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A look at North American equities heading in both directions

On the rise

Shares of Home Capital Group Inc. (HCG-T) surged 57.1 per cent on Monday after announcing a company controlled by billionaire financier Stephen Smith has reached a deal to acquire the alternative mortgage lender for $44 per share in cash, for a purchase price of nearly $1.7-billion.

The offer from a subsidiary of Smith Financial Corp., which already owns 9.1 per cent of Home Capital, represents a 63-per-cent premium to its latest stock price and a 72-per-cent premium to the average trading price over 20 days up to last Friday.

But the deal isn’t set in stone. The agreement includes a “go-shop period” until Dec. 30 during which Home Capital and its financial advisers can solicit bids and enter into negotiations with rival buyers. If Home Capital terminates the agreement with Smith Financial to accept a better offer within the go-shop period, it will pay a $25-million termination fee. The fee doubles if Home Capital seals an alternative deal more than five days after December 30.

Home Capital’s board “concluded that the transaction is in the best interests of the Company and fair, from a financial point of view, to shareholders,” said board chair Alan Hibben, in a prepared statement. “We are pleased to have reached an agreement that provides shareholders with compelling and certain value in the form of an all-cash offer.”

Three months ago, Home Capital disclosed that it had rejected an unsolicited takeover offer from an unnamed bidder. Mr. Smith, who is executive chairman and co-founder of rival mortgage lender First National Financial Corp., was widely thought to have been the most likely bidder at the time.

- James Bradshaw

Toronto-based Dentalcorp Holdings Ltd. (DNTL-T) soared almost 39 per cent after announcing before the bell it has formed a special committee of non-executive, independent directors to undertake, a review and evaluation of strategic alternatives.

Calling in the impact “positive” in a research note, Desjardins Securities Gary Ho said: “We had previously highlighted a possible takeout scenario to bridge the valuation disconnect between DNTL and its peers.

“Who are the potential buyers? (1) Management (owns approximately 7 per cent of shares outstanding), with the support of private equity (PE) firm L Catterton (owns 40 per cent). This would make sense given DNTL IPO’d the business at $14 per share vs the stock’s closing price on Friday (November 18) at $6. Management also bought back 73,600 shares at $10.95/share in August. (2) 123Dentist/Altima, the second largest player in the space after its merger in July (3.1-per-cent market share combined). 123Dentist is supported by key PE firms including KKR, Peloton Capital Management, Sentinel Capital Partners and Heartland Dental (the largest DSO in the US with more than 1,600 practices in 38 states). Even with a merger with DNTL (3.6 per cent), the top three would control only 6‒7 per cent of the Canadian market — there are no competition issues, in our view. (3) Other PE players/pension funds. In early 2022, the Ontario Teachers’ Pension Plan (OTPP) sold its majority interest in Heartland to KKR. In addition, OPTrust ($25-billion-plus in net assets, administers the OPSEU Pension Plan) is a current shareholder of DNTL, with board representation. Dentistry has historically drawn significant PE interest given its recession-resistant attributes, capital-light business model, and stable growth with recurring revenue and strong cash flows.”

Bob Iger is returning to Walt Disney Co. (DIS-N) as chief executive less than a year after he retired, a surprise comeback that coincides with the entertainment company’s attempt to boost investor confidence and profits at its streaming media unit.

Mr. Iger, 71, who was chief executive for 15 years and retired as chairman last year, has agreed to serve as CEO for two more years effective immediately, Disney said in a statement late on Sunday. He will replace Bob Chapek, who took over as Disney CEO in February 2020, just as the COVID-19 pandemic hit, leading to park closures and restrictions on visitors globally.

Disney shares were up in early trading, while the Frankfurt-listed stock jumped as much as 9.6% in European hours on Monday and was set for its best day in almost two years.

“Maybe the old hand on the tiller is what’s required,” said analyst Neil Wilson as the company spends billions of dollars to compete with rival Netflix and seeks to revive its share price.

They have fallen more than 40 per cent so far this year, lagging the nearly 7 per cent year-to-date drop in the broader Dow Jones Industrial Average. They have lost almost a third of their value while Mr. Chapek was at helm.

“The Board has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the Company through this pivotal period,” Chairwoman Susan Arnold said in the statement.

Disney disappointed investors this month with an earnings report that showed mounting losses at its streaming media unit that includes Disney+. Shares hit a 20-year low the day after the fourth-quarter earnings.

The streaming business lost nearly US$1.5-billion in the quarter, more than twice the previous year’s loss, overshadowing subscriber gains. The unit, which competes with Netflix Inc. (NFLX-Q) among others, has yet to turn a profit since its 2019 launch. Disney has said it expects Disney+ to become profitable in fiscal 2024.

On the decline

Manulife Financial Corp. (MFC-T) was lower after it became the first foreign financial firm to receive regulatory approval in China to take full control of a funds joint venture, paving the way for it to expand its presence in the country’s $3.8-trillion fund market.

Manulife, Canada’s largest life insurer, secured approval to take full control of its joint venture Manulife Teda Fund Management by buying 51 per cent from state-owned Tianjin TEDA International Holding, it said in a statement on Monday.

The 51-per-cent stake in the joint venture is worth at least 1.75 billion yuan ($244-million), which was the asking price when Tianjin Teda moved to offload the share by inviting bids, auction filing shows.

Reuters reported in June the regulator accepted the firm’s application to take full control of the venture, which had around $12-billion in assets under management as of end-June.

“Our approval is a very good sign for the industry as a whole for foreign participants seeking to operate in China’s market,” Michael Dommermuth, head of wealth and asset management, Asia at Manulife Investment Management, said.

The approval came about a month after President Xi Jinping secured a precedent-breaking third leadership term, with some overseas business groups feeling encouraged by a commitment to deepening reform and opening up.

“The fact that soon after the party congress Manulife was approved to acquire Manulife Teda should serve as some type of validation that the public policy they’re trying to articulate in terms of opening up their asset management industry is going to continue,” Mr. Dommermuth added.

AltaGas Ltd. (ALA-T) closed down after it said on Monday President and Chief Executive Officer Randy Crawford will step down from his roles in the first half of 2023.

The Canada-based energy infrastructure company said Mr. Crawford, who has been AltaGas CEO since 2018, will remain in his roles until a successor is named.

Mr. Crawford said he had intimated the company’s board earlier this year about his exit plans

Shares of U.S.-listed Chinese companies faced pressure after officials called for residents in some of its hardest-hit areas to stay home, as COVID cases in Beijing and nationally ticked higher.

China is fighting numerous COVID-19 flare ups, from Zhengzhou in central Henan province to Chongqing in the southwest and for Sunday reported 26,824 new local cases, nearing the country’s pandemic peak in April. It also recorded two deaths in Beijing, up from one on Saturday, which was China’s first since late May.

Guangzhou, a southern city of nearly 19 million people that is battling the largest of China’s recent outbreaks, ordered a five-day lockdown for its Baiyun district, its most populous. It also suspended dine-in services and shut night clubs and theatres in Tianhe, home to the city’s main business district.

The latest wave is testing China’s resolve to stick to adjustments it has made to its zero-COVID policy, which calls for cities to be more targeted in their clampdown measures and steer away from catch-all lockdowns and testing that have strangled the economy and frustrated residents.

Asian share markets and oil prices slipped on Monday as investors fretted about the economic fallout from the intensifying COVID situation in China, with the risk aversion benefiting bonds and the dollar.

Several Chinese cities began cutting routine community COVID-19 testing last week, including the northern city of Shijiazhuang, which became the subject of fervent speculation that it could be a test bed for policy relaxation. This sparked worry among some local residents.

On Wall Street, companies seeing declines include Alibaba Group Holding ADR (BABA-N), Baidu Inc ADR (BIDU-Q), Inc ADR (JD-Q) and Pinduoduo Inc ADR (PDD-Q).

U.S. casino operators with businesses in China are slid, including Wynn Resorts Ltd (WYNN-Q), Las Vegas Sands Corp. (LVS-N), MGM Resorts International (MGM-N) and Melco Resorts & Entertainment Ltd (MLCO-Q).

Activist investor Irenic Capital Management, which holds 2 per cent of News Corp.’s (NWSA-Q) Class B shares, has suggested a spin-off of the media company’s digital real estate business or Dow Jones as an alternative to its merger with Fox Corp. (FOX-Q)

The Fox combination does not serve News Corp’s strategic goals and a joint venture or a sale of parts of its news media unit to Fox would be a “far better approach”, Irenic said in a letter to News Corp’s board on Sunday.

Shares of News Corp, which has a market value of US$10.34-billion, were down in Monday trading.

“Every investor I’ve spoken to in the last 10 years on News Corp has expressed that they think the company is way too complicated and should be simplified by selling assets or spinning off assets,” said Craig Huber, media analyst at Huber Research Partners.

“Putting the two (News Corp and Fox) together makes no sense to us.”

In October, media mogul Rupert Murdoch proposed to reunite his media empire by combining News Corp and Fox Corp nearly a decade after the companies split. The companies said they had formed special committees to evaluate the proposal.

Sports-betting firm Draftkings Inc. (DKNG-Q) dropped after it said on Monday login information of some customers was compromised on other websites.

DraftKings said it had identified less than $300,000 of customer funds that were affected, adding, “we intend to make whole any customer that was impacted.”

DraftKings in a tweet added it has not seen any evidence that would suggest the company’s systems were breached to obtain information.

With files from staff and wires

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