Metro Missed A Golden Opportunity To Do Nothing In 2013

Someone at Metro must have kicked himself of lot of time. And for a long period.

Imagine.

Since it sold its network of 75 Sept-Jours depanneurs to Couche-Tard in 1987 for $ 4.3 million paid in shares, Metro waited patiently for the right time to sell them. They ended up totalling 20 M of A and B shares (half and half).

Metro President and CEO Éric R. La Flèche sat on the Couche-Tard Board and for 26 long years, a period of time during which the stock price was mostly dormant, Metro patiently waited for the right moment to sell as only Warrent Buffett would have done.

Then, in 2012, the stock jumped: the year was marked by Couche-Tard purchase of Statoil Fuel & Retail (SFR), making the company founded by Alain Bouchard the largest operator of convenience stores in Scandinavia in 2012 with the acquisition of 2,300 SFR service stations in June at a price of $3.6 billion, including debt (source: La Presse).

The Couche-Tard stock price then went from $29.85 to $49.28, a formidable increase of 66% over the year.

In early 2013, after such a great year for investors, a genius at Metro took the decision to liquidate half of Metro’s Couche-Tard stock, namely 10 million shares at a price of $47.90 for a total of $479 million.

Indeed, the transaction has been profitable: half a billion dollars is far from nothing.

But unfortunately, the next three years were going to be the most profitable ever for Couche-Tard’s shareholders in the company’s history .

The situation can be summed up as follows:

  • Metro sells a block of 10 million shares on January 23, 2013 at a unit price of $47.90 CAD, for a total of $479 million;
  • One year later (January 22, 2014), the share was worth $80.97 CAD, so the same block of shares was worth $809.7 million, or $330.7 million more;
  • Two years later (January 27, 2015), the share was worth $139.80 CAD, for a block now worth $1,398 million, or $919 million more;
  • Three years later (January 27, 2016), the share was worth $186.03 CAD, for a block now worth $1,860 million, or $1,381 million more! *

In other words, Metro had only to wait and it could have sold its stock FOUR TIMES THE PRICE, $1.9 billion instead of $ 479 million, a massive additional gain of $1.4 billion for doing nothing (before tax)!

In case you don’t fully realize how much money such gain represents: it’s the equivalent of two and a half years of annual earnings at Metro! Yes: what’s left after two and a half years of hard work, pain and misery!

Should they have waited three little more years, after waiting for 26 years, they could have pocketed this huge fortune.

Of course, it is easy to make such judgments in retrospect. And it should be added that, at least, Metro sold only half of its shares, not all of them.

Metro indeed made a fantastic gain for the sale of only 75 depanneurs (after 26 years of waiting however) in addition to having gained a profitable business partnership with Couche-Tard. Yes, all this is true.

But still! The fact remains that this particular decision – let’s call a spade a spade – was a $1.4 billion missed opportunity.

This is an incredible amount, $ 1.4 billion! Lost just because of one small decision!

Last week, Metro announced the sale of most of the remaining 10 million shares (now 30 million since the split) to finance the acquisition of drugstore chain Jean-Coutu.

This is at least a good reason to sell, after the stock has risen 15 times (from $12 to $180 over 5-6 years) and has plateaued for two years.

But as for 2013, the only thing that comes to mind is: “bad move”!

 

* Note: the stock prices shown do not take into account the splits that occurred between 2013 and today.

Source: Yahoo Finance

Leave a Reply

Your email address will not be published. Required fields are marked *