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Media Co-op Investor: May

We Pull on The Threads of Gildan Activewear

by Geordie Gwalgen Dent

Media Co-op Investor: May

Welcome to Media Co-op Investor!

The Media Co-op Investor Series aims to help the general public understand the stock market, how it works and the major companies which benefit from it.

Every two weeks (or once a month) we examine an element or term in the stock market, how the Toronto Media Co-op has done fake-investing in companies on the Toronto Stock Exchange as well as highlighting specific large Canadian Companies, why their price has gone up and down and what they are all about.

To learn more go here.

This Weeks Term:  IPO

Another acronym which you'll often see (sometimes undefined) in the business pages of the major press is IPO, which stands for initial public offering.

An initial public offering is when a small start-up company or large established company issues stock shares for the first time.

Companies go through this all the time and several of the companies which we've covered started out as either large public crown corporations (CN Rail) or large private businesses (Manulife Financial) before undergoing an initial public offering.

While some large companies never go public (Jim Pattison Group, Mcain Food and Katz group) most big companies do or are bought up by a company that is already publicly traded.

The main reason for 'going public' is of course to raise more money.  While this is especially important for small start-up companies looking to grow, larger companies in less need of cash may do so for other reasons.   

Going public allows a company to use 'stock participation programs' where they can attract employees by offering them a share in the company. It also allows larger companies easier access to a variety of financing: low-interest loans, issuing more stock without getting any debt, etc.

Of course, being a 'public' company usually comes with some downsides as well: you have to disclose a lot of financial information to the public (and competitors) and you have greater legal requirements.  Of course, being businesses, companies will often find ways around the law.

A prominent Canadian example in recent memory is Montreal wacko-entrepreneur Dov Charney who is best known for sexual harassment, horrible advertising on the back of weekly free-papers and creating American Apparel.

When Charney took American Apparel public in 2007, he did so through a reverse merger: he created a shell public company and had it go through an IPO.  The company had almost no information to disclose and then 'acquired' American Apparel.  

The result: American Apparel became a publicly traded company, Carney became President, CEO and the majority shareholder and the company didn't have to fork over lots of information about it's operations.  (Surprise, surprise! the company ran into financial problems last year and saw it's auditors resign.)

Recent IPO's include social networking site Linkedin and more recently, web-coupon company Groupon.  

What we invested in this week

This week we tracked our largest Canadian consumer stocks.  We theoretically-bought about $1000 worth of each company on September 15th.

How we did this week

Worse.  Our consumer discretionary stocks have retreated from a return of 10% and have settled around the 6% range.

Most of the losses are stemming from our food stocks like Loblaws and Weston foods (though Metro is doing OK).

At the other end of the spectrum, Tim Hortons, Saputo, Canadian Tire and Magna are all picking up the slack.

Compare these stocks to the S/P 500 and we're doing about half as good.  But compared to our extractive and mineral stocks...well...we could be doing a lot better with other companies.  

Around the world, everyone seems to either think the recession is over or that another shoe is about to drop.  

Greece continues to have major economic problems with their debt and has agreed to further tax increases and spending cuts.  US banks face continued questions over their operations and roles in the investment crisis.  Countries continue their almost-half-a-decade battle with investors over global food prices speculative investing (i.e. gambling).

But in other circles, companies continue to rake in the profits and it's business as usual.

The most depressing and scary thing: no one currently in power seems to have any long-term plan for how to get out of the current economic problems using conventional economics.  

Todays Company: Gildan Activewear

Admission: if there's one thing I've learned writing this series, it's that it basically writes itself.

Gildan Activewear is a company I'd never heard of who manufactures blank t-shirts and hosiery.  How bad could a not-very-well-known Canadian t-shirt maker be?

Founded by the Ayoub brothers and headquartered in Montreal, the company became Gildan Activewear in 1984 after the Ayoub's sold the company to the Chamandy family. It is now the worlds largest t-shirft manufacturer employing 20,000 with plants in Quebec, Haiti, Honduras, Nicaragua, the Dominican Republic, the USA and Bangladesh.

After starting out mostly manufacturing in Quebec, the company took advantage of trade conditions in the Americas and moved most of their manufacturing there.

In 2003, several groups, including Toronto-based The Maquila Solidarity Network (MSN) took issue with the company's 2002 decision to fire 40 union members in Honduras and reported the companies working conditions as being extremely unsafe and extremely exploitative. The Solidarity Fund of the Quebec Federation of Labor announced it would pull its shares out of the company citing the firings.

Later in 2004 the plant, which employed 1,800, was moved to Haiti because of 'cost considerations' (the MSN argued the plant was closed because of union organizing).

That same year, Prime Minister Paul Martin's Liberal government backed a US-led coup in Haiti. The Canadian Department of Foreign Affairs and International Trade (DFAIT) and the Canadian International Development Agency (CIDA) began promoting Canadian garment manufacturing in the country citing the low labour costs.   Gildan had donated to Martin's leadership campaign two years before.

Haiti had been rocked by civil unrest and enforcement of labour laws were weak. Working conditions were reported to be terrible: extremely unsafe and extremely low-paying.

Back in Canada, criticism of Gildan labour practices were being raised in Quebec plants.  McGill Faculty of Management Dean Gerald Ross sat on the board of directors at the time.

In 2009, CIDA and DFAIT involvement in Honduras was high right before the Honduran President was removed in a coup. Canada did not condemn the coup, while the Honduran Manufacturing Associating (of which Gildan is a member) recognized the new government immediately. With thousands of workers in Honduras, analysts stated Gildan's business prospects improved with the military-run government.  

They continue to crank out simple, blank t-shirts.

We fake-bought Gildan Activewear shares for $29.71.  The have risen to $35.80 for a gain of 20% or $182.
With files from the Dominion and Zmag


September: Potash Corp

September #2: Suncor and ARC Energy Trust

October: Shoppers Drugmart and Barrick Gold

October #2: Scotiabank and Power Corporation of Canada

November: Cameco Corp and TransCanada Corp

December: Saputo and Bombardier

December #2: First Quantum and Manulife Financial

January: Quarterly report

February: Magna

March: Brookfield Asset Management

April: CN Rail

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