Toronto-Dominion Bank should be one proud parent, as its venture capital offspring posted a big win yesterday on the record-setting $1.4-billion (U.S.) takeover of EqualLogic.
TD Venture Capital, a tech-focused fund launched into the darkest days of the tech wreck in 2001, was an early supporter of EqualLogic. The data storage company was purchased yesterday by Dell. U.S. analysts say this is the largest cash takeover yet for a venture-backed tech company. Goldman Sachs was taking EqualLogic public with a $125-million IPO when Dell came calling.
TD Venture Capital owns 16 per cent of EqualLogic, and in round terms, the fund stands to make $190-million on a $9-million investment.
Now, here's the proud parent angle: Like most major banks, TD decided to spin out most of its merchant banking teams in recent years. The strategy, driven in part by fears of conflicts, is paying big dividends.
The TD Venture Capital partners, based in Boston, departed on the best of terms in June with a mandate to continue running the portfolio as an independent fund called Fairhaven Capital.
Fairhaven will raise additional capital, with a mandate to make early stage investments in private technology companies, and TD Bank remains an investor, but not an owner.
The private equity flock left the nest in 2005 to form Birch Hill Equity Partners, now home to $1.7-billion. Again, TD Bank remains a backer.
And the former head of the TD private equity team, Natalie Townsend, now runs NorthRock Capital and commits up to $25-million to worthy small to mid-capitalization firms.
A&P shops its Metro stake
The hedge fund crowd is circling grocery chain Metro Inc. on news that a massive block of its stock is about to hit the market.
Great Atlantic & Pacific Tea Co. announced yesterday that it will sell its entire stake of 11.7 million Metro shares, acquired two years ago when the U.S. chain sold its Canadian stores to the Montreal-based grocer. A&P noted that the stake was worth $435-million (U.S.), based on Friday's price of Metro shares on the Toronto Stock Exchange.
However, news that a block representing 10 per cent of Metro's outstanding shares is about to hit the market hammered the stock. Shares were down 6 per cent, and Metro touched a 52-week low. A&P expects to sell the Metro block by Nov. 28, with TD Securities running the auction.
The fun and games started the moment A&P disclosed its intentions, and include a straightforward stock play by the hedge fund types. Institutions can sell short Metro shares now, knowing that the stock is going to face downward pressure until the A&P block is actually sold. At that point, there will be plenty of stock available, and the hedge funds can buy back Metro to cover their short position.
A&P is selling its Metro stake to help finance its $1.3-billion takeover of Pathmark Stores. Back in March, A&P sold 6.4 million Metro shares for $203-million to fund that same acquisition.
Turning away from trees
One of Canada's top forest products analysts gave the beleaguered sector a thumbs-down yesterday, as MGI Securities' Rob Duncan opted to shift his focus to alternative energy stocks.
Mr. Duncan, who spent two decades covering the tree stocks at CIBC World Markets before joining MGI, has seen the strong Canadian currency and U.S. housing market slump knock the stuffing out of the sector. Combine that downturn with increasing investor interest in a growing number of small to mid-cap alternative energy plays, and you've got a midlife career switch for a proven analyst.
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Andrew Willis