Another Cash-Rich Company

I don't own stock in Onex Corp. The Toronto-based company is described as a leveraged buyout firm in this Globe and Mail story, with the shares trading on the Toronto Stock Exchange. The top guy is Gerald Schwartz.

Onex already had $1.2 billion worth of Canadian dollars sitting idle on its balance sheet at the end of the last quarter. Now Onex announces it will sell as much as US$1.2 billion worth of its Spirit AeroSystems Holdings unit -- adding to its substantial cash hoard.

From the Globe and Mail:

Much of Onex's excess cash is parked in low-returning assets such as Treasury bills, which don't generate anything close to the double-digit returns that Onex investors want. Bringing in another pile of cash from Spirit increases the pressure on Mr. Schwartz to come up with another buyout opportunity fast, something that's not easy these days with dozens of flush private equity firms competing for acquisitions and driving up prices.

"It's not a nice problem to have," said Wade Burton, a portfolio manager at Vancouver's Cundill Investment Research, which runs funds that hold Onex shares. "Everything is way too expensive to make any money on it, but if anybody is going to do it, it's going to be him."

Sounds like Burton and the Cundill folks are making a bet on Onex's cash hoard -- and the executive managing it. Back to the article:

Mr. Schwartz acknowledged the dilemma at the company's annual meeting earlier this year, telling investors: "We have too much idle capital earning low returns."

Onex has created the situation with a run of winning investments, especially in the health care business.

For example, last year the company sold its stake in Magellan Health Services for $302-million (Canadian), 2.4 times the original investment.