Torstar Inc.
As the Torstar board meeting in April of 1998 was approaching, a memorandum on Torstar’s dividend policy, their repurchases and their strategy with regards to strategic acquisitions within their three business areas was composed. The memorandum included pros and cons as well as recommendations with regards to the issues to be discussed when the board gathered for their meeting. The dividend policy and the share repurchase strategy are the main issues since the institutional shareholders preferred Torstar’s historical share repurchases and historical dividend pay outs. Management has during the last years focused on acquisitions, especially in order to diversify their business through the children’s supplementary education products (CSEP) segment. Management plans to pursue aggressively with this strategy. These strategies will affect the payout policies, hence Torstar is moving away from their historical dividend and repurchase policy. Torstar‘s institutional shareholders prefer to diversify by themselves, using dividends and repurchases to invest in other public “pure plays”. Two important considerations regarding the key issues are Torstar’s ability to acquire strategic investments and their ability to maintain a certain capital expenditure level. Are the current strategic acquisitions valid? CSEP is definitely a way of diversifying Torstar’s business since it is not part of their two core business areas, Newspaper and Book publishing. Hence, they are directly violating the owner’s desires. When reviewing the gross margin percentage of the three business areas, it is clear that the investments in the supplementary education segment are initially very profitable. However, the margins have been decreasing vastly and by year end 1997 it is down to 0.09%. More investments in the CSEP segment are planned, even though the margins are bad. By the end of first quarter 1998 margins decreased even more to a negative 4.62%, thus the acquisition strategy can definitely be