It should be a happy tale, with a Canadian orphan finally finding a family.
But CAE's decision to list on the New York Stock Exchange, home to its peers in the defence business, is yet another sad tale for the local dealers.
CAE, the maker of flight simulators, announced plans Wednesday to list on the Big Board and simultaneously raise up to $350-million through a marketed share sale.
The company's thinking is very much in line with what drove Thomson Corp. to list on the Big Board last month, and what's taken the likes of Nortel Networks and most other tech plays to U.S. exchanges in recent years.
In Canada, CAE is the quintessential special-situations stock. There's no one else in its line of work, and very few public companies that are even in aerospace or defence sectors. So while CAE does get coverage from very good domestic analysts, it doesn't typically get benchmarked against foreign companies in similar lines, because it's not worthwhile for a Canadian analyst to stay on top of these U.S. or European stocks.
CAE executives are going to the trouble of taking out a U.S. listing, and raising money through a largely U.S. syndicate of investment dealers, in expectation of commanding these comparisons, and hopefully raising the valuation on the stock in the process.
Thomson executives were up front about using the same logic for listing in New York. CEO Dick Harrington made it clear at the company's annual meeting that while the electronic media company didn't need money, it was going to the NYSE and raising $1.3-billion by selling shares to expand the shareholder base to allow investors to better compare the company with global peers. No one in Canada is in Thomson's line of work, just like no one in this country does the same thing as CAE.
Now, it costs money for CAE to get noticed in New York. It's harsh, but the reality of the Street's economics dictates that no matter what New York's Attorney-General and the rest of the regulators may say, getting research coverage is linked to handing out investment banking work. And this deal comes with $14-million of potential commissions.
CAE could have raised $350-million through the Canadian investment dealers that have traditionally followed the company. But the underwriting announced this week is meant to bring aboard dealers that offer increased U.S. distribution, and U.S. research coverage.
Credit Suisse First Boston, still a powerhouse in the tech sector despite recent well-documented troubles, and Scotia Capital are book runners on the deal. The money being raised will be used to reduce debt. That is probably not unrelated to Scotia Capital's prominence in the deal.
Goldman Sachs also has a large role, with the selling group rounded out by RBC Dominion Securities and SG Cowen, another U.S. dealer with a tech focus. This short list means a number of brokerage houses with long-term ties to CAE were not included in this financing.
The issue going forward will be which dealers keep research coverage of CAE a priority, and support the stock once the deal is done. On this front, it's not unknown for the foreign houses to love 'em and leave 'em. To judge the success of CAE's NYSE listing, one will only have to watch the amount of the stock that trades on the U.S. exchange.
On the legal front, this financing means work on both sides of the border. The underwriters are using law firms Olser Hoskin & Harcourt and Skadden Arps, a top New York shop with a Toronto office. CAE is looking to Stikeman Elliott and Manhattan-based Shearmen & Sterling, which also has lawyers in Toronto. Top talent still expensive When it comes to compensation on the Street, contradictory trends are playing this year.
Where many U.S. dealers have used sweeping layoffs to cut costs, the trimming here in Canada has been more modest -- 5-per-cent cuts in headcount, compared with the 10-per-cent-plus bloodletting on Wall Street.
However, domestic houses are already warning deal makers and trading desks that the year-end bonus pool will be extremely shallow. Draining $110-million in expected fees from the Hydro One IPO didn't exactly improve the dealer's fortunes. For those who ran their personal fiances on the concept of a never-ending bull market, this is going to be a very tough year.
In this atmosphere, one would think it's easy to recruit. And that's not been the case to date.
There are certainly unemployed bodies available. But the cost of luring top talent remains close to top-of-market levels -- as in, more than $1-million a year.
"It's the fear factor," observed one brokerage house executive who has a seat or two to fill. "Those who are good, and have good jobs, are demanding big money to compensate for the risks of jumping into something unknown."
One final riff on the theme of where compensation is headed: Each week, this newspaper runs a MegaWheels section, a comprehensive list of what's available in the used-car market.
Through the past year, the number of Porsches for sale was relatively constant, with somewhere between a dozen and 20 of the Street's favourite ride up for grabs at any given time. Last week, more than 30 used Porsches were listed. firstname.lastname@example.org
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