A roundup of some of the North American equities making moves in both directions today
On the rise
Hexo Corp. (HEXO-T) was up after announcing Tuesday it will acquire competitor Zenabis Global Inc. (ZENA-T) in a $235-million deal that will give the cannabis company a European foothold and strengthen its domestic business.
“Hexo’s growth strategy includes expanding our global presence, and this acquisition is an important step in that direction,” St-Louis, Hexo’s chief executive and co-founder, said in a statement Tuesday.
The deal, which will see Hexo acquire two indoor growing facilities and get access to a greenhouse, comes as the Canadian pot market is starting to consolidate amid talk of potential U.S. cannabis legalization.
Tilray Inc. and Aphria Inc. are set to merge later this year, after rumours suggested Aurora Cannabis Inc. was circling Aphria.
AutoNation Inc. (AN-N), largest U.S. auto dealership chain, gained after it reported an 88-per-cent surge in quarterly adjusted profit as it earned more per vehicle thanks to tight inventories and robust demand for SUVs and trucks.
AutoNation Chief Executive Mike Jackson said on Tuesday the shortage in supplies of semiconductors “is significant, and manufacturers can’t give us too much visibility” on how vehicle shipments will be affected. For now, Jackson said, “retailers are managing the situation through price.”
Global auto sales have rebounded from the pandemic lows hit early last year as consumers increasingly prefer buying vehicles that provide more safety than public transportation during the health crisis.
Mr. Jackson said he’s optimistic about U.S. car and truck demand given the combination of low interest rates, stable fuel prices and the prospect of a significant new federal stimulus package.
“You can’t ask for a better environment,” he said.
Fort Lauderdale, Florida-based AutoNation’s gross profit per new vehicle jumped 50 per cent to US$2,775 in the fourth quarter, while it rose 9.6 per cent to US$1,567 for used vehicles.
The company set a long-term goal of increasing combined new and used unit sales to more than 1 million vehicles annually, more than double the number sold in 2020.
Southwest Airlines Co. (LUV-N) was higher after forecasting slower cash burn in current quarter as leisure bookings and demand improve in February.
The U.S. budget carrier said it expects average core cash burn to be about US$15-million a day in the first quarter, compared with the US$17-million it estimated previously.
Southwest, however, said business travel demand and bookings remained depressed.
U.S. airlines expect demand to improve this year as vaccines become more widely distributed but have warned that the strength of any rebound will depend on the pace of vaccine rollouts and the easing of travel restrictions.
So far, the U.S. vaccine roll-out has been patchy and many European countries are discouraging travel and implementing more travel curbs to contain the spread of new infections.
Southwest late last month reported an annual loss of US$3.1-billion, its first such loss since 1972, and said it was facing stalled demand in January and February, driven by high levels of COVID-19 cases and hospitalizations.
Despite strong cost-cutting efforts in place, airlines continue to burn millions of dollars of cash every day.
Southwest also confirmed on Tuesday plans to fly Boeing Co’s 737 MAX, which was approved to fly commercially again in November after a 20-month safety ban, from March 11.
On the decline
Barrick Gold Corp. (ABX-T) was down after saying it has struck a deal to sell its idled Lagunas Norte mine in Peru as part of an ongoing drive to off-load non-core assets.
The gold mine, which was placed on care and maintenance in 2019 as it neared its end of life, is being sold to Boroo Pte Ltd. of Singapore for up to US$81-million, plus the assumption of Barrick’s closure liability of US$226-million.
Barrick says the deal will give Boroo the opportunity to extend the mine’s life by accessing satellite resources and adapting its infrastructure, adding a Barrick team will remain in Peru to continue to develop its portfolio of other gold and copper exploration prospects there.
The Toronto-based miner says the Lagunas Norte buyer is to pay US$20-million initially, US$10-million on the first anniversary of closing and US$20-million on the second anniversary.
Dorel Industries Inc. (DII.B-T) dropped after its founder and private equity giant Cerberus Capital Management pulled the plug on their effort to take the Canadian consumer products company private following what appears to be insurmountable opposition to the proposal from shareholders.
The outcome thrusts the spotlight back onto Dorel chief executive Martin Schwartz and other founders and senior leaders, who now face increased investor expectations to build on COVID-19 sales gains and bring the company’s three different business lines back to steady profit growth. It also raises questions about whether Mr. Schwartz and his family, who control Dorel through multivoting shares, still harbour a desire to pursue a similar transaction in the future.
A deal between Dorel and the Cerberus-led buying group to purchase the maker of Schwinn bikes and Maxi-Cosi baby strollers for $16 a share in cash and take it private has been terminated by mutual agreement, Montreal-based Dorel said in a statement Monday. A vote on the transaction that was to take place Tuesday has been cancelled.
- Nicolas Van Praet
In a research note, ATB Capital Markets analyst Chris Murray said: “No acquisition metrics were provided however, we anticipate values and structures would be typical for tuck-in type acquisitions. We view the announcement positively given expectations for strong infrastructure activity in the region and find it in-line with management commentary around growing the Firm’s presence in Australia given expectations for strong infrastructure spend in the region. The transaction remains consistent with Managements commentary to accelerate M&A activity in 2021, with Australia, New Zealand, the UK and Europe all areas where transactions could be expected.”
Transat AT Inc. (TRZ-T) was down after saying it has been informed by Air Canada (AC-T) that it has refused to extend the deadline for its $188.7-million takeover deal beyond Feb. 15, after European regulators failed to give their approval.
While the companies are discussing potential amendments, there can be no assurance that an agreement will be reached, or that Air Canada or the company will not terminate the deal if the relevant circumstances so warrant, Transat said in a statement.
The European Commission, which has requested additional information from the companies, is expected to arrive at a decision only in the first half of 2021, Transat said.
The Canadian government has already approved the deal, subject to a number of conditions.
Dye & Durham Ltd. (DND-T) fell on the announcement of a $500-million bought deal offering of common shares and convertible debentures with an underwriting syndicate led by Canaccord Genuity Corp., BMO Capital Markets and Scotia Capital Inc.
The company intends to use the net proceeds to fund potential future acquisitions, working capital requirements and other general corporate purposes.
With the deal, the firm announced the cancellation of its second-quarter conference call, which was scheduled for 8:30 a.m. ET.
CVS Health Corp. (CVS-N) dipped after forecasting full-year earnings largely below estimates as the pharmacy chain operator’s health insurance business grapples with costs related to the resumption of non-urgent surgeries that were halted during the pandemic.
Last year, as people avoided visiting hospitals for scheduled procedures due to the coronavirus outbreak, health insurers benefited from lower costs.
Now with COVID-19 vaccinations underway, non-urgent procedures are expected to bounce back to normal levels, leading to higher costs for health insurers.
CVS operates a large health insurance business, acquired through its US$69-billion purchase of Aetna in 2018. The unit took a hit in the fourth quarter due to higher costs related to coronavirus testing and treatments.
The company’s medical benefit ratio (MBR), the percentage of premiums paid for medical services, rose to 86.7 per cent from 85.7 per cent last year, hurt by higher costs related to COVID-19 treatments and tests.
A lower MBR is better for health insurers as it signals a tight rein on medical costs.
Sales at the company’s pharmacy unit was boosted by COVID-19 testing at its retail locations, with CVS also expected to benefit from distributing COVID-19 vaccines across the country.
CVS expects 2021 adjusted profit between US$7.39 and US$7.55 per share, compared with analysts’ estimates of US$7.54 per share, according to IBES data from Refinitiv.
On an adjusted basis, the company earned US$1.30 per share in the reported quarter, beating estimates of US$1.24 per share.
U.S. data analytics firm Palantir Technologies Inc. (PLTR-N) on Tuesday reported a 40-per-cent rise in sales in its second quarterly results since going public in September last year.
However, shares of the Denver-based company were down after having surged over threefold since its public listing.
The company, co-founded in 2003 by billionaire Peter Thiel, signed 21 contracts each worth US$5-million or more during the fourth quarter and said it expects sales in the first quarter to grow by about 45 per cent from a year ago.
Known for its work with the Central Intelligence Agency and other government agencies, Palantir has been partnering with big private sector names including Rio Tinto and International Business Machines for data offerings.
Although the stock has been a point of discussion on WallStreetBets, a forum on Reddit popular among retail investors, some analysts have cautioned that the company’s guidance does not match up to the meteoric rise in its stock.
WallStreetBets was at the heart of a recent retail frenzy in U.S. stocks, driving up prices of many shorted companies including videogame retailer GameStop Corp and theater chain operator AMC.
Washington-based CoStar Group Inc. (CSGP-Q) was lower after announcing on Tuesday it has made a US$6.9-billion all-stock offer to buy CoreLogic Inc. (CLGX-N), weeks after the real-estate data provider agreed to be acquired by two private equity firms.
CoStar offered 0.1019 shares of its common stock in exchange for each share of CoreLogic, implying a value of about US$95.76 per share. The offer represents a premium of 16.8% to CoreLogic’s close on Friday.
The offer is also higher than the US$6-billion deal CoreLogic and private equity firms Stone Point Capital and Insight Partners had agreed to earlier this month.
Reuters had reported in October that CoStar and a private equity consortium led by Warburg Pincus and GTCR were among the bidders seeking to acquire CoreLogic.
With files from staff and wires