Andrew Willis, 24/07/08 at 5:43 PM EDT
Given the affection for its co-founder, it's easy to forget that there's a whole lot more to investment management at Gluskin Sheff + Associates than just chief investment officer and resident wit Ira Gluskin.
But one of the strengths of this firm, which oversees $6-billion of assets, is a deep investment team, filled with portfolio managers every bit as smart as Mr. Gluskin. In fact, Ira would prbably tell you they're smarter. (If you don't read Ira's monthly musings, which are posted on the firm's web site, you should.)
That team got deeper this month when former top-ranked technology analyst David Hodgson came aboard.
When last seen on the Street, Mr. Hodgson was head of research at Genuity Capital Markets, departing on the best of terms this spring with plans to move to the buy side.
He's arrived at Gluskin Sheff to back up portfolio manager Bill Webb, whose oversees growth and hedge funds that hold both Canadian and the U.S. stocks. This is part of a larger evolution at the firm, as Mr. Webb picked up the title of deputy chief investment officer this month.
There's more than one deputy on the job at Gluskin Sheff, as chief operating officer Jeremy Freedman just picked up the deputy-CEO title, backing up CEO Gerry Sheff.
The two founders of publicly-traded, 24-year-old Gluskin Sheff aren't going anywhere, but they've clearly put succession plans in place.
Andrew Willis, 24/07/08 at 5:11 PM EDT
The Care Bears and Strawberry Shortcake have a new set of playmates, as private equity-backed Cookie Jar Entertainment bulked up its portfolio Wednesday by purchasing the cartoon characters for $195-million.
The arrival of Cheer Bear, Oopsy Bear and the rest of the gang mark the latest in a series of acquisitions by Cookie Jar. It all begs the question of just when its backers might start to, well, raid the cookie jar by cashing in. The ever-so-sweet Care Bears are being sold by card company American Greetings, which created the characters in the early 1980s and retains a 10-year licensing agreement on the properties.
Toronto-based Cookie Jar is owned by Birch Hill Equity Partners, OMERS and its executives. Its stable of characters already includes Caillou, Arthur, the Doolebops and Johnny Test, a favourite at our house.
Four-year-old Cookie Jar was born out of the wreckage of Cinar, acquired back in 2004 for $144-million. It is run by Nelvana co-founder Michael Hirsch, who is no stranger to public markets. Nelvana staged an IPO, then was sold back in 2000 to Corus for $540-million, a premium price that reflects well on Mr. Hirsch's sense of timing.
Private equity funds such as Birch Hill must eventually cash in their chips on holdings, so after steady growth over four years, it's natural to expect some sort of exit is coming for backers of Cookie Jar. Talk of a initial public offering from the company bubbled up in 2006, when Mr. Hirsch said the company's growth plans would likely mean an IPO within the year. Last year, the company was said to have low-key merger talks with a larger entertainment company.
As the company expands, that IPO becomes an increasingly attractive option, and it's clear Mr. Hirsh is trying to flag the growth that's playing out at this still-private concern.
Cookie Jar also announced Wednesday that it closed the previously announced $87-million (U.S.) acquisition of brand management company DIC Entertainment. The California-based company markets a number of cartoon characters, has a massive library of programs and holds a one-third interest in KidsCo, an international children's television channel that currently has five million subscribers.
"When Cookie Jar was founded we wanted to become an international power in children's entertainment programming," said Mr. Hirsh this week. "The acquisition of DIC and now Strawberry Shortcake and Care Bears makes us the fastest-growing independent player in the industry."
Obviously, equity markets aren't exactly embracing IPOs this summer. But the Care Bears acquisition doesn't close until the end of September. By then, investors may be more receptive to the idea of cuddling up with a new media name in their portfolios.
Andrew Willis, 24/07/08 at 11:18 AM EDT
The teacher faced off against his former students when Kinross Gold chief executive officer Tye Burt sat down to negotiate a $1.2-billion all-stock takeover of Aurelian Resources.
Mr. Burt is a reformed investment banker, who ran the mining group at BMO Nesbitt Burns before jumping into the industry he covered. He's been at the helm of Kinross since 2005.
Over the past few weeks, Mr. Burt squared off with the BMO Nesbitt Burns bankers he once led, as they teamed up with colleagues from Dundee Securities to advise Aurelian on this deal. The transaction gives Kinross, which has a number of mature mines, access to undeveloped plays in South America. The offer comes at a 63-per-cent premium to the target's share price over the past 20 days.
There's an interesting twist to the takeover, with Kinross committing $71-million to buy Aurelian shares in a private placement that's not conditional on the deal closing. That financing will fund development of a high-quality property in Ecuador.
There are rumblings that other gold miners, such as Mr. Burt's former employer Barrick Gold, could make things interesting for Kinross by taking a run at Aurelian.
Kinross looked to Scotia Capital as its lead adviser, along with Rothschild and CIBC World Markets. On the legal side, Kinross worked with Osler Hoskin & Harcourt, while Aurelian's legal counsel came from Cassels Brock & Blackwell. A special committee of Aurelian's board took advice from Stikeman Elliott.
Andrew Willis, 23/07/08 at 5:28 PM EDT
For all the games that went into Canada's $4.25-billion wireless spectrum auction - there were a mind-boggling 331 rounds of bidding - the real fun has just begun in telecom.
In an otherwise moribund capital market, the incumbents and new cell phone players are going be every investment banker's favourite clients in coming months, as they begin to build networks and engage in all sorts of wheeling and dealing.
The cash that these wireless companies need to raise in the next 24 months is nothing short of staggering. The two new entrants worth watching are Globalive Wireless and Data & Audio Visual Enterprises Wireless, known as DAVE. This pair bid $442-million and $243-million respectively for spectrum. That's just 20-per-cent of what the two companies are expected as they build networks and attract customers.
The question now is what these players plan to do with the spectrum they have acquired. That's where the games begin.
Let's pick on Videotron for a moment to show just how many different scenarios the companies and their financial advisors are considering. The debt-heavy company, run by Pierre Karl Peladeau and featuring the Caisse de depot et placement du Quebec as a long-time backer, paid up to grab spectrum in Quebec. It must now finance an expensive new network.
Videotron also dropped $148-million for what some analysts are already calling “stranded” and “orphaned” stake in Ontario wireless. That holding gives Viedotron a card to play with rivals. “Some form of partnership or spectrum transaction with Globalive seems reasonable,” said a report from BMO Nesbitt Burns analysts Peter Rhamey and Tim Casey. The two industry veterans see DAVE putting its own Quebec-for-Ontario spectrum trade to Videotron.
BMO Nesbitt Burn's analysts also made a case for a merger of Globalive, backed by backed by Egyptian billionaire Naguib Sawiris, and DAVE, run by the unstoppable John Bitove. And they said regional players Manitoba Tel and SaskTel “could be interested in investing in new entrants.”
Other deals might not be as high profile, but promise to rewire the wireless landscape and keep advisors busy. There is talk of a smaller operator such as Bragg Communications, which won spectrum in the Maritimes, combining forces with the likes of Globalive on technology spending, in much the same way BCE and Telus work together on their networks.
There's going to be a brief calm in Canadian wireless, as capital is raised and strategies set behind closed doors. Bidders have already obtained the money needed to buy spectrum - that was one of the rules of the auction. Tech companies such as Alcatel-Lucent will be more than happy to finance initial purchases of equipment. Behind the scenes, investment banks and law firms will be tied in knots trying to pick their clients, as a leading role with one company likely kills chances to work with rivals.
Some new players, such as Shaw Communications, have a combination of balance sheet strength and limited ambitions that make it possible to build a new networks off existing credit lines. The same is true of incumbents Rogers Communications, Telus and Bell Canada, which all acquired additional spectrum.
But given the amount of money that needs to be raised, most of the new wireless companies are going to give public debt and equity markets a workout. There may even be initial public offerings done for political reasons, rather than financial.
“While this is a terrible IPO market, some of these new players could be tempted to go public this year, in order to satisfy concerns with foreign ownership,” said one investment banker.
A number of financiers said Globalive is the most likely candidate for a share sale, as such a deal would offset concerns with influence wielded by Mr. Sawiris. His company, Weather Investments, has 95 million wireless customers in Europe, Asia and Africa.
Globalive is expected to spend up to $2.5-billion on its network, capital that will be raised through debt and equity issues. The company's “Yak” long distance venture already boasts a million Canadian client During an analyst call in Paris on Monday, Mr. Sawiris said he had up to $500-million earmarked for Canadian expansion.
This sort of spending plan has to send shudders through the ranks of Canada's three incumbent wireless players - Bell, Telus and Rogers. “With well-capitalized new entrants expected to pursue disruptive pricing, we do not believe that the global-leading wireless cash flow margins seen in Canada are sustainable over time,” said a note from Genuity Capital Market analyst Dvai Goshe. “Canadian wireless will never be the same again.”
Boyd Erman, 21/07/08 at 1:50 PM EDT
Canada has two big hurdles to clear to ensure that the country's nascent carbon-trading market takes off, traders say.
For starters, the country needs to harmonize its rules so that provinces and the federal government all have consistent rules on how much polluters can emit, which will standardize the market within Canada. With all the political sniping surrounding the issue, the situation has been well publicized.
But solving that cross-provincial-border problem is only Step 1. Canada also needs to develop a trading system that works in an international framework so that emissions credits can be swapped across national borders, argues Mike MacBain, head of global debt markets for Royal Bank of Canada's securities arm.
Canada's emissions credits need to be interchangeable, or "fungible" in trader talk, with those of other countries. Europe has a registry system where emissions credits generated by planting trees in Africa, for example, can be used to offset pollution given off by European companies, Mr. MacBain points out. Without such a system, there's a chance Canada may run short of emissions credits.
"There's too much overall demand to reduce emissions here in Canada for [all offset credits] to be produced locally," he said in an interview. RBC trades carbon on the European Climate Exchange, the Chicago Climate Exchange, the Nymex Green Exchange and the recently launched Montreal Climate Exchange.
At the moment, RBC trades a little more than 1 million tonnes of carbon a month, with about 15 to 20 per cent of its carbon business in Canada since the Montreal Climate Exchange opened May 30. That's on track to grow to 2 million tonnes this month and may rise to 5 to 10 million tonnes in six months, Mr. MacBain said.
There are spinoffs to dealing in carbon because "this is one of those products that is very near and dear and important to CEOs and CFOs of major comapnies in Canada," he said. "Solving problems for CEOs and CFOs has always been a good business to be in as it relates to the other businesses we have here, such as investment banking."
Boyd Erman, 21/07/08 at 12:54 PM EDT
Saputo Inc., which dominates the cheese business in Canada, is in the final group bidding for the right to acquire the manufacturing assets of Dairy Farmers of Australia.
According to the Australian Financial Review, which has been tracking the sale process, the final price is likely to come in at around $900-million (Australian). The paper reported that in May, Saputo Chief Executive Officer Lino Saputo went down under to have a look at the assets.
Saputo is up against two other bidders that may be able to pay more because of more synergies, reckons Michael Van Aelst, an analyst at TD Newcrest. Still, it's worth a shot because "this would be a very strategic acquisition for Saputo as it would give Saputo a second (more stable and larger) source of low-cost raw milk to make value-added dairy products for both the local and export markets (including China)," Mr. Van Aelst wrote in a report Monday.
The Australian arm of Goldman Sachs Group Inc. is running the auction.
Boyd Erman, 21/07/08 at 11:25 AM EDT
The good news for the buyout and private-equity industry is that Credit Suisse is willing to put up $2-billion of debt to fund the potential acquisition of TransAlta Corp., and throw in a $1.5-billion credit facility to help refinance any TransAlta debt. Those are the kinds of numbers rarely seen in the post-crunch buyout world. (The press release detailing the financing is available here.)
The bad news is that the would-be buyers, LS Power Equity Partners (which is affiliated with Luminus Capital, TransAlta's biggest shareholder) and Global Infrastructure Partners, have to put up $6-billion of equity to get the deal done. That debt-to-equity ratio is still upside down relative to early 2007.
That signals that even on a deal to buy a steady, cash-producing asset such as TransAlta, the banking sector is feeling tight-fisted. So while the $7.8-billion acquisition proposal may seem to herald the rebound of private-equity, in fact it shows that only cash-rich buyers are back in the market.
Credit Suisse is advising the bidders on financial matters, with legal advice coming from Toronto's Stikeman Elliott LLP and Skadden Arps of New York. TransAlta has turned to Greenhill & Co. for advice through its long battle with Luminus.
Boyd Erman, 17/07/08 at 4:57 PM EDT
Macquarie Group's Canadian arm is bringing over Ron Rimer from Canaccord Capital Inc. to run investment-banking for diversified companies - better known to most people as industrial corporations.
Macquarie, since buying Toronto's commodity and technology-focused Orion Securities, has steadily been bulking up to offer a fuller range of services in Canada.
In his new office, Mr. Rimer will also oversee real estate investment banking, giving him a similar range of responsibilities as at Canaccord, where he was global head of diversified industries. At Macquarie, Mr. Rimer will have the advantage of a bank behind him, enabling him to offer financing on deals.
Mr. Rimer's background is in real estate, with six years of covering real estate as an analyst at BMO Nesbitt Burns on his CV, as well as stints at companies in the industry such as Brookfield Management Ltd. and Lehndorff Management Ltd.
Boyd Erman, 17/07/08 at 1:55 PM EDT
Bankers are staying close to home because there are no deals to do, and while it means that financial types will earn less green, it may keep the earth a little greener.
Reuters, quoting a study, reports that merger bankers flitting about Europe on planes created 98,000 tonnes of carbon dioxide last year, the annual equivalent of about 8,000 British residents. That's likely to come down as banks try to drive down travel costs, Reuters said, not to mention mass firings that are reducing the number of bankers.
The problem is, staying home is bad for business, said one senior banker who is urging his staff to get out on the road and ensure that relationships remain strong through the down cycle. Banks that allow relationships to wither will have trouble picking them up again.
"Relationship continuity is going to be a big thing," the banker said. "Nobody wants to fly to Winnipeg to see a client when morale is low, but it's important to keep doing it."
Boyd Erman, 17/07/08 at 11:14 AM EDT
UBS Investment Research analyst Peter Rozenberg is joining a rare and elusive tribe: The CIBC Bulls. Mr. Rozenberg upgraded Canadian Imperial Bank of Commerce to "buy" Thursday, arguing that the threat of writedowns is overblown and the bank is cheap after plunging into the $50s from over $100 pre-credit crunch.
"While not without risk, and sentiment is decidedly negative, we think that capital remains more than sufficient to address write downs and valuation looks attractive," the analyst wrote.
According to Bloomberg, which tracks 15 analyst ratings on the banks, Mr. Rozenberg is one of only two analysts to rate CIBC a buy. The other is Sumit Malhotra of Merrill Lynch, who has stuck with the call even as the bank's shares have taken a beating.
The UBS analyst estimates that writedowns will be on the order of $2-billion in the third quarter, while CIBC has a cushion of about $2.5-billion in excess Tier 1 capital (the one that regulators watch). At the same time the bank trades at a 25 per cent discount to other Canadian lenders on a price-earnings basis, while actually having no exposure at personal and commercial banking level to the mess in the U.S. In CIBC's case, the links to the subprime debacle are all in its investment bank.
The problem for other analysts considering whether to upgrade CIBC is that the bank is largely a spectator, with little control over its own fate. The bank's writedowns are tied to the performance of subprime securities and the survival of bond-insurance companies south of the border, neither of which the bank or analysts can really predict or control.
