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Briefing highlights

  • Hydro One shares on rise
  • Today is ...
  • Altria buys stake in Cronos
  • (The Marlboro Man may soon be smiling)
  • Markets at a glance
  • Canadian dollar above 75 cents
  • Unemployment now at record low
  • U.S. jobs growth slows
  • OPEC, Russia to cut oil supply
  • Mawer scraps sale plan

The last laugh?

Political tampering with Hydro One may have made Ontario’s ruling Tories a laughingstock. But in the end, the utility’s stock is laughing.

As The Globe and Mail’s David Milstead and Andrew Willis report, regulators in Washington State rejected Hydro One’s proposed takeover of U.S. utility Avista Corp., which means the megadeal is all but dead.

Key to all this is why the Washington Utilities and Transportation Commission said it nixed the takeover: “Provincial government interference in Hydro One’s affairs, the risk of which has been shown by events to be significant, could result in direct or indirect harm to Avista if it were acquired by Hydro One, as proposed.”

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Ontario Premier Doug Ford, in turn, was unapologetic for shaking up Hydro One’s executive and board.

“While some critics might believe that the concerns of Ontario families, seniors and businesses should take a back seat to foreign regulators, our government remains unwavering in our commitment to the people of Ontario to reduce hydro rates and provide a reliable energy system,” Mr. Ford said.

But the ramifications of getting in the way of Hydro One’s first foreign venture will run deep.

“While some shareholders may be relieved if the Avista merger does not proceed, the reasons cited in the order are damning, making it hard to conceive the company could meaningfully expand beyond Ontario,” said Canadian Imperial Bank of Commerce analyst Robert Catellier.

“Without Avista, Hydro One’s investment proposition is more or less competitive, but not enough to overcome the risk of government interference, especially in light of actions the recently elected government has taken,” he added.

“Furthermore, there can be no guarantees that the company’s earnings power will not deteriorate in order to mitigate rate pressure as Ontario seeks to reduce hydro bills by 12 per cent.”

Here’s where it gets a bit more interesting: Investors applauded the inevitable death of the takeover, pushing up the utility’s stock.

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Analyst Darryl McCoubrey had warned in mid-November that the Trump administration’s tax overhaul and rising credit costs were dampening the prospects for Hydro One.

And, Thursday, some analysts cited a suddenly better outlook for the utility when you set aside the issue of political diddling.

Bank of Montreal’s Ben Pham, for example, deemed the regulatory decision “a positive development” for Hydro One shares.

“While this may sound odd, we note that the Avista deal is expected to be [earnings per share] dilutive and result in a weaker balance sheet for H,” he added, referring to the utility by its stock symbol.

“Not acquiring Avista and refocusing its attention on its core Ontario franchise … would likely be viewed positively if the deal ultimately breaks.”

Of course, there are other issues hanging out there.

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“Investors will likely need to recalibrate their outlook for H back to its pure-play Ontario regulated transmission and distribution businesses,” said Industrial Alliance analyst Jeremy Rosenfield, citing a “healthy” outlook for profit growth over the medium term.

“However, the political overhang is likely to prevent any material potential future M&A-based growth outside of Ontario in the near term,” he added, using the term for mergers and acquisitions.

“Furthermore, H’s shares may continue to suffer from a valuation discount from the political overhang.”

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Had a rough week on the markets?

Source: daysoftheyear.com

Altria buys Cronos stake

The Marlboro Man may soon have a smile on his face.

Altria Group Inc. is buying a 45-per-cent stake in Cronos Group for about $2.5-billion as the young legal marijuana sector continues to jockey. Cronos stock rose sharply in premarket action.

The deal is worth $16.25 a share.

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“Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria,” said chief executive officer Howard Willard, whose company produces several tobacco brands, including Marlboro.

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Markets at a glance

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Unemployment at record low

Today’s Statistics Canada report on the labour market buoyed economists and send the loonie higher, finding 94,000 jobs created last months and the unemployment rate down to 5.6 per cent, the lowest on records dating back to 1976.

November’s gains were driven by full-time positions, the agency said.

If you look at the last 12 months, employment is now up 1.2 per cent, or 219,000 positions, all attributable to full-time work.

“The Canadian economy needed a bit of good news, and today's job report qualifies,” said Toronto-Dominion Bank senior economist Brian DePratto.

“As always, a grain of salt is needed when interpreting this volatile series, but there really is little to complain about in today's data,” he added.

“Not only did we hit a record-low unemployment rate, we did it on the back of full-time employment and rising labour force participation. Unlike most months, the headlines of today’s report were also well above the standard error, meaning we can have some confidence in the monthly moves. The economy may be walking into some near-term headwinds, but at least from a labour market perspective, there seems to be a strong footing.”

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