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Like the great white shark circling the late-night swimmer in the opening scene of Jaws, a handful of cash-rich companies and activist fund managers used the recent market selloff to quietly accumulate stakes in potential targets.

On Friday, one of those top-of-the-food-chain players surfaced briefly, to signal it was on the hunt. As part of its quarterly financial results, Brookfield Infrastructure Partners LP disclosed that in recent weeks it committed US$450-million to investments in a handful of rival public infrastructure companies trading at a “substantial discount” to the underlying value of their assets. In an investor letter, chief executive Sam Pollock said: “We hope that some of these will lead to large-scale transactions. If not, we will monetize our stakes as share prices recover and earn an attractive return in sectors we know well.”

Brookfield Infrastructure, backed by Toronto-based parent Brookfield Asset Management Inc. and its US$540-billion of assets under management, is taking what’s known on Bay Street as a “toehold.” These are relatively small investments in a company’s shares, or its debt, that signal the start of a well-rehearsed dance with the target’s executives and boards of directors.

Some toeholds will turn into takeovers – that’s typically the plan for operating companies such as Brookfield Infrastructure. In other cases, activist hedge fund managers are taking toeholds. Their goal will be to put targets up for sale, or force restructurings meant to boost the share price. For bankers and lawyers working from their kitchen tables, rather than their office towers, toeholds hold the promise of better days to come.

Through late March and April, most companies were in survival mode, and deal-making all but dried up. The priority was ensuring employees were safe and adjusting to life in a pandemic. Now growth-oriented CEOs, such as Mr. Pollock, see the possibility of acquiring high-quality businesses at a deep discount to the price they commanded just a few months ago.

A number of companies across corporate Canada are in similar positions – they went into this downturn with capital and acquisition experience. That list would include the likes of Couche-Tard, Sun Life, Royal Bank, CGI and Constellation Software. The private-equity arms of the major pension plans and fund managers such as Onex are also expected to be putting money to work, as will activists such as Vancouver-based fund manager Sandpiper Group.

While these deep-pocketed companies are potential predators, many businesses look like prey. There is a long list of public companies with share prices sideswiped by the novel coronavirus, trading at far less than the value of their assets during normal business conditions. There are public and private businesses struggling to pay back debt; their future will be determined in large part by their creditors. In a report to clients last week, law firm Torys LLP said: "A company board should revisit its takeover bid and activist preparedness plan with its advisers to ensure it will be able to effectively respond to a hostile takeover bid or shareholder activism campaign.”

Who exactly are Brookfield Infrastructure’s potential targets? Mr. Pollock declined to list his toehold investments during an analyst call on Friday, but did say the businesses were in North America and Europe. He also said deals could easily take a year or more to play out, as his expectation is it will take until the first half of 2021 to get businesses back to normal.

However, it doesn’t take the market long to figure out where the action may be. Last summer, Inter Pipeline Ltd. turned down an unsolicited takeover bid from Hong Kong-based CK Infrastructure Holdings Ltd. that would have valued the infrastructure company at $12-billion.

Calgary-based Inter Pipeline is now a $4.7-billion company, after its stock sold off sharply in March on the downturn in the energy industry and concerns over the $3.5-billion price tag on a planned petrochemical refinery. On Friday, Inter Pipeline’s stock price jumped by 4 per cent on an otherwise lacklustre trading session on the Toronto Stock Exchange. Cue the Jaws theme music. Sharks are circling.

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