Teachers' exit 'very good move' for Softchoice shareholders

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It's not everyday that a CEO cheers the exit of the company's largest shareholder, particularly when that investor is the Ontario Teachers' Pension Plan.

But David MacDonald, chief executive officer of Softchoice Corp., the largest reseller of Microsoft products in Canada, did just that on Friday, heralding a decision by Teachers to sell its 25-per-cent stake in his company as "a very good move" for shareholders.

"Teachers has been a very supportive, long-time shareholder," said Mr. MacDonald. But he noted: "Having a large, single investor has presented a number of challenges to the liquidity of our stock. We are a growth company and have performed very well over the years. Yet this hasn't always been reflected in the performance of our shares.

"With this transaction, Teachers has moved its position into the hands of a number of smaller, quality institutions" which will improve liquidity, Mr. MacDonald added.

On Friday, Teachers disclosed that it had sold its stake of 5.1 million shares in Softchoice for $10 a share – 12-per-cent less than it had paid for the bulk of its shares in 2006. Mr. MacDonald noted that despite the fact 5.2 million shares traded hands on Thursday – 50 times the three-month average – the stock price barely budged that day, closing down 2 cents. Softchoice shares fell 2.4 per cent on Friday.

Deborah Allan, a spokeswoman for Teachers, said that the sale "is a good outcome for [Softchoice]because they've got more liquidity." At the same time, she added that the sale allows Teachers to "rebalance our portfolio," as the investment in Softchoice was relatively small for an institution with $107.5-billion in net assets and "was part of a different technology investing strategy" dating to the early 2000s.

Under Teachers' watch, Softchoice bulked up its board of directors with heavyweights including Bill Linton, the chief financial officer of Rogers Communications Inc. and Robert Luba, former president of Royal Bank of Canada's investment management arm.

But the 2008-09 recession rudely interrupted the company's steady growth. Business spending on information technology plummeted, as did Softchoice's revenues and stock price. By March, 2009, Softchoice shares were trading for less than $2 and Teachers was underwater on its investment.

"The years 2008 and 2009 were tough for information and technology, and Softchoice suffered like everyone else," said Raymond James analyst Steven Li. But he added that Softchoice has since turned around, growing revenues and profits and successfully acquiring other companies.

In the nine months ended Sept. 30, Softchoice reported net sales of $730-million, up 15.8 per cent from the same period a year earlier. Profit in the period was $15.6-million, or 79 cents per share, up 23 per cent from the first nine months of 2010.

Mr. Li said the company's improving fortunes "are reflected in the stock price," which returned this week to its highest level since September, 2008, but is still more than 50 per cent off its peak levels of around $23 in mid- to late-2007.