A look at North American equities heading in both directions
On the rise
Shares of Li-Cycle Holdings Corp. (LICY-N) closed up 4 per cent after the U.S. Department of Energy agreed to provide a US$375-million loan to help it complete North America’s first major recycled battery-grade lithium project, the company said on Monday.
Toronto-based Li-Cycle aims to start commissioning its US$485-million Rochester Hub in western New York late this year. The project includes a refinery that will use a hydrometallurgical system to process up to 35,000 tonnes of black mass – e-waste from crushed and shredded battery cells - per year. That is equivalent to about 90,000 tonnes of lithium-ion battery material, or 18 gigawatt-hours of lithium-ion batteries. The 26-hectare site will also include a warehouse and other facilities.
The company said the U.S. DOE’s Loan Programs Office has conditionally committed to the financing through its Advanced Technology Vehicles Manufacturing program. The program is being funded with US$3-billion over the next five years as part of President Joe Biden’s Inflation Reduction Act. Much of the funding in that legislation is directed at climate-friendly technology.
“The Rochester Hub is a cornerstone asset for Li-Cycle and its stakeholders and will be an important contributor to the clean energy economy,” Li-Cycle chief executive officer Ajay Kochhar said in a statement. The facility is expected to employ 270 workers.
- Jeffrey Jones
Uni-Select Inc. (UNS-T) jumped 16.6 per cent after auto parts provider LKQ Corp. (LKQ-Q) said on Monday it would buy the Quebec-based company in an all-cash deal for about $2.6-billion in a bid to bolster its aftermarket parts business as demand grows for vehicle repairs and services.
Chicago-based LKQ is offering $48 a share in cash for Boucherville, Que.-based Uni-Select, the two companies said in a joint statement Monday. That’s a 20.7 per cent premium to Uni-Select’s average share price over the past 20 trading days.
The deal has an equity value of about $2.6-billion on the basis of a fully diluted share count that assumes conversion of debentures and management equity, a Uni-Select spokesman said. Including debt assumed by LKQ, it’s a $2.8-billion transaction.
The takeover highlights the changing dynamics in the auto industry as rising interest rates spur drivers to keep their vehicles longer. That in turn has fuelled demand for repairs and services.
Uni-Select said it will sell its GSF Car Parts U.K. business as part of the deal.
- Nicolas Van Praet
Canaccord Genuity Inc. (CF-T) increased 0.8 per cent after it senior leaders confirmed they are officially trying to take the independent Canadian investment bank private, but a special committee of the company’s own board of directors immediately rejected the price as too low.
More than 50 members of the company’s management team, including chief executive Dan Daviau and board chair David Kassie, first announced plans last month to collectively launch a takeover attempt for $11.25 a share. Despite a subsequent valuation prepared by Royal Bank of Canada for the special committee, finding the financial services provider to be worth significantly more, the management group launched its all-cash takeover attempt on Monday, valuing the company at roughly $1.13-billion.
While the offer price represents a nearly 42-per-cent premium to the 20-day average price of Canaccord’s stock as of Jan 6 – the last trading day before the management group announced its intention to take the company private – it is roughly 32 per cent below Canaccord’s November, 2021, value of $16.52 a share. Canaccord stock has also been consistently trading above the proposed offer price since the planned takeover bid was made public on Jan 9, suggesting investors expect the initial offer price to rise.
Last month, a special committee of Canaccord’s board of directors said it was not prepared to accept an offer of $11.25 a share based on RBC’s preliminary analysis. The committee, which is composed of three board members who are not part of the management group behind the proposal, said in a statement Monday the bid “undervalues the company” and that “there is greater value” in Canaccord “than is reflected in the offer price”.
According to RBC’s now-completed analysis, the fair market value of Canaccord’s stock as of Feb 15 was between $12.75 and $15.75 a share. That suggests the company is worth between $1.27-billion and $1.56-billion.
- Jameson Berkow
U.S. railroad operator Union Pacific Corp. (UNP-N) jumped 9.4 per cent as Chief Executive Officer Lance Fritz said he would step down this year, a move that follows calls from hedge fund Soroban Capital Partners for his ouster.
Union Pacific said it expected to name a successor this year and Mr. Fritz said he looked forward to working with the board to find a new CEO.
“Union Pacific has been my home for 22 years and I am confident that now is the right time for Union Pacific’s next leader to take the helm,” Mr. Fritz said in a statement, without elaborating on the reasons for his decision.
Soroban Capital in a letter on Sunday called for Mr. Fritz to be replaced, saying he had lost the confidence of shareholders, employees, customers, and regulators.
Soroban founder Eric Mandelblatt said in the letter new leadership could create significant shareholder value.
The hedge fund said it had a “long-held view that current management is not capable of driving strong operating performance” and saw “a heightened risk of permanent damage to the franchise if left unaddressed.”
“Unlike typical shareholder engagements which come with numerous demands, Soroban has only one ask - install new leadership who can get the trains to operate safely and on time,” the letter added.
Soroban urged Union Pacific to consider former Chief Operating Officer Jim Vena as a possible replacement for Mr. Fritz, saying “no internal candidates are remotely as qualified.”
Mr. Vena pulled out of the running to lead Canadian National Railway Co. (CNR-T) in December 2021.
Electric-vehicle startup Fisker Inc. (FSR-N) on Monday flagged increased orders for its sports utility vehicle Ocean and maintained its production forecast for the year, sending its shares higher by 30.3 per cent.
Demand for electric vehicles has surged globally as countries seek to tackle climate change by opting for cleaner transport options and setting net-zero carbon emissions targets.
Fisker said reservations for the first model of Ocean rose to more than 65,000 as of Feb. 24, 2023, from 62,000 as of Oct. 31, 2022.
The company expects testing for homologation — the certification for roadworthiness — to be complete by March.
Fisker reiterated the production target of 42,400 cars with its manufacturing partner Magna International’s (MG-T) Austrian unit in 2023, but said the forecast is dependent on supply chain deliveries as per its projection and timely homologation process.
The firm also said it targets a gross margin range of 8 per cent to 12 per cent and positive earnings before interest, tax, depreciation and amortization this year.
Magna and Fisker began producing the Ocean SUV in November, after reporting a sell-out of the Sport and Ultra variants of the car they planned to produce this year for the U.S. market.
On the decline
Toronto-Dominion Bank (TD-T) slipped 0.6 per cent after it said on Monday it would pay US$1.205-billion to settle a lawsuit in connection with a multi-year Ponzi scheme operated by the Stanford Financial Group.
HSBC Holdings Plc will pay US$40-million and Independent Bank, formerly known as Bank of Houston, will pay US$100-million.
The settlements avert a trial that had been scheduled to begin on Monday in Houston federal court.
Money will go to a court-appointed receiver who is repaying victims of Stanford’s US$7.2-billion fraud, which was uncovered in Feb. 2009, two months after the arrest of Bernard Madoff.
Two other banks, Societe Generale and Trustmark Corp reached settlements of US$157-million and US$10- million earlier this year.
The latest settlements boost the total payout by banks to US$1.6-billion.
“Given all the challenges faced by the receivership since 2009, this is nothing short of a monumental recovery,” said Kevin Sadler, a Baker Botts partner who represents the receiver Ralph Janvey and the Official Stanford Investors Committee.
TD denied liability and said it acted properly at all times, but settled to avoid the distraction and the uncertainty of continuing to litigate.
Brookfield Asset Management Ltd. (BAM-T) was lower by 1.7 per cent after Bloomberg reported it will look to raise US$20-billion for a second fund that would focus on investments in the global transition into clean energy.
See also: Swimming against Brookfield’s tide of positivity
Montreal-based CGI Group Inc. (GIB.A-T) declined 0.7 per cent after announcing before the bell it intends to enter into a private agreement with Caisse de dépôt et placement du Québec for the purchase for cancellation of 3.34 million Class A subordinate voting shares for a price of $119.58 each, which represents a discount to the $123.28 closing price on Feb. 24.
Once completed, CDPQ will continue to hold approximately 19.18 million Class A Shares, representing approximately 8.16 per cent of CGI’s total outstanding shares.
See also: Caisse CEO sees another tough year ahead as pension giant posts first loss since financial crisis
Pfizer Inc. (PFE-N) was down 2.3 per cent after the Wall Street Journal reported it is in early-stage talks to acquire cancer drugmaker Seagen Inc. (SGEN-Q) in what could be a multi-billion dollar deal.
Seagen had a market capitalization of roughly US$30-billion, as of Friday’s close.
Seagen was in advanced talks to be acquired by Merck (MRK-N), in a deal that would have been worth US$40-billion or more, the Journal reported last year, but the two sides failed to reach an agreement, according to multiple reports.
Seagen’s shares have fallen nearly 10 per cent since July, when the deal talks with Merck were first reported.
Pfizer declined to comment on the WSJ report, while Seagen did not immediately respond to a Reuters request for comment.
Pfizer has said it expects to lose US$17-billion in annual sales between 2025 and 2030 due to patent expirations for top drugs, and sales of its COVID-19 products have begun to decline after they contributed to an unprecedented surge in revenue.
While the drugmaker has turned to acquisitions such as its US$5.4-billion buyout of Global Blood Therapeutics Inc and its US$11.6-billion purchase of migraine drugmaker Biohaven, analysts have pointed to the need for larger deals.
Warren Buffett’s Berkshire Hathaway Inc. (BRK.B-N, BRK.A-N) gave back early gains and closed narrowly lower after it reported its highest-ever annual operating profit, even as foreign currency losses and lower gains from investments caused fourth-quarter profit to fall.
Warren Buffett, in annual letter, stays upbeat and preaches patience
Buffett called 2022 a “good year” for Berkshire in his annual shareholder letter after the conglomerate’s dozens of businesses generated $30.8 billion of profit despite rising inflation and supply chain disruptions, including from the war in Ukraine.
Berkshire also bulked up its cash hoard, ending the year with US$128.6-billion.
The Omaha, Nebraska-based conglomerate sold about US$16.3-billion of stocks in the fourth quarter and found better value repurchasing its own shares, buying back $2.6 billion in the quarter and US$7.9-billion for all of 2022.
Berkshire shareholders “trust us to treat their money as we do our own,” Mr. Buffett said in his letter. “And that is a promise we can make.”
Data analytics firm Palantir Technologies (PLTR-N) declined in the wake of saying on Monday it has cut about 2 per cent of its workforce, joining a raft of U.S. companies that have laid off thousands of workers amid an economic downturn.
“To continue to evolve, we are making the tough choice of reducing teams in several areas,” the company said.
“While less than 2% of our workforce is impacted by these changes, these are incredibly painful decisions but the right ones for the company’s future.”
Palantir, known for its work with the U.S. Central Intelligence Agency, had 3,838 full-time employees as of Dec. 31, 2022.
The company’s finance chief David Glazer earlier this month told Reuters Palantir had reduced employees’ stock-based compensation and cut back on cloud expenditure in recent months in response to lower spending from recession-wary businesses.
Earlier this month, Palantir had also said it expects 2023 to be the company’s first profitable year as it benefits from cost cuts and the artificial intelligence boom.
With files from staff and wires
David Leeder