The Successful Investor Hotline – Friday, May 4, 2012

Article Excerpt

THE WESTAIM CORP., $0.73, Toronto symbol WED, owns Jevco Insurance Co., which sells insurance to high-risk drivers, as well as owners of motorcycles, snowmobiles and recreational vehicles. Jevco operates in Ontario, Quebec and Alberta. Westaim bought Jevco for $264.2 million in March 2010. Westaim jumped 9% this week after it agreed to sell Jevco to Intact Financial Corp. (Toronto symbol IFC); Intact is a recommendation of Stock Pickers Digest, our newsletter that focuses on aggressive investing. Westaim will receive $530 million when the sale closes in the fall of 2012. That’s equal to 1.3 times its market cap of $423.7 million. The company plans to distribute the proceeds to its shareholders as a return of capital. A return of capital is tax deferred: you don’t pay taxes on it until you sell your shares. At that time, the return of capital lowers the adjusted cost base of your original share purchase—triggering a capital gain. Regulators and Westaim’s shareholders must still approve the deal. However,…