Hi Pat: I love your daily emails. They are a very good common sense reminder of practical investing do’s and don’t’s. Concerning your recent article on goodwill: I know you’ve been a long-time supporter of Canada Bread. How do you reconcile that with your concerns re: excessive goodwill? (Canada Bread’s goodwill is over $400 million versus shareholders’ equity of $743 million.) Best regards.
Canada Bread, $43, symbol CBY on Toronto (Shares outstanding: 25.4 million; Market cap: $1.1 billion), has $405.9 million of goodwill on its balance sheet. That’s a high 54.6% of shareholders’ equity of $743.6 million. But it’s a more reasonable 36.9% of the company’s $1.1-billion market cap.
More important, the goodwill was largely added to Canada Bread’s balance sheet from a series of acquisitions the company made in 2002. Most of the companies that Canada Bread bought were small. But they did include its December 2002 purchase of parent company Maple Leaf Foods’ U.S. and U.K. bakeries, including Grace Baking Company, for $262 million.
The companies that Canada Bread bought in 2002 have proven profitable, and are a stable part of its operations, so the chance of a writedown at this point, seven years later, is small.
Canada Bread is a recommendation of our Successful Investor newsletter. We see it as a hold right now. But that’s mainly because we feel that Maple…
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