CUNDILL VALUE & CUNDILL SECURITY FUND'S
PETER CUNDILL & TIM MCELVAINE
(continued from preceding page)

   McElvaine: And, incidentally, Reitman's [RET.TO/Can] is similar. It's got about C$11.50 per share in other assets. Our cost is around C$12.50. And the stock is selling for between C$14.00 and C$14.50 today.

OID: But is it still a bargain?
   McElvaine: We think so. Reitman's stated book is about C$16 per share. But they have C$7.50 per share, more or less, of cash and marketable securities net of debt.
   Plus, they've also acquired a 21% equity interest in NetStar -- which operates the Canadian equivalent of the Sports Network -- although that's only C$37-38 million or about C$4 per share.

OID: Not to worry. Like they say, C$4 per share here, C$4 per share there, before you know it, it adds up to real money.
   McElvaine: Our thoughts exactly. So net of debt, Reitman's has cash and marketable securities of about C$11.50 per share. Therefore, even today, we figure that you're really only paying $3 per share for their business.

OID: Is that good?
   McElvaine: Well, they have about 9-1/2 million shares outstanding -- although they'll actually be down to about 9 million shares outstanding by year end because they're in the midst of a significant repurchase program.

OID: Generally a good sign.
   McElvaine: Yeah. And they've earned between C$1 and C$1.50 per share in each of the past three years.

OID: Certainly, 2 to 3 times earnings sounds good.
   McElvaine: And using the estimated 9 million shares that they'll have outstanding by year end would mean that you're paying C$27 million for a retail operation that had C$328 million of sales last year and probably will have sales closer to C$400 million for the fiscal year ended January 31, 1997. So based on sales, once again, you're buying their retail segment at less than 10¢ on the dollar.

OID: Actually less than 7¢ -- if you're right about this year.
   McElvaine: And their retailing business cash flowed about C$7 million pretax in fiscal 1996. And the year before, it made C$15 million. So we're only paying C$27 million for a business that earned about C$7 million last year and C$15 million the year before.

OID: Or two times peak earnings -- net of cash anyway -- for their business.
   McElvaine: And their earnings power has grown since then -- because besides repurchasing shares, Reitman's has done other things that endear them to us as value investors. For example, they bought Dalmy's -- another chain that was predominantly in women's wear. Dalmy's went bankrupt last fall. And Reitman's bought it out of bankruptcy -- out of the Canadian equivalent of Chapter 11. And, in the process, they also picked up a significant amount of tax loss carryforwards.

OID: Might we trouble you to quantify "significant?"
   McElvaine: I believe they were about C$30 million. And they acquired another chain the year before -- Pennington's -- which was larger women's clothing. And, here again, they picked up the sales and the outlets for a very minimal price. They bought them as asset purchases. So they didn't really pay anything for the businesses or the tax loss carryforwards.

OID: It's sounding better and better.
   McElvaine: And Dalmy's was acquired in February. So it has yet to go through a selling season as part of Reitman's. Therefore, we believe Reitman's is on course to earn much more than the C$15 million they earned three years ago.

OID: That doesn't sound all bad.
   McElvaine: So here's a management acquiring competitors out of bankruptcy and otherwise in distress -- in any case, paying very little for them -- and repurchasing stock at prices that we believe enhance shareholder value. And we receive a modest dividend --about C52¢ this year (for a yield of roughly 3.6%) -- while we wait.

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