globeandmail.com

The Armoyan effect: Serial winning

Thursday, May 10, 2007

The founder of Clarke Inc.'s reputation as a money-making investor isn't going unnoticed

SHIRLEY WON

With his record of success, George Armoyan is attracting a growing crowd of investors.

The chief executive officer of Halifax-based Clarke Inc. is a value and activist investor who looks for bargains among income trusts, and smaller companies that are out of favour, or have turnaround potential.

He has made a killing on many of his targets. And with $115-million raised by Clarke through convertible debentures last December, the buying spree continues.

Investors can follow Mr. Armoyan by buying stocks or trusts he holds in Clarke. Or they can invest in Clarke - the company he runs and whose stock has surged 54 per cent over the past year and 283 per cent over the last five years.

Given the stock's impressive returns, "this seems like a good strategy," says Michael Mills, an analyst at Halifax-based Beacon Securities Ltd.

Mr. Mills has found a positive "Armoyan effect" after tracking 17 companies or trusts in which Clarke and/or Geosam Investments Ltd. - Mr. Armoyan's investment holding company - disclosed a 10-per-cent stake as required by law.

"The first week following an announcement the price rose on average 12 per cent with gains amplified over a 20-day period, and some minor profit-taking taking place over a 60-day period," he said in a report.

Oscar Belaiche of Toronto-based Goodman & Co. is a fan of Mr. Armoyan. "We have invested in his company and, at times, we have bought into some of his ideas." The portfolio manager has profited by following Mr. Armoyan into Halterm Income Fund, and trailing him into General Donlee Income Fund, Versacold Income Fund and Royal Host Real Estate Investment Trust.

"He's got a great track record of making money," Mr. Belaiche said. "I would describe him as the Carl Icahn of Canada. ... George will play to win. If he has to ruffle feathers to accomplish his goal, he will."

His reputation is attracting foreign investors like Miami-based Fairholme Capital Management LLC, which owns 10 per cent of Clarke through shares and convertible debentures.

"He has a record of being a serial winner," Fairholme consultant analyst Guy Gottfried said.

Clarke's biggest gain - about $17-million before taxes - will soon come from an unusual investment for him: an undisclosed two-month investment in grocery giant Sobey's Inc., which is now being privatized by Empire Co. Ltd. This was not a typical holding given that Sobeys' is a much bigger company than his other targets. But Mr. Armoyan figured privatization was inevitable due to Empire's 72-per-cent interest, and the grocer trading at a steep discount to its peers.

Dundee Securities Corp. analyst Byron Berry, who covers income trusts, said the "Clarke factor" is tempting when ferreting trust takeover targets, but adds that many of his moves tend to be "higher risk" investments. "But you may get a greater reward," he added.

But Mr. Armoyan readily admits he doesn't have "a magic wand." In 2005, Geosam bought shares in video game distributor Hip Interactive Corp. just before it filed for bankruptcy protection.

Mostly, he has been shopping for bargains among income trusts, and did so well before the sector was hammered last fall when Ottawa fall announced plans to tax the sector. With the costs of being a publicly traded entity, he figures many trusts are too small for this kind of structure.

He often buys trusts whose payouts have been suspended or reduced, but have a sound business that can be fixed and sold. He has been buying oil service trusts lately, but Clark hasn't hit the 10 per cent ownership threshold on any of them yet.

Mr. Armoyan's first investment and biggest gain in the trust sector was Halterm Income Fund, which was acquired last fall by a fund run by Macquarie Bank Ltd.

Geosam, which owns 20 per cent of Clarke, made a pretax profit of $20-million because of its larger stake in the operator of the container terminal in south end Halifax. But Clarke shareholders only made $3.4-million.

But Mr. Armoyan vowed that won't happen in the future, saying that his activist-style investments will now only be made by Clarke. Geosam still holds General Donlee Income Fund on whose board he sits, but that income trust is slated to be divested. And Geosam will soon hire an external portfolio manager. He learned a lesson in good corporate governance from Clarke's board and shareholders who pointed out his conflict of interest in having "two masters."

"When you are running a public company, you shouldn't be doing this stuff on the side," he said. "I agree 110 per cent. When I am wrong, I am willing to admit I am wrong."

*****

10 per cent or better

Publicly traded investments in which Clarke owns at least a 10-per-cent stake:

Madacy Entertainment Income Fund

Clearwater Seafoods Income Fund

CanWel Building Income Fund

Oceanex Income Fund

Terravest Income Fund

Art in Motion Income Fund

Granby Industries Income Fund

Versacold Income Fund

Royal Host REIT

Amisco Industries Ltd.

Shermag Inc.

Bikini Village Inc.

AN ACTIVIST

George Armoyan began his investing career through his private holding company, Geosam Investments Ltd. But the 46-year-old Syrian-born entrepreneur only began using an activist investing style seven years ago.

HIS APPROACH

He tries to be catalyst to create shareholder value by getting a board seat, and pushing for cost cuts, asset sales and management changes.

ALL BUSINESS

But he won't mix business with personal ties. Clarke recently boosted its stake in Clearwater Seafoods Income Fund to 20 per cent even though the largest owner is his friend John Risley. It has great assets, but "they have to get their act together," he said.

*****

Investment Exit strategy Realized gain before tax
Sobeys Inc.*To be sold in privatization$17-million
FPI Ltd.Sold in open market$5.7-million
Ent. One IF.Redeemed in takeover$6.4-million
Spectra Inc.Sold in privatization$1-million
Halterm IF.Redeemed in takeover$3.4-million
Fiber Tech. IF.Redeemed in takeover$2.1-million

*Less than a 10-per-cent stake.

gam