Strategic review urged for Autocanada

An investor in Autocanada Inc. is urging the auto dealership owner to launch a strategic review to improve shareholder value. The shares jumped the most in six weeks.

Clearwater Capital Management Inc. said it had recently taken a new position in Autocanada and had spoken to several of its shareholders who expressed concern about the Edmonton-based company’s “poor margins” in the first quarter. The investment firm didn’t disclosethesizeofitsstake.

“The time has come for Autocanada to pursue a strategic alternatives process that will offer Autocanada and its shareholders the potential opportunity to sell at an attractive premium and avoid the risk of further operating performance risks,” Roland Keiper, president of Toronto-based Clearwater Capital, said in a letter to the company’s chairman Gordon Barefoot Monday.

He pointed to the purchase of Van Tuyl Group announced in 2014 by Warren Buffett’s Berkshire Hathaway Inc. for $4.1 billion as evidence of the attractiveness of the sector.

A representative for AutoCanada declined to comment. Autocanada rose 4.5 per cent to $17.32 in Toronto, the biggest intraday gain since April 25. The shares had dropped 59 per cent in the three years through June 8 compared with a 9.9-per-cent gain for the benchmark S&P/ TSX Composite Index over the same time period.

Autocanada owns and operates franchised automobile dealerships, comprised of 27 brands in eight Canadian provinces as well as the state of Illinois, according to its website.

Keiper said Clearwater previously held a stake in Autocanada between 2008 and 2011 and held constructive talks with the company during that time over such matters as refinancing its debt, discussions over its performance and a request to appoint a new director to the board, Chris Cumming, which was accepted in 2011. It also discussed changes to its dividend policy, he said.

He said he believed there are several potential acquirers that would be interested in the company.

“Among the Autocanada shareholders with whom I have spoken there is a clear support for the prompt implementation of a strategic process notwithstanding the effort to improve operating margins that you have communicated,” Keiper said.