DEAL OF THE DAY
Superior Plus to buy chemical maker Canexus Corp. for $324-million
Diversified chemicals company Superior Plus Corp. of Toronto announced it is buying chemicals and handling company Canexus Corp. of Calgary for $324-million. Story
Superior Plus launches $100-million bought deal
After the close on Tuesday, Superior Plus Corp. announced a bought deal financing of $100-million at $10.35 a share. With the shares closing at $10.71, investors are being offered a small discount.
The funds are being raised in part to help pay down debt.
Earlier on Tuesday, Superior Plus announced it was buying Canexus Corp. for $324-million, and in the process taking on about $550-million in additional debt.
The bought deal is being co-led by National Bank Financial Inc. and J.P. Morgan Securities Canada Inc. Press release
FINANCINGS
Exchange Income Corp. bought deal needed a 'cleanup' job
The recent $75-million bought deal financing for Exchange Income Corp., a Winnipeg-based company with a penchant for buying manufacturing and aviation businesses, needed a "cleanup" job, according to a source close to the deal.
On Monday night, Exchange Income's investment bank syndicate co-led by National Bank Financial and Laurentian Bank Securities lowered the price on the original deal to entice buyers to buy in. The original deal, which did not get fully sold by brokers, was announced on Aug. 27 at $24.85 a share. The cleanup price was $24.40 a share – a modest discount.
The move illustrates the trickiness of getting the pricing right on a bought deal. As an investment bank, you need to bid competitively enough to give yourself a shot at winning the mandate, but you do not want to bid too high. Otherwise you run the risk of getting stuck with unsold stock that has to be held on to for an undetermined period of time and then usually cleared out later at a discount.
The beauty of the bought deal for the issuer – in this case, Exchange Income Corp. – is that once the original price is announced, it gets its money, regardless of whether brokers can flip the stock, barring any "disaster," "regulatory," or "material adverse change" outs being exercised. Brokers, of course, are well rewarded for taking on this kind of risk. The commission on the bought deal was 4 per cent or $3-million. The repriced deal is expected to close on Oct 8.
MERGERS AND ACQUISITIONS
Black Swan hires RBC advisers to find buyers for B.C., Alberta assets
Black Swan Energy Ltd. has hired Royal Bank of Canada advisers to find potential buyers for some of its assets in British Columbia and Alberta. The oil and gas company wants to sell four chunks of property – its Jedney and Laprise holdings in B.C.'s Montney, and land in the Willesden Green and Pembina plays in Alberta's Duvernay, RBC said Tuesday. Story
AmerisourceBergen to buy PharMedium Healthcare
Drug wholesaler AmerisourceBergen said Tuesday that it has agreed to acquire PharMedium Healthcare Holdings Inc., a privately-held provider of personalized medications to hospitals, in an all-cash deal worth $2.58-billion (U.S.). Story
INSIGHT
The death of activist fights in Canada
Why doesn't anyone start any fights any more in Canada?
Remember when Bill Ackman, chief executive officer of New York-based hedge fund Pershing Square Capital Management, barged into Canada in late 2011 with a vow to shake up a sleepy Canadian railway and ship out anyone who wasn't on board. Mr. Ackman's big move into Canadian Pacific Railway Ltd.'s stock precipitated proxy battles, exits/ejections of board members and executives, much ink getting spilled in the press, and a multitude of talking heads yakking endlessly over possible outcomes.
But at the end of it, a new CEO was in place, a new strategy was instigated and the stock took off. Mr. Ackman and Pershing had shown Canada how rough-and-tumble activist investing is done, and took home a truck load of cash in the process.
However, if Mr. Ackman et al proved that loud, acrimonious activism can be successfully pulled off in Canada, why has there been a dearth of it ever since? That was the question posed by Chris Young, head of contested situations at Credit Suisse, who was moderating a panel Tuesday at the Activist Investing in Canada Conference in Toronto. Specifically, Mr. Young asked the following: Since Pershing Square "broke open 'Club Canada,' " why have we not seen other like-minded, loud activists follow suit? And instead we've seen a "lull" in headline-grabbing, proxy fights.
Ali Dibadj, an analyst with Sanford Bernstein, argued that if the Pershing-CP experience proved anything, it's that Ackman-style activism is "very hard." It's long, it's protracted and not every activist has the constitution to dig in for that long, and for that hard. Apart from Mr. Ackman's successful efforts at CP, the other major headline-grabbing activist fight over the past five years in Canada was New York hedge fund Jana Partner's attempt to force its vision through at Agrium Inc. That fight, like Pershing-CP took many months, but did not end well for the activist with Jana conceding defeat and pulling out.
Peter Brimm, a portfolio manager with Picton Mahoney Asset Management, another panel participant, pointed out that when an activist picks a target company, it needs an asset that is: "underperforming," "broken" and one that is "misallocating capital." Those are tangible things that an activist can zero in on and fix. What an activist has no control over is the price of a commodity. A commodity-focused business adds a highly uncertain and volatile factor into the mix. Canada is chock-full of such resource companies and therefore not attractive.
Panelist Patrick Horan, a portfolio manager with Agilith Capital, pointed out that apart from resources, the other sectors that dominate the Toronto Stock Exchange are virtual no-go regions for activists. Financials are too big and too protected. Telecoms, meantime, are rife with family-ownership structures with bullet-proof dual-class share structures.
So what are the activists left with? Not much really. Hence the vacuum of silence and inactivity that has been left in Mr. Ackman's wake.
The trouble with debt
Commodity companies learn the hard way. Dabble with too much debt and you eventually drown in it.
In a world with mind-blowingly low interest rates, commodity producers – and even worse, developers – have piled on debt, assuming the projects or share buybacks would be worth the burden. Looking at you, Glencore PLC and Barrick Gold Corp., and at you, Cenovus Energy Ltd. and Canadian Oil Sands Ltd. Story
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