board meetings.'
4. If the price looks good, buy a significant stake. Trust your gut. 'If I can't sleep at night, I will never do the investment.'
5. Get a seat on the board and rock the boat if you have to. 'I don't give political answers. I say it the way it is.'
The Armoyan effect
General Donlee Income Fund
What it does: Makes components for military and aerospace manufacturers.
The trouble: Ran into problems because of weak sales and the rising Canadian dollar. Mr. Armoyan owned 11 per cent of the company by mid-November, 2004, when the stock was about $2.30.
What happened next: Working with Tailwind Capital's Michael Bregman, he shook up the board. The business has improved, distributions are rising and the trust announced a share buyback in August.
What Mr. Armoyan owns now: 19.9 per cent.
GENERAL DONLEE INCOME FUND
DAILY CLOSE, (GDI.UN-TSX)
Yesterday's close $7.00, up 12¢
Halterm Income Fund What it does: Operates a terminal for container ships in the Port of Halifax.
The trouble: Mr. Armoyan had been a significant investor in Halterm since at least 2000, but he got in deep in early 2003. The terminal lost a couple of major customers, the distribution was suspended, and the units went into freefall, dropping more than 70 per cent in a month. He increased his stake to almost 19 per cent in on March 26, 2003; the units hit a low of $2.40 the next day.
What happened next: The global economy boomed, the ships returned and so did a healthy dividend.
What Mr. Armoyan owns now : About 19 per cent.
HALTERM INCOME FUND
DAILY CLOSE, (HAL.UN-TSX)
Yesterday's close $15.00, unchanged
Clarke Inc. What it does: Transportation, logistics, real estate and investments. It is now Mr. Armoyan's main investment vehicle, though some of his earlier investments are still in Geosam Investments Ltd., a private company.
The trouble: Disappointing earnings, low margins and a falling stock price plagued the company after it was spun off from Newfoundland Capital Corp. in the late 1990s.
What happened next: Armoyan began buying up shares in 2001, got on the board, fought off a poison pill and worked to remove management. He's now the CEO.
What Mr. Armoyan owns now: 29 per cent, including shares held by family.
CLARKE INC. DAILY CLOSE, (CKI-TSX)
Yesterday's close $11.66, down 24¢
Persona Inc. What it did: Cable and telecommunications company with assets in Canada and the Bahamas.
The trouble: A poster child for bad governance -- interest-free loans to executives, a board with low ownership, the works. Not to mention unhappy shareholders: "It was the first time in my life I thought there was going to be actual physical violence in an annual meeting," Mr. Armoyan recalls. He disclosed his 10-per-cent stake in December, 2002, when the stock was about $4.
What happened next: His friend and fellow investor, John Risley, went on the board in early 2003; within months, the company was for sale. A private equity group bought it for $6.80 a share in 2004.
PERSONA INC. DAILY CLOSE, (PSA-TSX)
Last traded August 6, 2004 close, $6.79
Advanced Fiber Technologies Income Fund What it did: Made specialized equipment for pulp mills.
The trouble: Have you seen the state of the pulp and paper sector lately? Enough said.
What happened next: Mr. Armoyan revealed his 10.6-per-cent stake in July, 2005, with the stock about $3. He was too early, and the unit price continued to fall amid the forest sector's woes. But he doubled down, bought another large block last fall, and profited when the company was taken over for $3 a share this year.
ADVANCED FIBER TECH AFT INCOME TRUST
DAILY CLOSE, (AFT.UN-TSX)
Last traded March 29, close, $2.99