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Gold/Mining/Energy : ARCTIC GROUP AGP-ASE -- Ignore unavailable to you. Want to Upgrade?

To: Jim Lang who wrote (27)	1/11/1998 8:58:00 PM
From: Ice-Man	Read Replies (1) \| Respond to of 101

Hi Jim: Very good questions & comments regarding AGP. I hope this helps. Right now I think you can call this a growth story, but as you mentioned, it's the bottom line that eventually tells the tale. I too like & follow acquisition/consolidation plays. I missed out on YF-TSE even though I first looked at them about two years ago. I hope AGP has at least, similar returns over the same time period. Taken from AGP's initial prospectus in Feb. 97, the co. will select & evaluate acquisition targets based on the following criteria: - Profitability - Proven Management - Market Shares - Availability of Control - Continuing Involvement of Owners/Managers - Ease of integration into Current Operations - Compatibility with the Corporation's Growth Strategy - Above Average Potential to Enhance Return I think scales of economies can be realized in selected acquisitions, even though the acq. co.'s will already enjoy near monopolies in their markets served. Savings should be realized in increased efficiencies in several areas initially & over time. I think economies of scale will be seen in general overheads and administration. General overhead savings coming from better buying discounts through large volume purchases within the group for materials & equipment related to the end product, as well as storage & delivery expenses. Administrative costs should be reduced especially when it counts in the ice business....the summer time. There should be far less labor required to process & track invoices, etc. in the peak periods through centralized & more efficient systems the company has established. Geographically, I think the co. will continue to look at dominant markets within a reasonable area from markets they are currently establishing. I believe the two co.'s being purchased in Oklahoma will be combined & serviced from one manufacturing facility because of the similar market area each company served. Instant scale of economies should be realized in this case, because in some instances both companies competed directly with each other for customers within the market served. Internal growth for the businesses is also possible without scales of economies. The Canadian ice companies also exclusively distribute Arctic Glacier bottled water. This only represents a very small percentage of current revenues, but they may be planning on introducing the water products to the U.S. market. Having existing established products already listed with U.S. retailers may help get the door open for other products. Also I discovered the cost of the most commonly used refrigerant Freon have skyrocketed over the last five years. Different types of freon have been introduced which are supposedly far less harmful to the ozone layer than older versions. It's now only sold to qualified registered individuals who have the ability to reclaim or recycle any used freon out of a system that previously would have been blown out into the atmosphere. I think this means reasonable price increases can be passed along to their customers as need be. Especially if there is only one supplier to choose from, but more importantly if the ice companies continue to provide a high level of quality & service, which is hopefully one of the reasons why they were acquired in the first place. AGP is achieving their acquisitions through a combination of stock & cash. I was told the details are not being disclosed at the time of closing because of the fact others within the industry may be watching. Apparently AGP has developed & is using a formula with which to base the possibility of higher than average returns in their potential acquisition candidates. AGP currently generates positive cash flow. Not enough to maintain their aggressive growth plans, but even with acquisition expenses already being felt & no summer revenues from recent acquisitions, it's still positive. I think at this point we are counting on the management of the company to ensure the numbers make sense. Management currently has well over half the shares outstanding so I think they've got alot to lose or gain by their decisions. My research on management indicated they have been successful with other private business ventures, besides the ice business. I think if you can be successful in private business then your chances of legitimate long term success in the public arena are greatly increased. I don't know if the seasonality of the ice business can be evened out. I know some ice companies used to, or still do distribute heating oil or fire wood in the winter months, but I don't think it amounts to much. Maybe the seasonalness of the business, combined with the enormous capital start up costs keeps any serious new start up players out of the industry. I think the main reason I like this play is because it is easy for someone to understand the nature of the business, if nothing else. Ice is normally a spontaneous purchase, most people make occassionally even though we all know the recipe. There's no Coke versus pepsi scenario here...it's just a bag of ice. Like Peter Lynch says... the more you understand your investment the less risk you take on. Good luck in your trading. I think tomorrow spells more carnage for the markets & the flight to quality has begun... Markus