Torstar unlocks value

Article Excerpt

TORSTAR $7.86 (Toronto symbol TS.B; Shares outstanding: 79.9 million; Market cap: $629.2 million; TSINetwork Rating: Average; Dividend yield: 6.7%; www.torstar.com) is up over 20% since early May, when it agreed to sell its Harlequin book-publishing subsidiary to News Corporation (symbol NWSA on New York), the parent company of publishing firm HarperCollins. We’ve long pointed out that Torstar had a great hidden asset in Harlequin, especially in light of the romance publisher’s successful expansion into e-books. In 2013, Harlequin supplied 29% of Torstar’s revenue and 32% of its earnings. The company will get $455 million from the sale, which should close by September 30, 2014. Torstar plans to put the proceeds toward its debt, which stood at $191.3 million on March 31, 2014. The company could use the remaining cash to buy back shares, raise its $0.525-a-share annual dividend (which yields 6.7%) or pay a special dividend. Selling Harlequin means Torstar will focus entirely on its cyclical newspaper and Internet businesses. That adds risk, but…