Gerry Schwartz and I must be using the same playbook as Onex makes a second takeover offer in as many months for one of my portfolio companies.

A Bird In The Hand

When a takeover offer appears for one of my portfolio companies, I usually don’t wait around to watch the ink dry on the deal. I sell for a quick profit and move on. I’ve been caught before by a takeover offer that ultimately fell through and that was an experience I am in no rush to repeat.

However, when Onex appeared on the scene a couple of months ago with its takeover offer for Gluskin Sheff, I decided to hang around for awhile. The offer was made at a fairly paltry 28% premium over the then-current stock price. I had only bought the stock a few months before and had high hopes for it. A mere 28% premium seemed like a letdown. In this case, I reasoned that if the deal fell apart, I would be happy hanging on to the company for the longer term. After all, my fair value estimate was significantly higher than the takeover price. I was more than half hoping that another bidder would come out of the woodwork or that Onex would be shamed into raising its bid.

Alas, that wasn’t in the cards. Shareholders overwhelmingly approved the takeover last week. I think Onex got a good deal here. I sold my shares after the results of the vote came in. From initial purchase  to final sale, I ended up pocketing a 33% share price gain over a period of about 6 months. Plus collecting a bit of a dividend. I’ll take it.

A few days ago, Onex appeared with yet another takeover offer for one of my portfolio companies. They now have WestJet in their sites and this time, they are offering a healthier premium of 67% over the existing share price. This is more welcome news and I was happy to take my money off the table at anything close to the buyout price. I have to admit, I was feeling a little nervous about my WestJet holding. I first bought this stock back in 2015 at $21 a share. At the time, profits were riding high and the company had bold plans for international expansion. It had taken on a bit more debt and other financial obligations than I like to see to fund these expansion plans and I figured that was one of the reasons why the stock was trading as low as it was (the trailing p:e ratio was around 9 when I first bought in). But things started to deteriorate after I got on board. Rival low-cost airlines appeared on the scene to threaten their domestic business. The oil price collapse sapped demand from their core western Canadian operations. Their pilots and support staff decided to unionize and most recently, the company got blind-sided by the crash of the Boeing planes and the subsequent grounding of their Boeing 737 Max fleet. After putting in an initial strong showing, profits started to lose altitude and this turned into a full-on nosedive in the past year as a resurgence in the price of oil bit even further into their bottom line.

Fortunately, the low price that I bought the stock for in the first place gave me a lot of wiggle room to forgive short-term setbacks. Even with all the negatives that have piled up in the last couple of years, I still felt that the shares offered potentially compelling value, provided the company could work through these growing pains and emerge more or less intact on the other side. I was prepared to wait it out for the long run, but Onex has given me a quicker exit.

I sold my WestJet today at $29.97, giving me a 3 1/2 year gain of 41% (not including dividends). It could have been worse.

Between the sale of my put options, the sale of Questor Technology and the sale of Gluskin Sheff and WestJet, I am now accumulating quite a pile of cash. (Around 30% of the portfolio at this point) I will be starting in on a review of first quarter results next week and will be looking hard for a home for some of this cash. Meanwhile, having some money in cold, hard cash provides a bit of comfort as the stock market goes into paroxysms of trade war anxiety.

Full Disclosure: I no longer own shares in Gluskin Sheff or WestJet.