Prem Watsa Bulks Up Atlas Stake Following Buyout Offer

prem-watsa-bulks-up-atlas-stake-following-buyout-offer

Summary

  • The position was increased 4.81%.
  • The asset manager received an offer to take it private earlier this month.

Billionaire investor Prem Watsa (Trades, Portfolio), the leader of Fairfax Financial Holdings (TSX:FFH, Financial), revealed he increased his firm’s exposure to top holding Atlas Corp. (ATCO, Financial) by 4.81% earlier this week.

Known as “Canada’s Warren Buffett (Trades, Portfolio),” the guru’s investment strategy mimics the practices of the Berkshire Hathaway BRK.B (BRK.A, Financial)(BRK.B, Financial) CEO in that his insurance conglomerate purchases entire companies as well as invests its float in publicly traded companies in order to achieve a high rate of return.

After boosting the stake by 25.67% in April, GuruFocus Real-Time Picks, a Premium feature based on 13D and 13G filings, reported Watsa picked up another 6.04 million common shares of the London-based asset management company on Aug. 4.

On the day of the transaction, Atlas’ common shares traded for an average price of $11.57 each. The exchange had an impact of 2.27% on the equity portfolio.

Watsa’s firm now holds at total of 131.76 million common shares, which account for 49.50% of its equity portfolio. GuruFocus data shows the guru has gained an estimated 36.38% on the investment since establishing it in the second quarter of 2018.

Watsa’s holding history of Atlas Corp.

GuruFocus.com

The global asset management company targets long-term, risk-adjusted returns by investing in high-quality assets in the maritime and energy sectors as well as other infrastructure verticals. Atlas has a $3.96 billion market cap; its shares were trading around $14.08 on Tuesday with a price-earnings ratio of 9.26, a price-book ratio of 0.97 and a price-sales ratio of 2.26.

The GF Value Line VALU suggests the stock is fairly valued currently based on its historical ratios, past financial performance and analysts’ projections of future earnings.

The GF Value Line suggests the stock is fairly valued currently.

GuruFocus.com

The GF Score of 74 out of 100, however, indicates the company is likely to have average performance going forward. It received high points for profitability and momentum, middling marks for growth and GF Value and a low grade for financial strength.

The GF Score suggests the company will have average performance going forward.

GuruFocus.com

Private buyout offer

On Aug. 4, Atlas announced it received a $3.64 billion all-cash offer for its remaining outstanding common shares. Priced at $14.45 per share, the take-private proposal was made by a consortium composed of Atlas Chairman David Sokol, affiliates of Fairfax Financial, the Washington Family and Japanese shipping company Ocean Network Express Pte. Ltd.

Together, Sokol, Fairfax and the Washington Family currently own or control more than 50% of the company’s outstanding common shares.

The proposal also includes two conditions. The first is Atlas will form a committee of independent directors to review the offer and make a decision. The second is the deal must be majority approved by shareholders who are not part of the consortium.

If the offer is accepted and approved, the consortium emphasized it would not result in a change in control of the company.

In a statement, Sokol commented on the potential benefits of the proposal.

“The Consortium believes the proposed transaction will provide Atlas’s common shareholders with immediate liquidity and certainty of value at a significant premium to the current share price, while allowing Atlas to focus on the long term without the emphasis on short-term results and providing Atlas with an ideal strategic partner to support its future growth,” he said.

Financials

The company’s financial results for the second quarter are scheduled to be released after the market closes on Tuesday.

GuruFocus rated Atlas’ financial strength 3 out of 10. As a result of issuing new long-term debt over the past three years, the company has poor interest coverage. The low Altman Z-Score of 0.65 also warns the company could be at risk of bankruptcy if it does not improve its liquidity. The return on invested capital slightly exceeds the weighted average cost of capital, so value creation is occurring as the company grows.

The company’s profitability fared better, scoring a 7 out of 10 rating on the back of an expanding operating margin and returns on equity, assets and capital that are outperforming over half of its competitors. Atlas also has a moderate Piotroski F-Score of 6 out of 9, meaning conditions are typical for a stable company. Despite recording a decline in revenue per share over the past five years, it has a predictability rank of one out of five stars. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.

With a 52.31% stake, Watsa is by far Atlas’ largest guru shareholder. Other top guru investors as of the end of the first quarter were Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Paul Tudor Jones (Trades, Portfolio) and Michael Price (Trades, Portfolio).

Portfolio composition and additional holdings

Over half of the guru’s $3.01 billion equity portfolio, which the 13F filing for the three months ended March 31 noted consisted of 66 stocks, was invested in the financial services sector, followed by much smaller positions in the technology, basic materials and real estate spaces.

Overview of Watsa’s portfolio by sector.

GuruFocus.com

Other asset management companies Watsa held as of the end of the first quarter of 2022 were Franklin Resources BEN Inc. (BEN, Financial), Brookfield Asset Management Inc. (BAM, Financial), KKR KKR & Co. Inc. (KKR, Financial) and Crescent Capital BDC Inc. (CCAP, Financial).

Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours.

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