“Whither Canfor? – Part 2 – Blood in the Water”

By Peter Ewart

    

As discussed in the first instalment of this series of articles (“Whither Canfor, Part 1 – The Battle for Control”) the New York based Third Avenue Management group (TAM), has become a major shareholder in British Columbia’s forest industry with stakes in Canfor, Catalyst Paper, TimberWest, and Abitibi Consolidated.

What do we know about this powerful investment company that is gliding like a shark through the forest industry of the province?  We can see its fin, but what about the rest of the beast?  What are its methods and what are its aims?  These are questions that people in forest based communities are starting to ask.

TAM was founded by Marty Whitman, an 82 year old New York financeer and university professor.  Whitman got his start in the investment industry as, he describes it,  “a grossly overpaid bankruptcy professional” (Brian Zen, Gurufocus.com, Feb. 21, 2006).  Today, he has achieved “legendary” status in the funding industry as a financial whiz, his companies having investments in industries around the world worth billions of dollars. 

But Whitman is not one to flaunt his wealth.  He often comes to work wearing worn sneakers and socks with holes in them, carry an “old and saggy polyester school bag.”  Indeed, some might “mistake this super-investor as a street person”.  However, this is one “street person” who has become famous for “picking over the balance sheets of troubled companies in search of hidden treasures” (Gurufocus, Feb. 21, 2006).

TAM is a modern-day kind of “hedge fund” that invests “opportunistically” in industries around the world.  Hedge funds are a “U.S. born investment innovation” that have become a $1 trillion industry - but not without controversy.  One way to describe a hedge fund is as a kind of “mutual fund for the super-rich” but one which has “far more flexibility in its investment strategies.”  It is open only to “sophisticated” very wealthy investors and often uses “high-risk techniques” in order “to make extraordinary capital gains” (Answers.com). 

Whitman himself entered the industry (through a hostile takeover) because, in effect, he saw the mutual fund business as an opportunity and, in his own blunt terms, a “license to steal”.  That being said, the straight talking Whitman is said to be “honest and forthright to the core” (Gurufocus.com, Feb. 21, 2006)

Whitman’s technique is to search out industries, like the BC Forest industry, and companies, like Canfor, that are “bleeding in the water” so to speak, and are “priced below their intrinsic values.”  He especially likes companies that are “safe and cheap.”  Now some business writers describe a company like TAM as a “vulture investor” (Fred Frailey, Kiplinger’s, July 1999); but others might describe it simply as a “lean, mean financial machine” seeking good investment value.  Few would deny that it is effective at what it does.

Like MacHeath in the song “Mack the Knife,” community responsibility and social conscience are not something TAM highlights about itself.  Make no mistake about it, TAM means business, declaring that its investments have “the sole objective of delivering superior returns [to our investors] with limited investment risk, over the long term.”  In its pursuits, TAM claims that it is “indifferent to” and “not constrained by sectors, industries … and countries.”  If this means closing down operations, breaking up companies, or selling them off, so be it.  In one famous interview, Whitman is said to have commented: “As for dealing with the public, and you may quote me, screw ‘em.”

But it should be noted, TAM does provide superior returns and has established a track record “of approximately 17% per year since 1990” - for TAM’s wealthy investors, that is.

Some, like Rich Coleman, BC’s Minister of Forests, say that the fact that a foreign based hedge fund is gaining a monopoly interest in a key resource like the BC forest industry is simply “the private market place at work” and not much to be worried about.  After all, this is the system of monopoly capital and that is how it works.  The strong survive and the weak go under.  In the long run, everyone prospers, or so the song goes.

But all of this is not much comfort for the forestry dependent communities of the province, who are treading water, and can see the sleek fins circling ever closer.

“Whither Canfor – Part 3”, which is the next article in this series, will be published in the Thursday, May 10th, edition of Opinion250.  Peter Ewart can be reached at: peter.ewart@shaw.ca or phone (250) 962-6792.

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