Fairfax Financial swallows 69 per cent of feed producer Ridley for $81M
Published Wednesday September 24th, 2008
Fairfax Financial Holdings Ltd. (TSX:FFH) says it has no plans to force changes at Ridley Inc. (TSX:RCL) after buying a 69-per-cent stake in the animal feed firm, which recently settled a class action lawsuit related to the Canadian mad cow outbreak.
"We are totally passive investors and we wouldn't be in unless we like management," Paul Rivett, chief legal officer at Fairfax said in an interview Wednesday.
"(Management) are doing a great job and we will let them continue doing what they are doing."
Fairfax, a major North American property and casualty insurer with broad investments in corporate Canada, bought control of Ridley from its Australian parent, Ridley Corp., for $81 million or $8.50 per share.
"(Fairfax CEO Prem) Watsa is well known to be a very astute investor and looks out for the longer term," Ridley chairman Brian Hayward said about his new majority owner.
"I think what he is doing is looking at the agricultural space ... and looking at this as an opportunity to invest in a great company at an opportune time."
Rivett said Fairfax has been keeping tabs on "a number of companies" and that the Ridley deal seemed a good value considering the feed company's book value - the difference between a company's assets and its liabilities - is US$11 per share.
"We are paying 70 cents for a dollar basically," said Rivett.
"It's a good business with steady cash flow, that is what we are interested in. Not as much diversifying by business."
Ridley's thinly traded shares closed up five cents at $8.05 on the Toronto Stock Exchange Wednesday on a volume of 7,400 shares. It has a 52-week range of between $10.25 and $7.50 and average volume of 5,400 shares.
Fairfax shares, meanwhile, dropped $40, or 12 per cent, to $297.
Ridley is currently undergoing a strategic review, a process it started in May.
Earlier this month, the company received court approval to pay $6 million to settle a class action suit with farmers who accused the company of ignoring the risks of using animal parts in feed during the mad cow outbreak in 2003.
The company hasn't admitted to any wrongdoing.
Last month, Ridley reported an annual profit of US$6 million, down from US$9 million in its prior financial year, after taking the charge related to the mad cow lawsuit.
Revenue was US$633.5 million, up from $531.6 million in the previous year.
Ridley, headquartered in Winnipeg and Minnesota, has 1,000 employees at feed manufacturing plants in Canada and the United States.
"It has a great history and they've done a great job of deleveraging and they've got great cash flow and good market penetration and market retention," Rivett said.
"We are not so much growth investors, we see the long-term value investment ... . It's basically along the lines of other value investments we've gotten into."
Fairfax, which didn't own Ridley shares before the deal, is not expected to make an offer to holders of the other 31 per cent of the company.
The deal is expected to close by Oct. 20 subject to certain conditions. The company will continue to operate as Ridley Inc.
In recent months, Toronto-based Fairfax has shifted its attention from financial services to a beaten-down companies in a wider variety of sectors.
This summer, it bought more than $64 million of the convertible debt of Montreal-based Mega Brands Inc. (TSX:MB), a move that could give Fairfax more than 35 per cent of the toymaker.
It has also recently increased its stake in newspaper publisher and broadcaster Canwest Global Communications Inc. (TSX:CGS) to 18.73 per cent.
"We see that as an investment that we bought for a lot less than intrinsic value ... and hopefully things will turn there," Rivett said of the CanWest investment.
He said Fairfax is not aware of any plans by Canwest to buy out its minority shareholders and go private, which has been reported.
Earlier this year, Fairfax also decided to step into the troubled paper and forestry industry by making a $350-million investment in AbitibiBowater Inc. (TSX:ABH), another move towards focusing on investments in companies with beaten-down stocks.
It also controls 18.2 per cent of the non-voting stock of Torstar Corp. (TSX:TS.B), a major Toronto-based newspaper publisher.
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