With Deutsche Bank now enshrined as the bidder to beat at Stelco, we are into new territory in Canadian insolvencies.
Stealing a page from the U.S. experience in resurrecting troubled companies, Stelco and its advisers at UBS Securities have set the German bank up as what's known as a stalking horse in the restructuring of the troubled steel maker. Deutsche Bank has put forward a $900-million refinancing, with a 9-per-cent sliver of the new company earmarked for existing Stelco shareholders. The issue now is whether someone can come up with a better offer.
Canadian restructurings tend to be free-for-alls, each unique and dependent on the courts and bargaining powers of those involved.
In the United States, stalking horses are common in bankruptcy proceedings. They set most of the terms of the deal, then others will bid, knowing the lay of the land. It lends a degree of predictability, or transparency, to what can be a fluid and opaque process.
When a number of U.S. utilities went bust in recent years, companies such as TransCanada, for example, have stepped up as stalking horses. Sometimes they've won the companies they've hunted, while in other instances, they've been outbid, but taken away tidy break fees for their troubles.
The same scenario is now playing out at Stelco. Deutsche Bank, an experienced player in restructurings, has set the ground rules. Creditors look to be made whole.
If a strategic bidder such as a foreign steel company or another financial player can do better, the Stelco board will be glad to hear their pitch, knowing they've got Deutsche Bank's money already in their pocket. The battle now appears to be over who can offer the best deal to equity holders, a highly unusual situation in any insolvency, as equity holders typically get next to nothing.
Under these circumstances, the $6-million break fee promised to Deutsche Bank seems an adequate, even modest, minimum reward for what amounts to months of distracting, hard work for the German bank. A stalking horse seems likely to bring out the best in bidders for Stelco, and it's a concept that's long overdue in tangled Canadian corporate restructurings.
Court ruling ruffles dealers
A B.C. court ruling last week has sent a chill through all dealers out trying to poach talent from rivals.
Madam Justice Heather Holmes tore a strip off Merrill Lynch Canada for tactics used four years ago to win a Cranbrook brokerage branch from RBC Dominion Securities. Merrill Lynch, which has since sold its retail operation to CIBC World Markets, must pay $2.25-million in an award meant to "firmly condemn the wholesale surreptitious conversion of virtually all RBC Dominion Securities' client records."
RBC Dominion saw nine brokers and five assistants, representing a branch with $436-million in client assets, go to its rival after seven months of secret planning and the copying of client information.
Stockbrokers will always move from one firm to another. The legal squabbles tend to focus on just who owns the client relationship -- stockbroker or investment dealer -- and what degree of collusion can play out between the departing brokers.
Lawyers for RBC Dominion Securities at law firm Lenczner Slaght Royce Smith Griffin said the precedents set in the Cranbrook case include a cautionary note on enticing entire branches, rather than one or two advisers, and the concept that the brokers owed RBC Dominion more than two weeks' notice before they jumped ship.
National finds profit niche
It's the smallest of the big six banks, with an equally modest U.S. investment banking operation compared with its rivals. Yet National Bank Financial is showing it knows how to work a profitable niche.
This week, New York-based Putnam Lovell NBF Securities Inc. acted as adviser to mighty Deutsche Bank in the sale of the German bank's four-city Scudder Private Investment Counsel division to Legg Mason, a U.S. money manager. Legg Mason will pay $55-million (U.S.) up front and up to $26.3-million more in a year's time, depending on the unit's performance. Earlier this year, Putnam Lovell NBF also advised Deutsche Bank on the sale of Boston office of Scudder to Eaton Vance Corp.
National bought Putnam Lovell in 2002, and downsized the firm, exiting institutional equities to focus on financial services advisory work. Sticking to a narrow specialty in a huge but consolidating market is winning clients.
Correction
In Monday's takeover of Hair Club for Men and Women, law firm Torys acted for the sellers, led by private equity firm EdgeStone Capital. Law firm Stikeman Elliott was Canadian adviser to buyer Regis Corp.
Andrew Willis