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  Moore provides shining example of turnaround play

BENJ GALLANDER and BEN STADELMANN

Saturday, November 24, 2001

The "buy low, sell high" investing philosophy covers a lot of territory, from natural resource firms that cycle along with the commodities they produce, to the steel and automotive sectors, to the ebb and flow of the price/earnings ratio of the entire market.

A particularly lucrative province within this terrain is turnaround situations -- individual companies that have made operational blunders and are struggling for survival. No firm is immune to the economic milieu of the times. But what is fascinating about these plays is that success and failure often depend on internal factors.

Part of our approach to investing is predicated on a faith in the resilience of larger corporations. There are many exceptions, to be sure, but we have observed that these institutions frequently have deep reserves to fall back on, and the very nature of desperate straits spurs them to make tough decisions that would not be considered in more benign circumstances.

When we hopped aboard Moore Corp. Ltd. (MCL-TSE) in late 1999, we diagnosed that the Toronto-based company was at a critical juncture. Coincidentally, it was in our very first column that we opined that the firm was taking steps to avoid becoming an anachronism in the digital age.

Moore is a most unlikely candidate to shine during tough times, but that is exactly what is happening to this forms and printing outfit. We're now seeing the reverse of what happened to Moore during the 1990s bull market, which the former blue-chip member of the Canadian establishment spent in decline.

Eroding margins and outdated products were bad enough; worse were a bloated cost structure and a lack of leadership.

In the months that followed it became abundantly clear to us that chief executive officer Ed Tyler was unable to deal effectively with Moore's problems. He talked the talk, enthusing about cutting-edge technology and new business, but losses mounted and the stock sank to a low of $3.25. Mr. Tyler finally got a luscious $26.5 million (U.S.) golden parachute.

Robert Burton, who had quarterbacked a turnaround at the U.S.-based printer World Color Press Inc., took the helm last December.

Since then the pace and breadth of progress has been breathtaking. While the previous regime had focused on finding new businesses to get into, Mr. Burton has been determined to fix the company's traditional core. Dreams of fancy new technologies have been put on the back burner while he gets on with the basics of cutting costs and making the operation more efficient. The balance sheet has been strengthened by selling off assets. Most recently, $41 million (CDN) was raised by parting with the Phoenix Group, which is in the customer relationship management business.

What's the moral of the story? If there is truth in the real estate cliché that it is all about "location, location, location," then the corollary for the corporate world is that what really matters is "management, management, management."

Indeed, it is this realization that has led to the absurd inflation in executive pay. But the irony is that only a select few have what it takes to be an impact player.

Moore has a long way to go, but at this point it looks like Robert Burton will join the pantheon of turnaround greats, which also includes Fleming's Mark Hansen, Lawrence Weinbach of Unisys, and National Education's Sam Yau.

Moore's stock price should continue northward, but let's face it: at yesterday's close of $13, the easy money has been made. Short term or long, the climb to our target of $27.75 is looking more like a hill than a mountain.

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