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What’s next for ShawCor as sale process comes up short?

ShawCor sale will draw big crowd, high price

Ewan Nicholson

Investors who bet on takeovers are about to take it on the chin once again with shares of ShawCor likely to plunge in the wake of a fruitless auction for the company.

With all the fuss around the big deals in the oil patch, the one takeover in Canada that seemed likely to come to fruition without much trouble seemed to be the sale of pipeline supplier ShawCor. However, the company said after markets closed Monday that the sale process wasn't going well and a deal was now unlikely.

Look for the stock to slump down to at least $40 on Tuesday, from Monday's close of $45.94.

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At that level, the shares are "likely to attract fundamental buying from investors and where we find the risk/reward quite attractive," RBC analyst Dan MacDonald said in a note. He said solid earnings for the third quarter should keep the stock from falling all the way to the mid $30s where it traded before ShawCor said it would seek buyers.

Still, that will be a huge blow to investors who play takeovers for a living – one of a series in Canada. First Astral Media's sale was blocked by regulators, then Progress Energy Resources suffered the same fate.

Of course, it wasn't regulators who were the problem in ShawCor's case. The perception was that there was plenty of interest in ShawCor so the failure of the sale process so far is a big surprise. In fact, ShawCor confirmed that there were "several" options.

It appears to onlookers like the Shaw family members who control the company may have decided that the offers coming in were not good enough.

"Recognizing that transactions are never simple to complete, recall that we always saw the controlling shareholder as an additional wild card, as we were not privy to its intentions or expectations," said Mr. MacDonald.

Mr. MacDonald raised one possible remaining option, a collapse of ShawCor's dual class share structure with a buyout of the multiple voting class B shares. That could be done at a price up to $70 a share and still be accretive for owners of the class A subordinate voting shares, he estimated.

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