06/08/1999 a little story...:) mulla711
Tommy Taylor, an avuncular Texan who manages money for the billionaire Bass brothers and the Ontario Teachers Pension Plan Board, doesn't like to be thought of as a mercenary just looking to make a fast buck.
He says he'd prefer to be thought of as a long-term shareholder. That's a good thing because the long, long term is about the only place he's going to get any value out of his stake in either Loewen Group Inc. or a similar-sized investment in a U.S. heavy equipment company that also just filed for Chapter 11 bankruptcy protection.
Mr. Taylor paid just over $150-million (U.S.) for the 10.2-per-cent stake he built up over the past year or so in the Loewen funeral home chain. Based on Loewen's closing share price yesterday of 44 cents (Canadian), that stock is now worth about $3.3-million (U.S.) -- a loss of more than 98 per cent of his original investment. And there may be more to come: Loewen chairman John Lacey has acknowledged that, because of the company's massive debt, there may be little or nothing left for shareholders after a restructuring.
That could also be the case at Milwaukee-based Harnischfeger Industries,a producer of mining and paper-making equipment that one of the investment funds managed by Mr. Taylor invested in last year. Harnischfeger, which has annual sales of about $2-billion and 13,000 employees, filed for bankruptcy protection yesterday with a debt of $1.3-billion -- some of which it has defaulted on -- and losses of $90-million as of April 30.
A year or so ago, a Taylor-run vehicle called Trinity I Fund (which Teachers is not a part of) bought an 8-per-cent stake in Harnischfeger. When Mr. Taylor bought his 3.8-million-share holding, the stock was trading at about $30 a share, for a total investment of about $114-million. Yesterday, it closed at $1.19, making Mr. Taylor's stake worth less than $5-million.
It's possible that Mr. Taylor may want to hang on to whatever shreds of equity he is left with in both Loewen and Harnischfeger, but neither restructuring is likely to be a pretty sight. In an equity-for-debt deal involving Canadian Airlines in 1994, for example, shareholders had their stock diluted by more than 20 to 1 when bondholders exchanged debt for more than 800 million common shares. Anyone who hung on to their stock would have to see Canadian's stock (currently at $1.85 Canadian) go above $275 just to break even.
The losses from Mr. Taylor's Loewen misadventure may seem staggering by any normal yardstick, but they are not likely to make a dent in the pocketbook of either of his major backers in TMI-FW, the fund he used to buy Loewen stock. Teachers has assets worth more than $64-billion; the two Bass brothers who are invested through TMI-FW and Trinity -- Sid and Lee -- are reportedly worth several billion dollars.
According to filings with U.S. securities regulators, the majority of the stake in Loewen is held on behalf of Teachers: Mr. Taylor recently reported that the pension plan paid $140-million for 6.83 million of the total 7.5 million shares held by TMI-FW; the Bass brothers' Tundra Investors LP owned about 700,000 shares, for which it paid $12.2-million. Mr. Taylor bought 265,000 Loewen shares as recently as December for $8.17 each.
His major backers may not notice the losses that much, but the Loewen and Harnischfeger affairs may have come at an unfortunate time for Mr. Taylor in other ways: For one thing, he is reported to be looking for investors willing to put up $2.5-billion to start a hedge fund that he will manage. Late last week, The Wall Street Journal said the 56-year-old money manager was making the rounds of various U.S. institutional investors with his pitch for the fund, which he has said will be a low-risk, market-neutral investment.
Mr. Taylor is said to have told these institutions that he has not had a down year in any of the sectors his hedge fund will concentrate on, and that his average annual return over 10 years of investing for the Bass family has been 18 per cent. However, the story did mention his unfortunate experiences with Loewen and Harnischfeger.
Mr. Taylor apparently tried his usual methods of persuasion to get Harnischfeger to change its ways in the past year. He wrote to former chairman and chief executive officer Jeffery Grade (who stepped down two weeks ago), expressing his dissatisfaction with the performance of the stock and asking for representation on the board -- as he has done at virtually all his Canadian holdings, including Trimac, Agrium and Encal of Calgary, Toronto-based forms maker Moore Corp., United Dominion Industries, MacMillan Bloedel and Loewen.
However, Harnischfeger resisted all Mr. Taylor's attempts to help re-engineer the company and refused to give him board representation. In Loewen's case, of course, even allowing Mr. Taylor on the board and giving him considerable input into the hiring of Mr. Lacey as chairman didn't help the company avoid an eventual collapse into bankruptcy. In some cases, it would appear, even the old Tommy Taylor magic isn't enough to save a company.
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