Shares having averaged $0.55 in the fourth quarter of 2011, when Prem Watsa, Fairfax Financial founder, purchased the holding, he would have made a 160% profit on the shares if he had sold on the open market. Because he sold both shares and warrants to a private company, the exact sale price for each is unknown. The warrants have an exercise price of $0.65 and had a five-year expiration date.
Fairfax first became a significant investor when the company was in need of refinancing and recapitalization in October 2011. That year, Imvescor’s share price plunged 75%. The company entered into an agreement with Fairfax to pay off its then existing convertible debentures in a series of transactions. Combined with rights offerings it also held, Imvescor raised $25 million.
In addition, Fairfax became entitled to designate at least 40% of Imvescor’s nominee directors and the chair of the board of directors, subject to certain conditions. With the sale of the shares, Fairfax’s Bradley Martin and Ron Barbaro resigned their positions as members of the company’s board of directors.
Fairfax’s financial assistance and business guidance helped Imvescor get back on its feet.
"Fairfax greatly contributed to position the Company for a return to long-term growth and profitability. Even though Imvescor did not represent for Fairfax a significant portfolio investment, its generous advice and support significantly contributed to grow Imvescor into a stronger business with vastly increased expertise" said Denis Richard, Imvescor president and chief executive officer said in the company’s statement.
“The recapitalization was undertaken in conjunction with the support of the Imbeault family, the founders of the Imvescor business, and resulted in the stabilization of the company and its prospects. Following this sale by Fairfax of its interest in Imvescor, the Imbeault family will be the single largest shareholder of Imvescor,” Fairfax noted in its statement.
Imvescor is a national franchise company based in Canada, operating 251 casual dining and take-out restaurants with the brand names Pizza Delight, Mikes, Scores and Baton Rouge. Watsa’s $2.5 billion portfolio is configured with just 0.9% invested in the consumer defensive sector, though he has no other restaurant holdings in his U.S.-traded portfolio, according to GuruFocus data.
He has, however, participated in other recapitalizations of financially struggling companies in recent years. Several months prior to the Imvescor deal, in July 2011, Watsa and fellow guru Wilbur Ross, along with several other investors, took a 34.9% stake in the Bank of Ireland (IRE). Watsa’s stake alone was 9% of the company.
Watsa also bought almost 52 million shares of the Canadian smartphone maker Research In Motion (NASDAQ:BBRY) from 2010 to 2012 at an average cost of $17. The company’s price has lost 87% over the past five years, but rebounded 28% year to date to trade for $15.15 on Tuesday afternoon.
Imvescor has a $61.29 million market cap, P/E of 22.81, P/B of 1.01 and P/S of 1.34. In 2012, it reported $47.3 million in revenue, up from $44.39 million in 2011, and net income of $1.85 million, up from $2.04 million in 2011.
Fairfax’s sale to GMP Securities is expected to close on or about April 16, 2013, after which point the investment dealer plans to resell the shares and warrants on a private placement basis in one or more transactions.
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