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Austerity measures bite The Scotch Whisky Association is celebrating a record-breaking 2010, but exporters are starting to feel the pinch from Europe's economic woes.
Global shipments climbed 10 per cent last year to reach £3.45-billion, the Edinburgh-based group said today. Since the turn of the century, exports have claimed 60 per cent, it boasted.
Notable in its figures is that the so-called BRIC countries - Brazil, Russia, India and China - are showing stunning growth, while North America also shows an increase. But the value of shipments in the European Union are flat, and down markedly in Greece and Spain, both troubled countries with high debt burdens.
"Greek excise duty on Scotch Whisky, for example, was increased three times in 2010 as part of the government's austerity measures," the association said.
The value of shipments tumbled 26 per cent in Greece last year and 15 per cent in Spain, and while up in France it was just by 4 per cent. Germany, the economic engine of the continent, is showing no ill effects: The value of shipments was up by 22 per cent.
There's gold in them bricks House prices in Canada rose 0.4 per cent in January, according to a fresh reading today, but it was a mixed bag across the country.
According to the Teranet-National Bank price index, prices rose 0.9 per cent in Vancouver, 0.5 per cent in Toronto, 0.4 per cent in Halifax and 0.3 per cent in Montreal, but dipped 0.6 per cent in Ottawa and 1 per cent in Calgary. It marked the second month in a row of gains, after three consecutive dips.
"January's price increase confirms that the correction experienced towards the end of 2010 was short-lived," said senior economist Marc Pinsonneault at National Bank Financial.
"In fact, market correction is now a local phenomenon (Ottawa and Calgary). At the national level, January's prices were still 1 per cent below those in August, 2010, but they were 5.5 per cent above their pre-recession peak, in sharp contrast to the U.S. where prices are down 30 per cent from the peak of four years ago."
Economists believe new mortgage rules and the inevitable rise in interest rates will keep the market in check. And, as Globe and Mail real estate writer Steve Ladurantaye reported earlier this month, price gains will probably recede beginning in April.
Still, house prices in Canada have gained more than 100 per cent over the past decade, added Scotia Capital economists Derek Holt and Gorica Djeric.
"Barring a massive rate shock or sharp erosion in jobs, I don't see a large price correction," Mr. Holt said in a research note.
"A modest one in a soft landing, yes, but the forces of leverage-reversal that amplified the downside risks in the U.S. do not operate in the same manner within Canada. That said, I do view this as a nation-wide problem and not one just confined to a handful of markets, as every province's house prices have risen by about 80 per cent to 150 per cent over the past decade. Other than gold, the retail investor's returns on tax-sheltered primary residences have been tough for alternative investments to compete against."
National Bank could split stock National Bank of Canada said today it will consider splitting its shares, which gained today amid a run-up over the past several months.
"We want to make sure our share price remains affordable... so we'll be examining it very closely," chief executive officer Louis Vachon said at the bank's annual meeting, Reuters reported.
Valeant v. Cephalon The battle by Valeant Pharmaceuticals International Inc. for U.S.-based Cephalon Inc. is shaping up to be a classic slugfest.
Valeant, which includes the old Biovail Corp., announced late yesterday it had made repeated attempts to acquire the biopharmaceutical company for $5.7-billion (U.S.), but that its $73-a-share offer had been rejected, The Globe and Mail's Tim Kiladze reports.
Valeant then went public, announcing not only the offer but an attempt to oust Cephalon's board and replace the directors with its own nominees.
The announcement included comments worthy of a good, old-fashioned takeover battle, financed solely by debt.
Then last night, Cephalon responded, confirming the unsolicited bid and disclosing it is represented by U.S. legal heavyweight Skadden, Arps, Slate, Meagher & Flom.
"Cephalon's board of directors and management are very aware of their fiduciary responsibilities to shareholders and will act in accordance with shareholders' best interests interests, with the goal of maximizing shareholder value.
Valeant's stock surged today. Analysts at Canaccord Genuity said they saw it as a "potential strategic fit," though expressed some reservations about the amount of debt involved.
"Despite Valeant's focus on M&A and the company's apparent need for acquisitions to drive revenue growth, the scale of this transaction caught us somewhat off guard," they said.
"Nonetheless, our initial accretion analysis of the deal (based on the limited and uncertain details thus far), suggests that this could be very accretive for the company and would clearly be a strong driver for the stock ... According to our analysis, the acquisition should effectively double Valeant's [earnings per share]in 2012 from our current projection of $1.98 per share (fully diluted) to $3.91."
Valeant's chief executive officer, Michael Pearson, isn't ruling out a higher bid, if Cephalon plays ball.
"If Cephalon's board and management team provides us with the opportunity to do some due diligence, we would be open to sharing a piece of the upside with Cephalon shareholders and give a bump to our offer," Mr. Pearson said today, according to The Canadian Press.
Lundin v. Equinox Analysts are taking a fresh look today at the scenarios for Lundin Mining Corp. after it called off its friendly merger with Inmet Mining Corp. late yesterday, and set in motion a new auction.
The death of the deal to create a Canadian copper giant paves the way for a hostile move by Equinox Minerals Ltd. , which is offering $4.8-billion. Lundin has rejected that, and says it will continue to fight, Globe and Mail writer Brenda Bouw reports today.
UBS Securities Canada analyst Onno Rutten today boosted the 12-month price target on Lundin stock to $8.90 from $8.10. Here's how UBS sees it: A 40-per-cent chance of drumming up rival bids at an estimated price of $10.40 a share, a 50-per-cent probability of a successful Equinox bid at $8.10 a share, and a 10-per-cent chance of no deal, which would put the stock at $6.70.
"We therefore raise our target by 10 per cent to $8.90 and maintain a Buy rating, while highlighting the relatively short window of opportunity for [Lundin]"
UBS also believes Equinox could legally challenge Lundin's 11th-hour poison pill.
Outlook strong for North American potash, nitrogen companies North American potash and nitrogen producers, such as Potash Corp. of Saskatchewan , The Mosaic Co. , CF Industries Holdings and Agrium Inc. , are set to benefit most over the next couple of years from higher prices, Moody's Investors Services says in a new look at the industry.
"Sales have rebounded considerably from the relatively low levels of 2009 and the first half of 2010," Moody's analysts said in the report.
"We expect at least two or three years of elevated profitability for the industry, as higher crop prices spur increased planting and boost global demand for fertilizer. Farmers can tolerate fertilizer price increases. High crop prices, which boost farmers' profits, make farmers much less sensitive to elevated fertilizer prices in both western and developing countries."
Increases in fertilizer prices will remain well below the 2008 peak, Moody's said, while phospate producers will feel "price pressure."
"Although a substantial amount of new capacity will come on-stream over the next several years, the market can absorb new nitrogen capacity, while new potash capacity3 will be in the hands of existing producers that have shown a disciplined approach to adjusting capacity based on market demand. For phosphate producers, the outlook is less certain."
Potash Corp., CF, Mosaic and Agrium will see the "greatest percentage increase in near-term profitability," the analysts said, citing rising potash prices and higher volumes and lower feedstock costs in North American nitrogen fertilizers.
"Elevated global commodity prices will keep demand and prices for fertilizers strong over the next two or three years, at least," the Moody's analysts added.
"Demand growth has accelerated in developing countries, which together make up more than 60 per cent of the world fertilizer market. Recent production problems in several countries that export crops have tightened those markets, sending some crop prices near or above records, including corn, soybeans and cotton. The recent events in Japan have caused agricultural commodity prices to return to more reasonable, albeit still elevated, levels."
Here's what they said about individual companies:
Potash Corp., the world's biggest producer of potash, and North America's second-largest for nitrogen fertilizers: "The company has some excess capacity in potash fertilizers and a significant increase in capacity coming on-stream over the next several years, and is restarting some of its idled nitrogen fertilizer capacity in the U.S. The phosphate business typically performs better than other North American producers due to strong sales to industrial companies and food and beverage producers."
Mosaic, North America's biggest phosphates producer, and the world's third-largest for potash: "The company now has some additional capacity and plans to bring on additional capacity over the next several years. Mosaic has encountered permitting problems in Florida, which is reducing phosphate fertilizer production."
Agrium, North America's third-biggest producer of nitrogen fertilizers: "Agrium is a smaller producer of both potash and phosphates. Its large retail business (through farm stores) provides a stable base of earnings. The company is adding nitrogen fertilizer capacity in Argentina; its planned expansion in Egypt was temporarily delayed due to political unrest there in early 2011."
Portugal spirals toward bailout Sound familiar? Portugal plans to restate its deficits, the government announced today as the country edged ever closer to taking a bailout, despite its protestations.
Borrowing costs spiked, with the yield on 10-year government bonds topping 8 per cent. That's the highest ever in its history with the euro monetary union, although so was the last one.
"Portugal is smelling like Greece to accountants, as the country's statistics office has announced that it will restate the deficit tally by the end of the week," said Scotia Capital economists Gorica Djeric and Derek Holt.
"One issue is that the original print didn't include all cash injections into banks, which makes the European push toward blaming ratings agencies for the timing of their announcements including recent downgrades rather curious," they said in a research note.
"Blame the governments for losing market confidence in reporting their figures from Greece through to Portugal. Germany's decision to drop the hair-cut bomb last October was also unusual timing in the midst of the crisis; it may make sense in principal, but the timing was a tad off. Or how about the use of derivatives and other tools to mask the true extent of the problems facing sovereigns like Greece? Rating agencies, for once, are doing their job."
- Portugal's hope to avoid bailout fades
- Portugal should pass the hat among former colonies
- S&P downgrades Portugal, Greece
- Let's show them how it's done, and bail out Britain
Manufacturing costs rise Input costs for Canadian factories are rising at a much faster pace than prices for their finished products.
Statistics Canada's raw materials price index climbed in February by 1.8 per cent, much faster than expected, while its industrial product price index rose just 0.7 per cent. On an annual basis, raw materials surged by 11 per cent in February from a year earlier, compared to just 3.4 per cent for the finished goods, Statistics Canada said today.
Both indexes have been on an upward trend since mid-2010. the federal statistics gathering agency said.
"We see no inflation risk despite elevated prices for industrial input," Carl Weinberg, the chief economist at High Frequency Economics, said before the report was released.
Canada's growth industry There's an old joke about Canadians: We see a lineup, and we join it. Here's another: We can study anything to death.
Think of how many studies, task forces, etc., that have gone into the issue of whether Canada needs a national securities regulator, which it still doesn't have. The latest examples include the federal government's Red Tape Reduction Committee, launched in mid-January.
Then yesterday, Ontario unveiled with its budget plans for the Commission on the Reform of Ontario's Public Services, which will be headed by Don Drummond, the former chief economist at Toronto-Dominion Bank. The idea is to study how to make the public service more efficient, The Globe and Mail's Richard Blackwell reports today.
The cost of the commission isn't known, and Mr. Drummond doesn't even know yet how much he's being paid, but he is tasked with helping to come to grips with Ontario's swollen budget deficit.
No offence to Mr. Drummond, a respected figure in the business community, but here's one suggestion, albeit small, to bringing down the deficit: Skip the commission.
When Stephen Harper launched the Red Tape commission, his news release pledged to "consult with Canadians and Canadian businesses to identify irritants that have a clear detrimental effect on growth, competitiveness and innovation."
Hmmm. I tend to think commissions, task forces and the like have a clear detrimental effect on growth, competitiveness and innovation.
- To fix Ontario's finances, Drummond 'absolutely' has to consider health care, education
- All spending up for review as Ontario struggles under massive deficit
What the analysts say Ontario's budget shows the province is trying to climb out of deficit by shrinking the size of government and asking for a wide-ranging examination of how it delivers public sector services ranging from birth certificates to health care, The Globe and Mail's Karen Howlett reports.
Here's what some observers say after Dwight Duncan's budget yesterday:
"In what is quickly becoming a theme in this year's budget season, the Ontario government has dedicated a good part of the additional fiscal room to a speed up the pace of deficit reduction rather than unveil significant new tax and spending measures. If good fortune prevails and the economy continues to grow moderately, Ontario's deficit will likely fall to a more manageable level of less than 2 per cent of GDP within a few years. The most notable challenge facing the government is holding program spending down to a rate below that of inflation over an extended period of time." Derek Burleton, Pascal Gauthier, Sonya Gulati, Toronto-Dominion Bank
"Ontario's fiscal hole was the deepest in Canada and Ontario's economy is the most vulnerable to overall U.S. economic developments. This placed, and continues to place, constraints on the pace of deficit reduction. However, by not permitting recent positive deficit surprises to more fully pass through to the medium-term, the credibility of the plan to balance the budget by [fiscal year 2017-18]is undermined. In fairness, Finance Minister Duncan did not succumb to the temptation to broadly sprinkle the budget with pre-election goodies (unlike his federal counterpart). Nevertheless, over the medium-term, deficit reduction delayed is still fiscal flexibility denied." Michael Gregory, Robert Kavic, BMO Nesbitt Burns
"One year down, seven to go. Ontario's 2011/12 budget took advantage of better-than-expected results in the outgoing fiscal year to aim for a deficit $1-billion lower than previously planned, while not accelerating an earlier timetable for restoring an outright balance in 2017/18. Despite this being an election year, the budget was lean on new initiatives in keeping with the need for restraint. A thin document for thin fiscal times." Avery Shenfeld, Warren Lovely, CIBC World Markets
"Controlling the growth in overall program spending hinges on the province's ability to control health‑care costs, since health‑care spending consumes approximately 43 cents of every dollar collected in revenue. The government plans to hold growth in health‑care spending to three per cent per year from fiscal year 2012/13 through 2017/18, but an aging population will make this a difficult task. Over the past 15 years, health‑care spending has grown at an average pace of 6.5 per cent annually. Without a clear strategy, it will be difficult for the government to hold to its targets for health‑care spending growth while at the same time protecting the quality of the health‑care system." Matthew Stewart, Eric Thomson, The Conference Board of Canada
- What the Ontario budget gives, and what it takes away
- Ontario opens the door to private partnerships
In Economy Lab today
Hurting the one you love the most: Mike Moffatt examines the NDP's credit card proposal.
The Liberal plan for a Canada Learning Passport is worth a close look, Kevin Milligan writes.
In Personal Finance today
From your business to your investments, there are ways to get a bigger tax return.
In this week's Cash Clash, a retired couple debate the pros and cons of selling their city house and living all year round in their vacation home. Financial expert Kelley Keehn has the answer.
From today's Report on Business
- Conrad Black offers an oration on justice and journalism
- Neil Reynolds: What Great Recession? Data tell a different story
- Election holds high stakes for Enbridge pipeline
- National Bank of Canada$44.03+0.23(+0.53%)
- Valeant Pharmaceuticals International Inc$37.08+2.19(+6.28%)
- Lundin Mining Corp$4.40+0.05(+1.15%)
- Potash Corporation of Saskatchewan Inc$21.59-0.09(-0.42%)
- Mosaic Co$25.69-0.44(-1.68%)
- CF Industries Holdings Inc$27.70-1.26(-4.35%)
- Agrium Inc$118.88+1.35(+1.15%)
- Updated May 27 4:00 PM EDT. Delayed by at least 15 minutes.