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  • Don't follow the money

    Globe and Mail, Canada
    Aug. 25, 2006


    Don't follow the money
    >>From Friday's Globe and Mail

    George Armoyan has no MBA, no CA, no CFA or any other designation
    that would qualify him as the best investor in Canada you've never
    heard of. "I have a WD-Wheeler Dealer," he says with a laugh.

    The fast-talking, Syrian-born Armenian wheels and deals more cleverly
    than just about anyone on Bay Street. But he doesn't work on the
    Street, and he invests in businesses that don't show up on his
    rivals' radar screens. The 45-year-old lives in Toronto, but his
    private holding company, Geosam Investments (named after his sons,
    George and Sam), is based in Halifax. It controls a public company
    called Clarke Inc. that holds transport, warehousing and IT assets.

    His investment philosophy is simple: Don't follow the money. Armoyan
    is a value investor who searches for bargains other money managers
    have overlooked. Of course, plenty of managers claim they do that,
    yet they then stampede like a herd of buffalo to a handful of big
    names like Canadian National Railway, Dofasco and the banks.

    That's why true outriders like Armoyan are the wave of the future. He
    and his five-man team of accountants and analysts work a niche-they
    go after broken, ailing or simply undervalued companies and income
    trusts with market values ranging from $50 million to $150 million.
    "We're in the minor league," he says. "Most institutions do not want
    to be involved in these illiquid stocks."

    The Armoyan team will typically buy no more than 20% of a
    business-majority stakes are hard to sell-then obtain a seat or
    two on the board and go to work. That often means ousting managers,
    selling a division, cutting expenses, merging with a competitor or
    just telling a compelling story from near the bottom ranks of the
    TSX. The job often requires the help of "operators, visionaries and
    sons of bitches," says Armoyan.

    The goal is an 18% return on equity on the half-dozen or so
    investments the team manages at any given time. One big winner was
    Vaquero Energy, a junior oil company. The team bought a stake in
    2003, when Vaquero traded at less than $1 a share, and Clarke reined
    in the oil company's risky exploratory drilling program. Soaring oil
    prices also helped. Last year, Highpine Oil & Gas bought Vaquero in a
    stock swap for about $7 a share.

    Clarke itself, a trucking company that had underperformed for years,
    also needed a shakeup. Armoyan sacked management and focused
    operations. The share price has climbed from about $3 in 2001 to more
    than $10 recently. Other holdings have included Halterm Income Fund,
    Royal Host REIT, Fishery Products International and Versacold Income
    Fund. His worst pick was Hip Interactive, a video game company that
    went bust last year.

    Although Armoyan runs apart from the Bay Street herd, the herd has
    noticed him. Mention of his interest in a stock can send it soaring.
    That happened in April, after Clarke disclosed its 11% stake in the
    Granby Industries Income Fund. When Clarke sold some units, investors
    and analysts got skittish, and the share price sank. "We view [his
    sale] as a negative, since Mr. Armoyan may not be bringing his
    experience directly to the fund," said a report by Research Capital.

    Armoyan won't reveal his personal net worth, other than to say, "I
    don't have to work for the rest of my life." Clarke is certainly
    flush-it has $140 million in cash.

    That Armoyan has got this far in finance is unlikely, to say the
    least. He and his family emigrated from Syria to Boston in 1976. He
    then enrolled in Dalhousie University in Halifax because he couldn't
    afford a U.S. school, earned a civil engineering degree and fell in
    love with Nova Scotia. A trader and bargain hunter by instinct, he
    bought junk at auctions, from canoes to washing machines, and resold
    it through newspaper ads. Then he shifted to land development.

    In the 1990s, Geosam started buying non-performing loans from banks
    and converting the loans into equity in the borrowers' businesses.
    Since then, he's been a shake-up artist, moving in and out of
    companies quickly. Jim MacDonald, chairman of Enterprise Capital, a
    leading activist investment fund, says Armoyan is a "very shrewd
    observer of companies and goes where others fear to tread."

    What's next for Armoyan? More-and bigger-deals. He'd like to build
    Clarke into a billion-dollar company. "If I had the money, I'd go
    hostile after [Bell Canada owner] BCE," he says. "I think the parts
    are worth more than the whole."

    It's a nice fantasy, but Armoyan should keep sifting through the
    weeds, searching for small, tarnished gems while the big boys look
    the other way. That will keep him out in front of the herd.
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