The Globe and Mail

  Time for a Roman holiday


Saturday, April 20, 2002

Back in 1996, Roman Corp. (RMN-TSE) was added to the Contra portfolio at $1.10 a share. The company seemed like an agreeable fit with the rest of our roster as we were shy on manufacturers and Roman was focused on the paper industry through its subsidiary, Strathcona Paper. As with most Contra picks, the stock had traded at much higher prices in previous years, $3 in 1993 and at $4.60 in 1991. Our target price was set at $2.85.

We did our usual due diligence before the purchase. However, nothing helps you understand a stock like owning it. In Roman's case, the longer we were shareholders and the more we talked to management, the more uneasy we became.

This does not imply that the top brass is not gifted -- simply that our view of the world did not co-ordinate with theirs. At one annual meeting we attended, with the stock price trading well below the $2 mark -- as it did during the vast majority of the time that we held the firm -- management posed arguments why the stock was worth well over $5. We were not convinced.

Over the course of nearly six years, we often considered dumping the stock. However, volume generally was slim and piecing off our holdings a few hundred shares at a time with commissions chewing into our limited profit was not our idea of a good time. Also, our tendency is towards inaction and avoiding commissions when a major stimulus to sell is absent, be it positive or negative. So we held, patiently hoping that at some point, a catalyst -- any catalyst -- would work in our favour.

Finally, salvation arrived. This surprising turn in fortune was ignited by the recent announcement of Roman's purchase of A. & C. Boehmer Ltd., also known as Boehmer Box, in a move valued at about $53 million. The market momentarily read this as a bold, positive move. The stock price of Roman soared from the $1.50 level, touching $2.60, a height it had not broached since 1997. Trading volumes rocketed. At $2.39 we dumped our shares, a move that offered us an annualized return of about 15.5 percent.

Canadian Imperial Bank of Commerce put up a wad of cash to finance the Boehmer transaction. They also have the right to purchase 1,257,000 shares of Roman at $8.50 a share, an unlikely scenario in our view.

Since the transaction, volume has dried up. The stock closed yesterday at $2.35.

Perhaps Roman's future is far brighter than we envisage. Certainly, in the past we have sold corporations only to watch them achieve great things. Fortunately for us, even if we are wrong, this is one bus we are mighty glad to be off.