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A look at North American equities heading in both directions

On the rise

Shares of Canaccord Genuity Group Inc. (CF-T) soared 29.5 per cent after a group led by the management said on Monday it would launch a takeover bid valuing the Canadian financial services firm at nearly $1.13-billion after it lost 44 per cent of its market capitalization last year.

Spooked by a tough economic environment where stocks have taken a hit due to rising interest rates and prospects of a recession, several companies have signed go-private deals since last year.

In June, Canaccord said its largest shareholder had expressed concerns that the public markets were undervaluing the company. After discussion with company Chief Executive Officer Daniel Daviau, the shareholder said it would support a go-private deal.

If the deal closes, Canaccord will be owned by a group comprising CEO Daviau, chairman David Kassie, all members of its global operating committee and certain other employees, the company said. This group currently owns nearly 21.3 per cent of the company.

Funds affiliated with investment firm HPS Investment Partners have agreed to partially fund the deal through a $825-million debt, Canaccord said.

The offer price of $11.25 per share marks a 31-per-cent premium to the stock’s last close.

Canaccord offers wealth management, investment banking and broker research services.

Following oil price gains, Cenovus Energy Inc. (CVE-T) was higher despite announcing Sunday its downstream throughput was “significantly reduced” in December, citing “recent extreme winter storms and severe cold temperatures at the company’s U.S. and Canadian refining operations, coupled with unplanned operational challenges and third-party pipeline outages, which impacted refinery throughput and operational availability.”

It now expects its throughput from its U.S. operations of 370-380,000 barrels per day and 90-95,000 bbls/d for its Canadian operations.

In a research note, ATB Capital Markets analyst Patrick O’Rourke said: “Overall, we view the event as a modest negative, and we would view any material weakness in the stock that results as an opportunity to add to positions in one of our preferred integrated producers.”

First Quantum Minerals Ltd. (FM-T) was up on news it would suspend a “significant amount” of jobs at its operations in Panama if the Central American government forces it to halt operations during a contract dispute.

First Quantum at loggerheads with Panama over tax regime for 2026 onwards, with tension around tax credits as biggest sticking point

“If we have to reduce operations to care and maintenance mode, the company will need to take steps to reduce expenditure across the business. We could be forced to suspend a significant amount of our valued workforce,” the letter sent to employees and seen by Reuters said.

The company’s Cobre Panama mine generates about 40,000 direct and indirect jobs and interacts with some 1,800 suppliers, according to a consultant.

First Quantum was notified on Dec. 21 of a government order for it to create a plan to halt operations within 10 working days, after it missed a deadline for a new contract due to disagreements centered on royalties and tax payments.

“This is a drastic and, in our view, unnecessary step, which will potentially have a huge impact on employees, our suppliers and the community around us,” said the letter, signed by General Manager Alan Delaney.

First Quantum is working on the plan, but expects to reach a deal with the government before the order is enacted, the letter said, adding that its next step will be issuing an appeal.

A spokesperson for the government did not reply to a request for comment on the timetable for the order. The Canada-based miner did not immediately reply to a request for comment.

The two parties have been at odds for more than a year over payments to the government, contract stability and the area of the company’s operations. The government has pushed to raise annual royalties to $375 million.

First Quantum is prepared to meet and even exceed $375 million in royalties per year with downside protections, the letter said, though it did not outline the remaining hurdles preventing the two parties from reaching a contract.

Nuvei Corp. (NVEI-T) erased early losses after announcing it has agreed to buy U.S. payments technology platform Paya Holdings Inc. (PAYA-Q) in a deal valued at US$1.3-billion.

Nuvei will pay US$9.75 per share in cash for Paya, according to a joint statement. While a 25-per-cent premium to Paya’s last close, the deal values the Atlanta-based payments processor around the same level as when it went public through a merger with a special purpose acquisition company (SPAC).

Both Nuvei and Paya went public in 2020, supported by a wave of interest in companies processing payments digitally. However, investors shifted away from such high-growth stocks in 2022, undermining valuations and pushing payments firms to consider consolidation.

For Nuvei, which also listed in the United States in 2021, buying Paya will increase its American business as well as its exposure to payments between companies, a strategy which should make it less susceptible to rapid shifts in macroeconomic conditions and downturns in consumer spending.

“We’re really excited about taking Paya’s capabilities and plugging them into our global payments infrastructure,” Philip Fayer, Nuvei’s chief executive, told Reuters. Nuvei will pay for Paya using cash and debt including a new $600 million first-lien facility.

Fayer noted the merged entity will generate around half its revenue in the United States, compared to the 40 per cent which Nuvei garnered from the United States and Canada combined in 2021.

Toronto’s Khiron Life Sciences Corp. (KHRN-X) jumped after announcing subsidiary Zerenia has signed a contract with Capital Salaud EPS, Colombia’s largest public insurance company, to provide medical cannabis services and products.

Under the dea;, Zerenia will provide integrative health services and medical cannabis products to patients diagnosed with chronic pain, mental health, neurological conditions, and epilepsy, amongst others.

“The city of Bogota has embraced medical cannabis as a catalyst for social and economic growth,” said Khiron CEO Alvaro Torres. “We are honored that Zerenia was selected by CAPITAL SALUD EPS to provide medical cannabis services and products to their patients. Over the past 2 years, Zerenia has invested in expanding its clinic locations across the city, generating proprietary scientific evidence on the benefits of medical cannabis, and delivering superior patient service quality to become the leaders in medical cannabis in Colombia, Latin America and Europe. We are thankful for the confidence placed by CAPITAL SALUD on Zerenia, and with an installed capacity of over 300,000 annual consultations, we are more than prepared to service their patient base. We are convinced that we have created a unique medical cannabis platform that other insurance companies in Colombia and abroad will want to offer to their patients to improve their quality of life.”

Winnipeg-based Delta 9 Cannabis Inc. (DN-T) was higher on the premarket announcement of a series of cost cutting measures as a part of its 2023 strategic plan “with the goal of producing positive cash flow from operations.”

The company’s cultivation capacity at its Winnipeg facilities will be cut by approximately 40 per cent, leading to the temporary layoff of approximately 40 staff members. It expects operating cost reductions of $3-4-million.

“Delta 9′s retail operations have achieved profitability and positive operating cash flows over the past several years,” said chief operation officer Mark Jonker in a statement, “Our cultivation and wholesale cannabis operations have struggled with profitability due to continued price and margin compression in the Canadian cannabis market. Our decision is designed to significantly reduce costs and to chart a near term path to becoming positive cash flow from operations.”

Goldman Sachs Group (GS-N) gained on reports it will start cutting thousands of jobs across the firm from Wednesday as it prepares for a tough economic environment.

Just over 3,000 employees will be let go, a source told Reuters, but the final number is yet to be determined. That scale of layoffs would be the largest since the 2008 financial crisis, one of the sources said.

Bloomberg News reported on Sunday that Goldman would eliminate about 3,200 positions.

Goldman had 49,100 employees at the end of the third quarter, after adding significant numbers of staff during the coronavirus pandemic.

The layoffs are likely to affect most of the bank’s major divisions, but should centre on Goldman Sachs’ investment banking arm, one of the sources said. Wall Street banks have suffered a major slowdown in corporate dealmaking activity as a result of volatile global financial markets.

U.S.-listed shares of Alibaba Group Holding Ltd (BABA-N) rose on news that Ant Group’s founder Jack Ma will give up control of the Chinese fintech giant in an overhaul.

Hong Kong-listed shares of Ma’s Alibaba jumped 7 per cent.

Shares of Longshine Technology Group Co Ltd, Jilin Zhengyuan, Shanghai Golden Bridge Infotech Co , Orbbec Inc and Hundsun Technologies also rose. Ant indirectly owns stakes ranging from more than 20 per cent to slightly more than 5 per cent in those companies.

Ant said over the weekend that founder Jack Ma will give up control of the company. The overhaul seeks to draw a line under a regulatory crackdown that was triggered soon after its mammoth stock market debut was scuppered two years ago.

Redmond Wong, Greater China market strategist at Saxo Markets, Hong Kong, said Jack Ma’s ceding of control of Ant and other businesses would help remove some uncertainties and pave the way to develop and expand the group’s business.

“It should have removed some of the authorities’ concerns about the group as the change was likely a negotiated outcome with the authorities,” Wong said. “And investor sentiment towards the China internet sector is likely to improve further.”

Guo Shuqing, head of China’s Banking and Insurance Regulatory Commission (CBIRC), said in an interview with China’s official Xinhua news agency published on Jan. 7 that rectification of financial businesses of 14 platform companies have been “basically completed,” while a few remaining issues need to be resolved. Guo did not name the companies.

Tesla Inc. (TSLA-Q) was higher as the electric-vehicle maker indicated longer waiting times for potential buyers of some versions of the Model Y in China, signaling that recently announced price cuts could be stoking demand in the company’s second-largest market.

With big bets on Musk, many U.S. equity funds are poised to have a Tesla problem in 2023

The waiting time for orders of the rear-wheel-drive and long-range versions of Model Y was a week longer on Monday than it had been on Friday, Tesla’s website showed.

The wait as of Monday was two to five weeks on those models. The wait time for all versions of the Model 3 and the performance version of the Model Y remained at one to four weeks as of Monday.

Tesla cut prices by 6 per cent to 13.5 per cent on Friday in discounts that brought some of its cars to near BYD’s best-selling models in a step analysts read as a sign that a price war could be building at a time when demand in China has faltered.

As of Monday, Tesla had not made any adjustment to its January production plan for its Shanghai plant, with suspension of the assembly lines to start from Jan. 20 through the end of the month, a person with knowledge of the matter said.

Angry Chinese owners who bought Tesla cars in late 2022 and missed out on the additional discount said they were waiting for a response to the company for their demand for some kind of compensation after a flurry of impromptu protests.

On the decline

Lululemon Athletica Inc. (LULU-Q) said on Monday it expects holiday quarter gross margins to decline as the apparel maker grapples with increased costs amid a drop in consumer spending due to persistently-high inflation, sending its shares lower by over 9 per cent.

A sharp rise in inventory levels has forced several retailers to offer discounts and mark down prices to clear excess stock, a move that has dented margins across the apparel sector.

“Our concern with Lululemon, despite how strong they have been performing in recent quarters, has been the amount of inventory that they have,” said Jane Hali and Associates analyst Jessica Ramirez, adding that excess inventories is where the issue with gross margin is stemming from.

Lululemon’s inventories at the end of the third quarter rose 85 per cent to US$1.7-billion.

The company said it expects gross margin to decline 90-110 basis points in the fourth quarter, compared with its previous expectation of an increase of 10-20 basis points, with William Blair analyst Sharon Zackfia calling the margin pressure “unexpected.”

Lululemon, however, raised its fourth-quarter net revenue forecast to between US$2.66-billion and US$2.70-billion, from its previous range of US$2.61-billion to US$2.66-billion.

It also tightened its outlook for fourth-quarter earnings per share to between US$4.22 and US$4.27, compared with its prior forecast of US$4.20 to $4.30.

In contrast, apparel retailers Abercrombie & Fitch Co. (ANF-N) and American Eagle Outfitters Inc. (AEO-N) issued upbeat holiday-quarter expectations on Monday, benefiting from strong demand across their brands.

Cannabis manufacturer Tilray Brands Inc. (TLRY-T) fell over 8 per cent after reporting it swung to an earnings loss in its second quarter.

The Leamington, Ont-based company announced a new lost of US$61.6-million, versus a profit of US$5.7-million during the same period a year ago.

Revenue of US$144.1-million fell short of the Street’s expectation of US$156.4-million as its cannabis business contributed US$49.9-milliob, down from US$58.8-million a year ago.

“During the second quarter, Tilray Brands took decisive, effective actions to manage operating cash flow and focus the business on accretive acquisitions and a path to long term profitability,” said chairman and CEO Irwin Simon in a release. “And we have certainly done so – even amid an evolving retail environment – by removing costs and driving efficiencies across the platform in supply chain, procurement, packaging, and labor. We are close to achieving our increased annualized cost savings target of $130 million, consistent with our commitment to building a lean, efficient, and dynamic business that will realize tangible and immediate benefits as the market improves.”

TMX Group Ltd. (X-T) turned negative late in the trading session after signing a deal to buy a 21-per-cent stake in VettaFi Holdings LLC for $234-million.

U.S.-based VettaFi is a privately owned data, analytics, indexing and digital distribution company.

TMX chief operating officer Jay Rajarathinam says the investment includes an agreement that will accelerate TMX’s global index strategy and increase the depth and value of data-driven insights the company provides to clients.

The transaction closed Monday.

TMX Group chief executive John McKenzie and Mr. Rajarathinam will join the VettaFi board, effective immediately.

TMX Group is the operator of the Toronto Stock Exchange and other businesses that provide a trading, clearing, depository and other services.

With files from staff and wires