From Focus Online – Feb, 2011

by Briony Penn

Wham BAM, thank you TAM

Corporate mergers raise questions about who really owns BC

I used to report on the colourful species that inhabit this part
of the world, but those articles are diminishing with their populations.
Now I’m as likely to report on the colourful CEOs of companies who are
doing their best to liquidate these last “distressed assets.” It’s quite
a challenge, as one has to be able to follow the ever-changing mergers,
selloffs and vertical integrations that the big players concoct through
Byzantine-like structures and deals. 

One also has to be able to remember three-word acronyms which often
change. To follow the money in this region right now, the most important
ones to be aware of are BAM and TAM. Look out your window anywhere from
Crofton to Sooke and you’ll be gazing at a piece of real estate owned
in some fashion by BAM or TAM.

Mr Martin J. Whitman, the founder of Third Avenue Management (TAM),
runs his empire out of New York; a few of its minor assets have included
Western Forest Products, Timberwest, and Island Timberlands through
 associations with another roving predator of distressed companies,
Brookfield Asset Management (BAM) under CEO Bruce Flatt. 

TAM and BAM form a many-headed hydra that has been devouring most of
the private forestlands on southeast Vancouver Island. These distressed
asset managers live in the skyscrapers of New York and Toronto from
which they “manage” thousands of hectares of forest in the Capital
Region. We rely on these forests for water and are now having to buy
them back from BAM/TAM at great expense.

If you travel around British Columbia, you’ll gaze upon many other
TAM assets. In fact, fully one quarter of BC’s public harvesting
rights—over 10 million cubic metres of Crown forest—are now under TAM’s
controlling interest through their acquisition of huge chunks of BC’s
biggest forest and pulp companies, including Canfor and Catalyst. As
pressures to privatize crown assets continue, the companies with
existing leases to resources will be best poised to secure title to the
land underlying those resources.

TAM, working alongside Jimmy Pattison (who is also a board member of
BAM), has majority share ownership in Canfor. Pattison and Whitman
joined together in 2007 to vote in their own slate of directors,
including TAM men like Amit Wadhwaney, an ex-Domtar forest products
analyst who heads up the TAM International Value Fund, and Ian Lapey,
Whitman’s future successor (they are not on the board now, though
Pattison is). The same sort of thing went on with Catalyst. The typical
pattern is: close down facilities, consolidate, liquidate assets, avoid
taxes (as happened in Crofton), try and exert influence on the political
system, wait out the process of privatization and then sell.

Whitman’s investment mantra is “Safe and Cheap.” He coined it after
the war when he discovered there was a lot of money to be made buying
distressed companies in sectors hit by recession; liquidating and
consolidating; then waiting it out for the rising market. The philosophy
is stated this way on TAM’s website: “We believe the cheaper you buy,
the greater the potential investment reward and the cheaper you buy, the
less the inherent risk.” 

What was Whitman’s inspiration? His biography states: “When he
encountered a timber company rich with assets [aka forests] but no
visible earnings power he realized there was a better way.” One assumes
the “better way” is to liquidate the forests prior to selling the land
when real estate prices are rising. In southeast Vancouver Island, there
has never been so much timber removed from these forests so quickly. 

We shouldn’t be surprised that our province attracts such companies.
Who could resist British Columbia, a great little banana republic on the
doorstep of America that meets all those great investment criteria?
Safe? For sure, there are no Zapatistas here. And cheap? Once you’ve
creamed the forest off the top, you have free real estate that can be
sold. Moreover, we have a provincial government that seems easily swayed
by corporate investors.

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