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Report on Business


News and analysis on Bay Street and the world of finance
available exclusively to subscribers of Globe Unlimited

Entry archive:

TransForce deal shines light on heightened trucking M&A


When transportation and logistics company TransForce Inc. said it would acquire freight transportation company Contrans Group Inc. for $495-million, it marked another major consolidation in the heated trucking industry.

Montreal-based TransForce said the deal for Woodstock, Ont.-based Contrans Group Inc. would combine two acquisitive companies in the trucking industry. TransForce chief executive officer Alain Bédard praised Contrans’s “strong resources, an excellent client base, and importantly, very strong management.”

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EnerCare strikes $550-million deal, aims to silence critics


Canadian water heater company EnerCare Inc. is reuniting with a company it split from more than a decade ago in an acquisition worth more than $550-million. It’s a deal that management hopes will calm restless shareholders.

EnerCare said Thursday it would buy the part of Direct Energy Marketing Ltd. focused on water heater rental, plumbing maintenance, and HVAC services, with a workforce of installation professionals and technicians. This deal reunites EnerCare’s financing side of the business with Direct Energy’s service business.

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What happens when Repsol tells analysts, ‘Don’t ask about Talisman’


You have to hand it to the analysts who follow Spain’s Repsol SA – they’re an obedient bunch.

In a conference call held on Thursday to discuss the Spanish oil company’s second-quarter results, chief financial officer Miguel Martinez kicked off the question and answer session by saying executives would not comment on “our M&A activities,” that is, that business regarding Talisman Energy Inc.

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OSC appoints new vice-chair


Ontario’s capital markets watchdog has filled a vacancy for its full-time staff. The Ontario Securities Commission appointed Monica Kowal to replace Mary Condon as vice-chair of the OSC, effective Wednesday.

A lawyer by training, Ms. Kowal worked in securities and corporate law on Bay Street for 15 years before joining the OSC. She has served as general counsel at the OSC for the past decade.

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In rare case, REIT board overrules shareholders


Canadian shareholders rarely ruffle feathers over board member appointments. When it comes time to vote, they often do so overwhelmingly in favour of management’s nominees – so much so that it’s unusual to see someone get less than 80 per cent support.

Which is why the latest news out of Partners Real Estate Investment Trust is all the more surprising. After months of upheaval, the REIT sought shareholder support to nominate a new board of directors designed to steady the ship. At the vote last week, four appointees sailed through, garnering 97 to 98 per cent shareholder support, but one, Marc Charlebois, received only 46 per cent support.

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Could ‘CoCos’ start a frenzy of short-selling in a crisis?


Last week, Royal Bank of Canada issued $1-billion worth of “non-viable contingent capital” bonds, known colloquially as NVCC bonds or, most enjoyably, as CoCos. Ideally, CoCos encourage investors to monitor banks for excess leverage. However, as new research by Jingya Li and Mark Reesor of the University of Western Ontario and Adam Metzler of Wilfrid Laurier University shows, if the conditions are right, CoCos may provide an incentive to cheat.

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Algonquin Power appeals to U.S. gas company shareholders


Gas Natural Inc. shares have spiked 25 per cent over the past week, to a record high of $12.85 (U.S.) Wednesday, as Ontario-based Algonquin Power and Utilities Corp. continues to push to acquire the company.

Algonquin Power has made three bids to buy Gas Natural, in January, March, and May. The company slowly pushed its offer price up from $10 to $13, all of which were at a premium to Gas Natural’s share price. But the acquisition target has swiftly rejected the “unsolicited and inadequate” offers, adding that it’s not for sale.

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Investment industry group recruits new chair


The Investment Industry Association of Canada (IIAC) is reorganizing its boardroom and adding new professionals to the mix.

In a recent vote held in Toronto, the association elected Sylvain Perreault, chief compliance offer at Desjardins Group, to be its chair. He will be especially focused on changing regulations affecting 160 member firms.

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Talisman isn’t scared of bidders, won’t rule out any assets


The news that Repsol SA approached Talisman Energy Inc. about a deal shouldn’t surprise anyone. Hal Kvisle practically begged for deep-pocketed bidders.

Since implementing his strategic shakeup in 2013, Mr. Kvisle, Talisman’s chief executive, has told anyone within earshot that he would sell assets because he needs to right-size the company. Even though he favours some assets, he’s gone so far as to say that anything could be sold at the right price.

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FreshBooks receives $30-million in funding


FreshBooks CEO Mike McDerment has previously raised cash through friends and family, but has always shrugged off institutional venture capital money. Now he’s had a change of heart.

The 10-year-old Toronto startup that’s amassed more than ten million users is accepting funding for the first time. FreshBooks has raised $30-million (U.S.) in Series A funding led by Oak Investment Partners, with participation from Atlas Venture and Georgian Partners.

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CIBC’s ambitious plan to win in wealth management


This much we know: Canadian Imperial Bank of Commerce is desperately trying to double down on wealth management, with executives going so far as to say they want 15 per cent of the bank’s bottom line to stem from this business.

What we haven’t heard are precise details on their plans to do so. Management has outlined broad strategies – focusing on the U.S., for instance – but there hasn’t been complete clarity.

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Kern Partners’ new fund backs LNG project


Kern Partners, the Calgary-based private equity firm, has started up a new, $750-million energy fund that is partly focused on moving a British Columbia liquefied natural gas project forward as a way to help open up Asian markets for Canadian gas producers.

The new Kern fund, its fourth and largest to date, is aimed primarily at investing in diversified energy exploration and development, employing the same investment philosophy as the previous ones. That involves five-to-nine year investments with companies led by established management groups. But energy infrastructure and technology are also part of the mix, executives said.

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Scrambling to get in, funders trip over each other’s turf


Venture capital and private equity, two historically distinct beasts, are overlapping more and more as the Canadian tech scene seems to be getting a makeover, according to BDC Capital industry veteran Dominique Bélanger. Private equity shops are getting into companies earlier and earlier, he says, while venture capital funds are making bigger investments in later-stage companies. Meanwhile crowdfunding and boutique VC firms have emerged as a viable financing option, democratizing the market.

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RBC’s global research team bulks up in U.S.


RBC Dominion Securities has been busy hiring this summer, particularly as it builds out its investment banking and research capabilities in the New York office.

The bank said Monday that it would hire two new managing directors to its global research group, which now has about 350 employees.

Danny Tenengauzer will be head of emerging markets and global foreign exchange strategy. He formerly worked at Standard Chartered Bank.

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Why Europe’s banks aren’t so scary


The Canadian fund manager betting big on a European banking recovery isn’t cutting and running after the Portuguese tremors. He’s even more convinced that this is the time to buy.

In January Streetwise wrote about a new fund created by Hamilton Capital, designed to ride the recovery of Europe’s financial system. At its core, the investment thesis was rooted in fundamentals: economic growth was coming back and loan losses were falling.

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BMO hires co-head of U.S. industrials


Bank of Montreal is shuffling leadership of its U.S. investment banking teams, hiring a banker from Jefferies & Co. to co-head the industrials group.

BMO added Sean Sullivan as co-head of U.S. industrials, based out of New York and Chicago. Mr. Sullivan will eventually take over as sole head of the industrials team, replacing Scott Humphrey, who is switching to a U.S. investment and corporate banking role.

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EnerCare says takeover bid undervalues business


A possible $790-million dollar buyout for Canadian water heater giant EnerCare Inc. by its largest shareholder isn’t good enough, the company says.

Augustus Advisors LLC, the investment manager controlling a nearly 12-per-cent stake of the company, is leading an effort to acquire EnerCare’s business – a portfolio made up of 1.1 million water heaters and other devices installed in Ontario homes and rented to owners. Subsidiary EnerCare Connections Inc. also has metering contracts that measure electricity and water used in condos and apartments in Ontario, Alberta and other provinces.

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Court ruling on director’s compensation a warning for boards


Amid a climate of continuing concern over executive pay, boards of directors looking to hand themselves big bonus packages or stock options will think twice after a recent ruling from the Ontario Court of Appeal, corporate governance experts say.

The ruling involves a company called Unique Broadband Systems Inc. (UBS), which went into bankruptcy protection in July, 2011, and owned a controlling interest in an upstart cable and Internet company called Look Communications Inc.

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Germany’s Triple Crown of cartels

Every day ROB Insight delivers exclusive analysis on breaking business news and market-moving events. Streetwise offers news and analysis on Bay Street and the world of finance. Inside the Market delivers up-to-the-minute insights on market news as it develops.

Here are our editors’ picks of some of the best reads available to Globe Unlimited subscribers this week.

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Dundee sells stakes in REIT family


David Goodman isn’t wasting time getting down to business.

Just three days after being named Dundee Corp.’s new chief executive officer, taking the reins from his father Ned Goodman, there was speculation that David had sold substantial stakes in two real estate investment trusts that originally carried the Dundee name, freeing up cash to deploy toward his own initiatives.

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Vision Critical attracts new investors


Toronto-based venture capital fund Georgian Partners is leading a $16-million investment in Vision Critical Communications Inc., the fast-growing market research firm that serves clients including Yahoo Inc. and Molson Coors Brewing Co.

Northleaf Venture Catalyst Fund and Kensington Global Private Equity Fund also participated in the investment round, the proceeds of which will go to selling shareholders who have backed the company for years. Vision Critical would not disclose figures for its total funding since inception, but noted it has received “a lot” of interest and will continue to evaluate new investors.

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Look for more changes at Difference next week


Difference Capital founder Michael Wekerle says to expect more changes at the company next week.

The firm, a publicly traded merchant bank, is undergoing serious change. Three board members resigned this week, and personnel changes are to come.

“Next week,” Mr. Wekerle said when asked about the timing. “Assume we are reducing.”

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Brokerage industry mulls ending monopoly on training


Canada’s brokerage industry regulator is pondering an overhaul of the course and exam requirements for people working in the financial sector, launching a review that could lead to a break up of the educational monopoly of the Canadian Securities Institute.

The Investment Industry Regulatory Organization of Canada (IIROC), which regulates brokerage and investment firms, has asked for public comments on whether it should consider changing how it conducts education and exams to license workers in the industry.

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RBC lures health care banker from Jefferies


The capital markets arm of Royal Bank of Canada is bulking up its health care investment banking group in the U.S., adding a banker from Jefferies & Co. Inc. as the sector keeps getting hotter for mergers activity.

RBC said Robert Steininger joined as a co-head of the health care group. He will work with Kevin Davies, who has been running the group since 2006.

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Difference Capital shakes up directors


As technology stocks have boomed, shares of technology investor Difference Capital Financial have gone the wrong way. Thursday, the company founded by high-profile trader Michael Wekerle unveiled a restructuring aimed at turning things around.

Amid talk of pressures building inside the firm, Difference said that three directors would leave. The company also said it would sell a large block of stock in another company, raising $22-million that should answer any questions about liquidity. There are also likely to be further personnel changes at the company that manages the publicly traded side of Difference.

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Bond investors rankled by RBC’s $1-billion debt offering


The group that represents Canada’s biggest bond investors is frustrated with the way Royal Bank of Canada sold its latest debt offering – a deal worth $1-billion – and has requested that regulators do something to address the issues.

In early July, RBC became the first Canadian bank to sell bonds that that can be treated as non-viability contingent capital (NVCC). This form of debt was required by the Basel Committee on Banking Supervision coming out of the Great Recession, and its terms allow the bonds to be converted into equity in the event of a financial crisis. In short: bond investors, who usually rank higher in the capital structure, can quickly become measly shareholders.

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Are energy ‘divcos’ the new income trusts?


The energy sector is breeding a new batch of companies that pay hefty dividends, conjuring memories of the high-flying income trust era – and raising questions about the sustainability of cash distributions.

Before the financial crisis, energy trusts that paid monthly distributions garnered major investor attention because they had tax advantages that helped them offer juicy yields. Some trusts, however, could not afford their payments and had to borrow money to make ends meet. When oil prices plummeted, those who overreached were quickly exposed.

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Target faces calls to withdraw from Canada


Another analyst has joined a growing chorus of observers who suggest U.S. discounter Target Corp. consider cutting its losses by closing or scaling back its struggling stores in Canada.

Michael Exstein, retail analyst at Credit Suisse in New York, said on Wednesday it may be more prudent for Target to shut its Canadian division after launching 124 stores just last year and a few more in 2014. By closing them, the discounter could focus all its resources on improving its challenged U.S. operations, Mr. Exstein said. Target’s U.S. business makes up more than 97 per cent of the company’s current sales.

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When fairness opinions aren’t fair


Good business law is predictable business law. Boards of directors should be able to plan their actions around it. Unfortunately, recent decisions on the use of fairness opinions in plans of arrangement have made the law less predictable, and more arbitrary.

A plan of arrangement is a common type of merger made available to companies under the Canadian Business Corporations Act. To complete a plan of arrangement, two-thirds of each class of voting securities must approve of the transaction and a court must then review the plan according to several criteria: for statutory compliance; to evaluate whether the arrangement was put forth in good faith; and to see if the arrangement is fair and reasonable. While court approval is generally a low risk process, it’s only a low risk process because solicitors and directors know how to satisfy the court’s requirements.

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Long-time tech analyst moves to VC firm


Long-time technology analyst Peter Misek is an analyst no more, leaving Jefferies LLC to join a venture capital firm.

Mr. Misek is joining London-based DN Capital, a firm he has worked with over the years and which has invested in companies such as Shazam and Apsmart.

Mr. Misek will be a venture partner with DN, the latest stop in a career mostly on the research side. He worked at NM Rothschild, where he started the internet and technology practice. After that, he moved to Hambrecht and Quist to cover internet stocks, then to Scotia Capital and Canaccord. He also had a stop at Orion Securities, which ended in a wrongful dismissal lawsuit that was eventually settled.

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