CUNDILL VALUE & CUNDILL SECURITY FUND'S
PETER CUNDILL & TIM MCELVAINE
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OID: Earlier, you mentioned Reitman's broadcasting stub -- their interest in the Canadian sports network. What can you tell us about it?
   McElvaine: Labatt's was taken over about a year ago. And one of the things that its buyers sold off was Labatt's Communications. They sold it to a group that included Reitman's, a member of the Bronfman family, management and Caisse Depot -- which is a Quebec pension fund. And it included TSN (the Canadian sports channel), 80% of a channel up here that we call The Discovery Channel and a couple of other things.
   As a group, they paid C$605 million -- including slightly over C$400 million of debt -- for a business that we think had operating profits of just under C$70 million.

OID: You think?!
   McElvaine: They bought it in August of last year. And that's what operating profits were projected to be at the time. But it's not a public company. So we can't know for sure. It's also a little confusing because ESPN bought 20% of NetStar and got an option for an additional 30% as part of a C$30 million convertible debenture. Therefore, if ESPN exercises its option, Reitman's interest would be somewhat less than 21%.

OID: And I know you're not counting on it. However, do you have any thoughts about its current value and/or its prospects?
   McElvaine: Potential strategic buyers have suggested to us that Reitman's paid a very full price. But we've heard that the buyers are quite happy with their progress to date.
   We're hopeful that it'll work out. But we're not paying for it. So we won't lose any sleep over it. We just think of it as a little call option.

OID: What about interest rate risk in their marketable securities portfolio?
   McElvaine: Not an issue. Their marketable securities are primarily floating rate preferreds -- and very short term. So interest rate risk is minimal.

OID: What about credit risk?
   McElvaine: They don't disclose the issuers. But most of them are rated P-1 or better, as I recall.

OID: So they're investment grade.
   McElvaine: Their objective in their marketable securities portfolio isn't to make any kind of home runs. They're just trying to earn good, tax-efficient rates of return on liquid assets.

OID: Why do they keep so much money around? Is it primarily to avoid double taxation of dividends?
   McElvaine: Some observers take the negative view and say, "Why the heck are they doing that? Shouldn't they just dividend it out to their shareholders?" And that's one reason why their stock's come down so much.

OID: It obviously doesn't bother you.
   McElvaine: No. From our point of view, they've been doing the right things. Since their stock's come down, they've been willing to use that cash to repurchase stock and to purchase competitors in financial difficulty. And it's their strong balance sheet that's enabled them to do it.
   So we have no objection whatsoever to their having an underleveraged balance sheet. A conservative balance sheet generally doesn't bother us -- especially in an industry as cyclical as retail. Certainly, in a very different industry --for example, in one without the cyclicality -- you might very well argue for a more aggressive financial structure.

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