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Friday, February 15, 2013

How an activist investor shook up a Canadian brand

How an activist investor shook up a Canadian brand

The peaceful outcome in what is normally a battle to the death speaks to the effectiveness of the latest chapter of the activist playbook. The days of “greenmail” and “raiders” are gone. A new generation of shareholder rebels are applying enormous financial clout, shareholder support and a good supply of patience to awaken the management of slumbering corporate giants. It’s an American phenomenon; Boland is an outlier. But American activists are pointing their lances toward Canada too. New York hedge fund owner Bill Ackman recently brought his roughhouse tactics north to shake up management at industry slowpoke Canadian Pacific Railway Ltd . “This is about restoring the balance of power back to the owners. The activist acts as the tip of the spear and is willing to take the body blows,” says Ackman.

There was a time when Greg Boland was paid to defer to the elite.
It was the late 1980s, and the first-year science student at the University of Toronto was paying his way through school as a waiter at Palmerston, a top-tier restaurant that was making a star of chef Jamie Kennedy. One night Boland was asked to serve a private party of businessmen who had gathered to raise funds for a portfolio management program at the University of British Columbia’s Sauder School of Business. Boland was captivated by the war stories recounted by investment legends like Milton Wong.
When the guests told Boland that the Sauder program trained students by giving them university endowment money to invest, “I thought, ‘Holy shit, this is really cool,’” Boland recalls. “I liked the tangibility and the practicality of it as opposed to the theoretical stuff you normally get in school.” Within months, Boland enrolled at Sauder.
Growing up as one of two children of a divorced mother in Ottawa, Boland spent most of his spare time racing down ski hills: “It hooked me mentally and physically.” But he was good with math too—and, later, software code. The combination—“a thrill-seeking puzzle solver,” in Boland’s own words—pointed the way ahead.
The cold calculations that come with both math and advanced skiing made Boland a perfect fit for the portfolio management program at Sauder. His computer skills put him at the forefront of an emerging style of investment strategy: quantitative analysis. What most impressed teachers was Boland’s Zen-like confidence in going against the grain. “It was quite apparent early on that he was an independent thinker,” says Rob Heinkel, a Sauder finance professor. “He was very hard-working, always very calm, not cocky or smug. What distinguishes Greg is his gut feel. When he locks on to an idea, he goes with it. He has conviction.”
Boland quickly embraced new trading technology, writing his own investment computer models by the time he graduated. His skills landed him a place on the most profitable trading desk on Bay Street: RBC Dominion Securities Inc. hired him in 1991 and placed him alongside Roland Keiper, the sharpest eye on the Street for undervalued or overpriced securities. Specializing in junk bonds and arbitrage trades, the small team racked up massive profits for RBC and pocketed millions of dollars for themselves by shorting stocks or spotting undervalued securities. Big wins included bets against Royal Trustco Ltd. and Newcourt Credit Group Inc. before the financial giants toppled.
Boland specialized in distressed debt, a grim and emotionally charged corner of the capital markets where corporate bonds and debentures are sold at deep discounts. While other investors thumped tables to get concessions on troubled bonds, Boland remained coolly focused on solutions. “He is completely able to divorce his emotions from investments. I’ve never seen anyone like him, who can keep his ego out of the investment process,” says Jim Doak, a portfolio manager who worked alongside Boland in the late 1990s.

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