Buy Cheap Shells, Strip and Reload the Portfolio

"portation Management owned 50 percent of Gelco shares, which were again trading at $3. Desmarais had effective control of Gelco and became president of the company. As president and controlling shareholder, he framed and executed the company’s investment policies and controlled the treasury. He began liquidating Gelco’s investment portfolio because it had positions in many investments, but control in none, and was vulnerable to market forces and decisions of management that it could not influence."

"The attitude Desmarais adopted in the 1960s was that the Gelco strategy entailed the simple acquisition of a company (Gelco) with an unspectacular investment portfolio that could easily be liquidated and reinvested in better-performing investments. In less polite terms, Desmarais was stripping Gelco’s assets for redeployment into more sensible directions. He did, however, ensure that other minority share¬ holders got fair treatment — good dividends, some capital growth — while he pursued his strategy. Besides his dividend-bearing shares in the company, Desmarais earned fees from the companies he managed and from his outside directorships."

"Desmarais saw a great opportunity in Gelco. It had a $ 10-million investment portfolio, but it could be bought for whatever the 3.3 million shares were worth on the open market. Demand was high for the shares after they were issued, in fall 1961, at $1.20, and prices rose to $3 at year end. After the initial euphoria and share trading, though, the investment and management rationales underlying Gelco were examined and found wanting by the market, and prices declined to a 60-cent low in summer 1962. Desmarais was keeping an eye on Gelco. It’s likely he held a block of shares in the company, which made it easier to watch its progress; shareholders have access to more information about the progress and management of a company than the general public, and can also acquire lists of all other shareholders. In July, 1962, Paul Desmarais was in the bush near Sudbury, treating some of his Sudbury Bus Lines employees to a few days of fishing at the boss’s expense. The bucolic peace of the fishing camp was broken when a message arrived from Montreal that Gelco’s prices had collapsed to 60 cents and showed no sign of revival. Desmarais rushed back to Sudbury, flew to Montreal and took the first connecting flight to London, England. He installed himself in a hotel and offered British Gelco shareholders $1 per share. The same offer was made to Canadian Gelco shareholders by Transport Management Corp. Ltd. Gelco’s shareholders were eager to unload their apparently worthless shares, and by December 1962, after five months of buying, Trans-"

"business than Levesque’s. To Desmarais, tccf represented one thing: assets that could be converted fairly quickly into the cash he needed to grow faster and achieve his vision, a holding company that owned control of companies with good profits and capital growth. A cor¬ poration like that would generate the kind of cash that would allow Desmarais the widest leeway in business dealings."