stats
globeinteractive.com: Making the Business of Life Easier

   Finance globeinvestor   Careers globecareers.workopolis Subscribe to The Globe
The Globe and Mail /globeandmail.com
Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space


Search

space
  This site         Tips

  
space
  The Web Google
space
   space



space

  Where to Find It


Breaking News
  Home Page

  Report on Business

  Sports

  Technology

space
Subscribe to The Globe

Shop at our Globe Store


Print Edition
  Front Page

  Report on Business

  National

  International

  Sports

  Arts & Entertainment

  Editorials

  Columnists

   Headline Index

 Other Sections
  Appointments

  Births & Deaths

  Books

  Classifieds

  Comment

  Education

  Environment

  Facts & Arguments

  Focus

  Health

  Obituaries

  Real Estate

  Review

  Science

  Style

  Technology

  Travel

  Wheels

 Leisure
  Cartoon

  Crosswords

  Food & Dining

  Golf

  Horoscopes

  Movies

  Online Personals

  TV Listings/News

 Specials & Series
  All Reports...

space

Services
   Where to Find It
 A quick guide to what's available on the site

 Newspaper
  Advertise

  Corrections

  Customer Service

  Help & Contact Us

  Reprints

  Subscriptions

 Web Site
  Advertise

  E-Mail Newsletters

  Free Headlines

  Globe Store New

  Help & Contact Us

  Make Us Home

  Mobile New

  Press Room

  Privacy Policy

  Terms & Conditions


GiveLife.ca

    

PRINT EDITION
Torys law firm names first new leader in 21 years
space
space
By ANDREW WILLIS, CHRISTINE DOBBY
  
  

Email this article Print this article
Thursday, October 17, 2019 – Page B1

Torys LLP, one of Canada's top law firms for mergers and acquisitions, has named its first new leader in 21 years, with private-equity specialist Matt Cockburn poised to take over as managing partner.

Long-time firm leader Les Viner, 63, will hand the reins to his 52year-old colleague in April. Mr.Cockburn joined Torys as a summer student in 1992 and built the firm's private-equity practice. He has been on Torys' seven-lawyer executive committee for much of the past eight years. Torys ranked among the top 20 law firms in the world last year on volume of M&A deals.

At a time when many law firms are choosing to expand globally with their corporate clients, Torys's new boss plans to stick with running a relatively small firm.

Mr. Cockburn said the firm will deepen its focus on growth sectors such as intellectual property, private capital, renewable energy and Indigenous law, and launch teams that specialize in emerging fields such as cybersecurity, commercialization of the North and water rights.

On Mr. Viner's watch, Torontobased Torys merged with a firm in New York and later built a national presence by opening offices in Calgary, Montreal and Halifax.

The firm is now home to approximately 360 lawyers and articling students, which makes it a relatively small corporate law practice.

There are about 100 firms globally that employ more than 1,000 lawyers, and several of Torys' Canadian rivals have more than 600 lawyers.

During a joint interview at the Torys office in Toronto, Mr. Viner and Mr. Cockburn said the firm considered planting its flag in regions such as Europe, but decided it was not the best solution for Canadian clients who could be better served by the top lawyers in foreign jurisdictions. A decade ago, Torys also decided against bulking up in Canada by merging with a global firm after getting negative reviews on the concept from clients.

Torys found that its customers, which include many of Canada's largest companies and pension plans, are concerned that a bigger law firm would be more prone to conflicts of interest.

"The secret sauce is that we all know each other," Mr. Cockburn said, saying that while the firm may be small even for the Toronto market, "that is what allows us to be very nimble and very flexible. And I think most importantly, it allows us to maintain this culture we have."

The new managing partner's appointment came after an eight-month process that saw Torys' succession committee, working with an outside consultant, vet a number of internal candidates before recommending Mr. Cockburn. The firm's partners unanimously approved his appointment on Wednesday.

Mr. Cockburn said he is focused on ensuring the firm is an enjoyable place to work with initiatives such as flexibility on maternity and paternity leaves as well as a dress code put in place this August that allows lawyers to go casual every day, provided they have business clothes stored at work for unexpected client meetings.

The firm was founded in 1941 by John Stewart Donald Tory, who was later joined in the practice by his twin sons, John A. Tory and James M. Tory. John A.'s son is John Tory, the mayor of Toronto and former Rogers Communications Inc. executive. In 1999, the firm (which was then known as Tory Tory DesLauriers & Binnington) merged with New York firm Haythe & Curley.

In one of his early moves as managing partner, Mr. Viner announced the ejection of named partner Thomas Haythe after a sexual-harassment scandal; the firm was subsequently rebranded as simply Torys.

"We fired him immediately. And it was a very traumatic event, but we're very proud of how we behaved.

We held our culture through a crisis that tested it," Mr.Viner said. "It affirmed that doing the right thing is the right thing and also works for your business."

In 2015, the firm launched an "onshoring" legal-services centre in Halifax, where lawyers do recurring legal work such as due diligence and contract review for fixed-rate fees. Torys uses Halifax in part as a test bed for new technology before the firm rolls it out on a broader basis.

Mr. Cockburn said integrating technology into the firm's existing processes will be a critical focus of the next five years.

"In a world of greater pressure on the billable hour and greater drive for efficiencies from all of our clients, we really need to crack that nut.

But I don't think you crack it by just driving your prices down; you crack it by being much more efficient in how you deliver the service," he said. "So people are getting really, really high quality service, but it's priced differently going forward."

The managing-partner appointment is for a five-year term, but Mr. Cockburn - who will leave his practice to take on the role - said he ideally hopes to remain in the job until he is 65, the mandatory retirement age according to firm policy.

Associated Graphic

Long-time Torys leader Les Viner, left, will hand the reins to Matt Cockburn in April.

FRED LUM/ THE GLOBE AND MAIL

Matt Cockburn, left, who is set to take over Torys from Les Viner, right, seen in Toronto on Wednesday, says the law firm's 'secret sauce is that we all know each other.' Mr. Cockburn's appointment was the result of an eight-month process.

FRED LUM/THE GLOBE AND MAIL


Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Morguard stands to benefit when a real estate downturn strikes
space
Property owner's plan to buy office and retail spaces could prove profitable should a recession arrive
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, October 14, 2019 – Page B2

Most investors dread the prospect of a recession. Morguard Corp. chief executive Rai Sahi, on the other hand, is setting up his company to take advantage of an inevitable downturn in real estate markets.

Mr. Sahi, a classic value investor, built a $21-billion property portfolio and a $2-billion personal fortune by patiently buying up stakes in office buildings, condo developments and golf-course owner ClubLink, when these properties were out of fashion or when their owners needed to cash out quickly. Mr. Sahi's favourite buildings aren't the ones that win architectural prizes or dot downtown skylines. They're properties you see along a highway that cut through the suburbs. These are buildings that Mr. Sahi buys for less than their book value, renovates, then milks for the cash that comes from long-term leases.

Last month, Morguard's 73-year-old boss signalled that he now sees value in strip malls, a segment of the real estate market that's decidedly out of step with a world that's consumed with online shopping. Morguard and Mr. Sahi's personal holding company announced it boosted its stake to 14.7-per-cent ownership of Plaza Retail REIT, a Fredericton-based company with a $455-million market capitalization. In investment banking circles, this is what's known as a toehold investment, a sign that the buyer has plans to come back for more.

"We do not believe a transaction for Plaza Retail REIT is imminent," said Pammi Bir, real estate analyst at RBC Dominion Securities Inc.

"However, given the patient, value bias of Morguard's CEO, we would not rule out the possibility of a more substantive future investment or transaction in the longer term."

Plaza owns 277 properties, most of which are open-air malls or large singlestore developments in Quebec, Ontario and the Atlantic provinces. If you pull into a Dollarama, Shoppers Drug Mart or Tim Hortons in small-town Eastern Canada, you're probably parking at a Plaza property.

Late last year, Plaza's board told anyone who was listening that their business was undervalued. The company decided not to raise its dividend, which Mr. Bir said "was no small change in thinking given Plaza's previously unmatched 15-year streak of distribution increases."

Instead, Plaza said it would devote cash to buying back its own units and buying properties. Plaza CEO Michael Zakuta, one of the company's largest shareholders, said: "Our unit price does not reflect the underlying value of our business, nor our very strong pipeline of development and redevelopment projects."

Mr. Sahi agrees. In an e-mail, Morguard's CEO said the Plaza units "were acquired for investment purposes, at a price we believe to be below their fair value."

Morguard disclosed that it most recently snapped up Plaza units for $4.20 each. By RBC Dominion's calculation, the company's book value is $4.64 a unit. Plaza units closed on Friday at $4.44 on the Toronto Stock Exchange.

Mr. Sahi went on to say that there was a strategic rationale behind the purchase.

Morguard's CEO pointed out that Plaza's holdings in Eastern Canada dovetail neatly with his company's existing portfolio, which is concentrated on Ontario, Alberta and the United States, and is weighted more to residential and office buildings than retail properties.

As with many of his investments, Mr.

Sahi's initial approach is to remain a supportive passive investor, even though Morguard is now Plaza's largest singleunit holder. He said, "The Plaza management team is successfully executing on a business plan to strengthen its portfolio every year, as it continues to pursue opportunistic acquisitions, as well as strategic leasing and redevelopment opportunities."

However, Mr. Sahi has shown in the past that he's more than willing to buy properties when everyone else is selling.

The current economic cycle is fuelled in large part by consumer spending and is long in the tooth.

A downturn, when it comes, will likely see consumers slash spending, which would knock the stuffing out of retailers, and also be hard on their landlords. It's easy to imagine a recession turning investor sentiment against a real estate play such as Plaza, and opening the door to a takeover from a contrarian such as Mr.

Sahi.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Hockey, baseball and buzzwords
space
Rogers Media's new boss talks a good game. But does Jordan Banks have the answers? Susan Krashinsky Robertson and Andrew Willis report
space
By SUSAN KRASHINSKY ROBERTSON, ANDREW WILLIS
  
  

Email this article Print this article
Saturday, October 12, 2019 – Page B1

When Rogers Communications Inc. hired Jordan Banks as the new president of its media division this summer, it was not just announcing new leadership. It was sending a message.

The symbolism was clear. On the way out was a seasoned broadcaster, Rick Brace, who first went into the television business more than 40 years ago and had been pulled out of retirement to take the job in 2015. On the way in was a former eBay Inc.

and Facebook Inc. executive, a generation younger, with long experience in technology and e-commerce but virtually none in the worlds of TV and radio.

Whether the 51-year-old Mr.

Banks has what it takes to modernize the media business Ted Rogers built is very much an open question.

What's not in dispute is that it's already in a state of some turmoil. In the past year it has jettisoned some high-profile (and expensive) personalities at Sportsnet, cancelled the traditional "up-front" presentation for advertisers in a cost-cutting move, sold off its publishing business for loose change, and seen the exit of the last of the executives who negotiated its blockbuster $5.2-billion, 12-year rights deal with the National Hockey League.

The latter remains the centrepiece of the challenges Mr. Banks is taking on - a pricey, uncertain deal that was signed even as the TV audiences were splintering and consumers were changing the way they watch and pay for sports. The NHL contract is a treadmill that keeps picking up speed: The cost of the rights escalates over the term of the contract.

That means the company must boost hockey revenues to keep pace with costs. While the NHL contract helped make Rogers Media a larger business - revenues last year were nearly $2.2-billion, up from $1.7-billion in 2013 - the division doesn't earn a lot more now that it did then.

Advertising is part of the problem. Consider the sheer number of advertisements on Sportsnet and Citytv that are for other Rogers products or are public-service ads, such as those against drunk driving.

Those are spots that haven't been sold. Advertising dollars have steadily flowed out of all forms of conventional media and toward digital players, particularly Google and Facebook, Mr. Banks's former employer.

In effect, people like Mr. Banks were part of the problem for Old Media companies such as Rogers. Does he have any solutions?

"Rogers clearly has incredible assets and properties that need to be rethought," Mr. Banks says. In his first interview since taking the job, Mr. Banks discussed the company's plans for streaming, his view of the NHL deal and his firm belief that the media business is not broken.

"We are rethinking how to be more relevant, more often, to more people in Canada," he says, "acknowledging that the digital transformation that we are in the middle of is profound."

But Mr. Banks seems unwilling to acknowledge that this transformation has left Rogers on the back foot. In fact, during a lengthy conversation at Rogers headquarters in Toronto, he even denies that digital giants such as Facebook have amassed more market power than his new employer.

This astonishing claim comes just after he has finished diagramming the business model of Rogers Media in a rather analog way: taking a marker to a large paper pad in the corner of the room. The upside-down pyramid he draws lays out the basic arithmetic of media: win customers' attention, and you make money on advertising (and in the case of streaming or cable TV packages, through subscriptions). The problem of course, is that consumer attention is more divided than ever - with competition from digital giants whose market dominance far outstrips Rogers's.

"I would respectfully disagree, a little bit, on that," he replies.

Why? Rogers's local presence is "stronger than any global platform," he argues, thanks to its radio stations in more than two dozen markets, Rogers TV and Citytv stations.

BET ON SPORTS Mr. Banks's second reason for being so bullish is a hectic, anxiety-ridden world that drives people toward entertainment consumed socially - in other words, sports.

"We own sports in this country," he boasts. "I can't imagine a better mix of sports rights exists anywhere."

Ever since the NHL deal, Rogers has been on a years-long mission to focus its media strategy on sports.

"Now we have sold off the publishing business, what you see in our media business is sports.

That continues to have very good top line growth," said Anthony Staffieri, Rogers's chief financial officer, at a recent BMO Capital Markets conference.

The idea is that sports is one of the few programs people feel the need to watch live, which helps protect TV ad revenue. And it's content that people will pay for, in subscriptions.

Indeed, Sportsnet has been able to charge more for TV subscriptions - even while, like many specialty television services, it has been shedding subscribers.

In 2017, the number of Sportsnet subscribers fell by more than 7 per cent to 7.5 million, while subscriber revenue grew almost 4 per cent to $293.4-million, according to numbers submitted to the Canadian Radio-television and Telecommunications Commission (CRTC). Subscriber numbers declined again last year, to less than 7.2 million, while subscriber revenue grew another 10 per cent to $323.7-million. (Those numbers reflect only the flagship Sportsnet channel.)

Because Rogers does not break out results for its Sportsnet Now streaming service, it's hard to know how many of those subscribers are migrating from cable TV owned by Rogers to streaming owned by Rogers. What is clear, however, is that the TV subscribers who are left, are paying more. The question is how long Rogers will be able to push prices higher in an era of cable cord-cutting.

The media group's top line sales are expected to grow at a 2-per-cent to 3-per-cent annual clip, according to Mr. Staffieri, an improvement over revenues that were flat over the past 12 months.

At the same time, Rogers is taking the axe to costs, including saying goodbye to high-priced athletes and TV and radio hosts. That is expected to boost profit margins.

The Blue Jays, for example, lost 95 games this year and finished near the bottom of the league.

The Jays traded several of their top-paid players, including fielder Kevin Pillar, who made US$5.8-million, and pitcher Marcus Stroman, who earned US$7.4-million.

Financially, the season was a success. Rogers Media's all-important earnings before interest, taxes, depreciation and amortization (EBITDA) rose by $12-million to $72-million in the most recent quarter. The group's EBITDA margin increased to 12.2 per cent from 9.9 per cent, a jump that analyst Drew McReynolds at RBC Dominion Securities Inc. said was "primarily due to lower Blue Jays salaries."

Mr. Banks says he believes Rogers Media is protected in these down periods by a fan base that is loyal.

"What I love about this business is, you have this core group ... that good times and bad, will listen to the FAN, will watch Leafs games, will go watch the Blue Jays," he says.

Still, there were more than a few empty seats at the Rogers Centre this year. Mr. Banks acknowledges that "winning is a crucial accelerant" to attracting less-rabid fans who may go dormant when teams don't perform. Asked whether that means more investment in Blue Jays salaries, he says only, "I think the entire Rogers organization is interested in winning at everything we do."

Part of coping with change is also making media assets more personalized, Mr. Banks says. He'd like to see Rogers offering more services to sports fans such as sending alerts to their phones with highlights when a favourite player scores a goal, or providing more information to help them manage their fantasy leagues.

In his research note, Mr. McReynolds pointed out that management expected EBITDA to grow further this year, "driven by continued cost efficiencies."

As the analyst wrote these words, Rogers let go hockey commentators Nick Kypreos, Doug Maclean, and John Shannon and high-profile radio broadcaster Bob McCown, who was one of the country's best-paid media personalities, earning more than $1-million a year.

In one of many examples of Rogers Media trying to do more with less, Mr. McCown will be replaced on Monday by hosts Tim Micallef and Sid Seixeiro, who will do double duty as hosts of both the company's national drive-home radio show and the Tim & Sid TV show on Sportsnet.

"What happened over the summer, I think, was a terrific job done by my predecessor, Rick, to make sure that we acknowledge things are changing and we need to change with them," Mr. Banks says. "... I'm the beneficiary of that. I'd be lying to you if I said that that wasn't a consideration of me taking the role. If this was a total turnaround, I wouldn't have been so interested."

HOCKEY BUSINESS The success of Rogers's sports-media strategy hangs on the massive NHL-rights deal - "the greatest sports rights in Canada," Mr. Banks says - which is now at the halfway mark with six seasons to go.

When asked whether Rogers is making money on the deal, Mr. Banks says that three weeks into the job he isn't sure. "I haven't dug deep enough to figure out from an accounting perspective," he says.

Sportsnet president Bart Yabsley isn't saying either. "It's a great deal for us. We're really happy with it."

Hockey has pushed revenue sharply higher for Rogers Media, but the division's profits have followed more modestly. In 2013, the year before the hockey deal kicked in, Rogers Media reported revenue of $1.70-billion and adjusted operating profit of $161-million. In 2018, revenue was $2.17-billion and adjusted EBITDA (the profit measure it currently discloses) was $196-million.

While Rogers wants its radio and TV stations to make money, their contribution to the company's bottom line is minimal. However, Rogers is hoping for success in sports translating into increased awareness and loyalty from owners of its cell phones and internet services.

"Sports sponsorship can enhance customer stickiness and loyalty," said June Cotte, a professor who teaches marketing at Western University's Ivey Business School.

Linking the Maple Leafs, Raptors, Toronto FC and Blue Jays to sports stations and cell phone and cable marketing campaigns makes sense to analysts, but it is harder to make a case for continuing to own traditional broadcasters such as Citytv. "I think investors understand how media assets with a direct association to sports can complement the legacy network business. It's less clear how City fits into the thesis, particularly given the secular challenges facing conventional television," said Tim Casey, an analyst at BMO Capital Markets. He added: "Radio, while small, does support the Rogers brand from a promotional perspective and it does have attractive free cash flow conversion."

But not everyone is convinced TV and radio networks that rely on hockey and other pro sports can continue to prosper.

"We're bearish on sports leverage. We think sports rights fees are rising at a seven per cent compound annual growth rate and could go higher in the next round of resets. It's tough to imagine revenue growth can match that," Steven Cahall, media analyst at investment bank Wells Fargo Securities LLC, said in a recent report on U.S. broadcasters.

"We believe the leagues will continue to cannibalize viewership with OTT [over-the-top, a term for digital audio and video streaming] and digital deals."

However, Mr. Banks says Rogers will not have to worry about the price of rights for another six seasons, and that the company is "delighted" with the NHL contract.

"Knowing what I know now, would I do that deal again? I'd do that deal again all day till Sunday," he says.

When the Toronto Maple Leafs were eliminated in the first round of the NHL playoffs last spring, Rogers saw postseason audience numbers fall.

That's important because advertising revenue fluctuates with audience numbers - and a good season can have reverberations, helping to sell advertising in the following year. Mr. Banks is hoping for a different result in this year's postseason. He cites the Raptors' playoff run as a perfect example of what winning can do. (Rogers holds half of the Raptors' broadcast rights.)

"The Raptors win the championship, you see ratings and attendance go up 40 per cent," Mr. Banks says. "If we got any of that same result - which we will, when Canadian teams in the NHL ultimately go to the playoffs - it bodes very well for our business." TV AND STREAMING That business is changing fundamentally, however.

Mr. Banks brings the buzzy language of the tech world into his new role. He describes Rogers Media not as a media business, but as a "platform."

But something gets lost in translation. Platforms, unlike media companies, don't pay for content. Facebook and Google, which together have reshaped the digital advertising market, don't pay for rights fees, broadcast talent or writers. With no geographically restricted rights deals, no regulation, no networks to build, their scale has extended around the globe.

And the data they gather on their users' habits and interests draw marketers to spend billions on advertising with them. These platforms' growth has occurred largely at the expense of other media companies, as advertisers shift more of their investments into digital. Having spent seven years at Facebook, Mr. Banks knows that advertisers will follow audiences.

And those audiences are not signing up for more TV subscriptions. In 2013, 81.5 per cent of Canadian households paid for cable, satellite or internet protocol television (IPTV); by 2017, that number had fallen to 72.3 per cent, according to the most recent CRTC numbers.

"Something like 50 per cent of all media in Canada right now is consumed OTT," Mr. Banks says. "... Anybody under the age of 35, that's probably 80 per cent. ... We're not going to change the emerging consumption habits of consumers. We need to be bigger, stronger and more aggressive in the OTT space."

He points to the Citytv and FX apps as an example of Rogers Media's forays into streaming, and says the company will continue to expand the formats in which it delivers content "to help bolster" the business. That could include partnerships with streaming services or with other content owners.

The streaming space is becoming more competitive by the day, as both tech and entertainment giants - including Apple Inc. and Walt Disney Co. - are launching their own services. Streaming is also affecting the radio business: Rogers already makes podcasts, but is now working on a strategy to make its radio brands heard on smart speaker systems, which Mr. Banks sees as the future of the radio business.

Ideally, a Google Home or Alexa assistant would call up content from 680 News or Sportsnet 590 The Fan on demand. "You can't just think about radio. You need to think about the power of voice and audio," Mr. Banks says.

Coping with all of this change will require investment. Before taking the job, Mr. Banks says he met with the board, the chief executive officer and chief financial officer, and the Rogers family - asking them all what the commitment is to the media business. He says he heard a common refrain that there was "not only the appetite to invest but the necessity to invest." However, the figure he cites to illustrate that commitment - $2-billion - was the operating expense of running the media division last year, rather than fresh capital spending. Pushed on this point, Mr. Banks says, "a dollar is a dollar."

At least one industry peer has already decided media and telecom businesses are best operated separately: In 2016, Shaw Communications Inc. sold Shaw Media to Corus Entertainment Inc., the media business Shaw spun off in 1999.

But at least for now, Mr. Banks says Rogers will back the media business through the transition that is to come. Before the days of cable or internet, Rogers was a media company and the family's roots are in radio.

"Their family legacy sits right in the heart of media," Mr. Banks says. "... As long as the family is around ... it's going to be a part of the business that is meaningful."

Associated Graphic

ILLUSTRATION BY SABRINA SMELKO

Seasoned broadcaster Rick Brace, above, was pulled out of retirement to become Rogers media division president in 2015. He has been replaced by former eBay and Facebook executive Jordan Banks, top.

DARREN CALABRESE/THE GLOBE AND MAIL

Wednesday, October 16, 2019
Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Oil's insider buying hints at faith in market
space
Canadian industry executives are purchasing stock at a steadily rising number of domestic energy companies, report finds
space
By ANDREW WILLIS
  
  

Email this article Print this article
Saturday, October 5, 2019 – Page B4

Oil patch executives are showing their faith in made-in-Canada energy by stepping up their purchases of shares in their own companies, a trend that flies in the face of rising insider sales in other sectors.

At a time when domestic oil and gas plays face serious headwinds in the form of low commodity prices, pipeline bottlenecks and concerns about climate change, insiders are buying stock at a steadily increasing number of Canadian energy companies, according to a report published on Friday by AltaCorp Capital Inc.

The Calgary-based investment bank found that in September, senior executives and directors were snapping up shares at more than two-thirds of the domestic oil and gas companies it tracks. AltaCorp's research shows insider buying bottomed out in the spring of 2016, about a year into a continuing slide in commodity prices, when just 15 per cent of domestic companies reported insiders were buying shares.

"While weakening economic data, trade tension and record valuation levels for many companies have spurred insider selling, Canadian energy insiders appear to remain confident in their businesses," said Patrick O'Rourke, an energy analyst at AltaCorp. He said: "The insider activity in the energy sector suggests management teams see a growing disconnect between their share prices and business fundamentals."

Insider buying in the oil patch comes at a time when corporate leaders in other sectors are cashing in stock at a furious pace on the back of a decade-old bull market. Statistics from Smart Insider, a British data firm, show insiders at U.S. companies sold US$19-billion of equity so far this year, and are on pace to cash in US$26-billion. That would make 2019 the most active year for insider sales since the run-up to the dot-com boom in 2000, when insiders sold US$37-billion of stock before a market correction.

Insiders at energy companies large and small are eating their own cooking. The chief executive officer, former chief operating officer and chief financial officer of Encana Corp. were all buying stock this summer, even though what was once Canada's largest oil company is in a prolonged slump, with its stock price down 60 per cent over the past 12 months.

Michael Rose, the CEO of Tourmaline Oil Corp., has consistently been betting on himself and his team by buying stock. Insiders are also stepping up at Birchcliff Energy Ltd., adding to their holdings as the stock price fell more than 50 per cent in the past year, a decline that meant Birchcliff was one of eight energy stocks dropped from the S&P/TSX Composite Index in late September because the market capitalization fell below the benchmark's threshold. Mr.

O'Rourke said: "These CEOs look at risks and rewards and they see compelling value."

Insider buying in the oil patch is based on fundamentals for energy stocks and a belief that fossil fuels have a promising future.

Analyst Phil Skolnick at Eight Capital said most Canadian oil and gas stocks are relatively cheap by conventional metrics.

"When we talk to management teams, they are confident in the resilience of their businesses and the strength of their balance sheets at lower oil prices, particularly given the focus on reducing cost structures," Mr. Skolnick said.

"This is especially true for the oil sands and integrated companies, which are, for the most part, generating strong free cash flow and have relatively low decline rates on their reserves."

To date, oil patch executives are losing money by betting on their own companies. Altacorp's Mr. O'Rourke said stock prices of the energy companies his firm follows are down an average of 28 per cent, year-to-date, and as prices fell, the pace of insider buying picked up. The show of faith from domestic insiders comes in spite of what global oil companies are doing in Canada. A string of international players, including ConocoPhillips Co., Royal Dutch Shell PLC and Total SA, got out of the Alberta oil sands in recent years.

There are plenty of reasons for insiders to sell stock: They could be taking profits, buying a new home, donating to a charity or paying for a divorce. Insiders buy for only one reason: They expect the stock price to rise. In Canada's beleaguered oil patch, insiders are increasingly bullish.

Associated Graphic

An Encana pumpjack and well are seen in Drumheller, Alta., in 2014. The CEO, former chief operating officer and chief financial officer of Encana all bought stock in the company this summer - even though it is experiencing an extended slump, with its stock price down 60 per cent over the past year.

LARRY MACDOUGAL/THE CANADIAN PRESS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Northland Power shows public markets still matter
space
Green energy company bucks recent trend as its aggressive international growth plan gets strong stock-sale endorsement
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, September 30, 2019 – Page B2

Green energy company Northland Power Inc. raised $346-million in a stock sale this month to pay for an acquisition in Colombia, a deal that gave comfort to Canadian CEOs with ambitions outside the borders.

Toronto-based Northland plans to spend $1.05-billion on an electrical distribution network that serves 1.3 million South American customers, adding the utility to a portfolio that already includes wind farms and solarpower facilities in Canada, Germany, Taiwan and Mexico.

To pay for the acquisition, the company sold $346-million of what's known as subscription receipts - securities that get exchanged for Northland common shares if the deal closes as anticipated, but are refunded to investors if the transaction fails to close. Northland will borrow the rest of the money it needs to buy the Colombian business from a unit of Brookfield Asset Management Inc.

Raising money for an acquisition should have all the drama of ordering a pizza - investment banks do these bought-deal share sales all the time. But in recent months, a string of equity offerings was poorly received.

Banks struggled to sell shares in miner New Gold Inc., broadcaster Corus Entertainment Inc.

and cannabis producer Green Organic Dutchman Holdings Ltd.

Going into the Northland offering, there was reason to wonder whether public market investors would put their cash behind a relatively aggressive strategic move: Colombia has a reputation for political instability and crime.

The lack of investor appetite for what Corporate Canada is serving up feeds into a larger debate over the relevance of ordinary, retail shareholders in a market that's increasingly dominated by passive investors, such as index funds, and private sources of capital, including pension plans and asset managers such as Brookfield and Blackstone Group LP.

Investment bankers are wringing their hands over a steady slide in public market offerings, traditionally a highly profitable line of business. Despite strong performance from stock markets that are hitting record highs, the value and volume of equity financing in Canada is dropping steadily, to $27-billion over the past 12 months from $34-billion in the same period last year, and $47billion in the same period four years ago. Add in a sustained drop in stock-trading commissions, another once-reliable source of profit that's been disrupted by technology, and it's easy to argue the dealers' future doesn't match their illustrious past.

The banks charged with raising money for Northland Power - CIBC Capital Markets and National Bank Financial led the offering - faced an added challenge. Company founder Jim Temerty sold $862-million of his holding last March as part of an estate-planning exercise, so investors interested in owning the renewable energy play already had an opportunity this year to fill their boots.

Like most successful stock sales, Northland Power got the deal done by selling a growth story. Colombia's economy is expanding at a 3.5-per-cent annual clip and chief executive officer Mike Crawley pitched investors on an electrical distribution business located near the capital, Bogota, that features "a stable regulatory framework offering an inflation-protected perpetual cash flow profile and serves as a platform for future growth."

At a time when North American utilities such as Ontario's Hydro One Ltd. are seeing regulators mandate low-single-digit returns from customers, Northland can expect to earn an 11.5-per-cent annual return on its South American investment, according to analyst Nelson Ng at RBC Dominion Securities Inc.

"In an environment where development returns are compressed, we believe the Colombian regulated utility offers Northland Power an attractive geography and business to deploy capital," Mr. Ng said.

Investors who stepped up for Northland's subscription receipts have already made a small gain, as the securities were sold for $24.25 each, and the stock closed Friday at $25.26 on the Toronto Stock Exchange.

Expansion into brave new worlds such as South America is the great challenge for CEOs such as Mr. Crawley. The risks are clear.

Yet an international growth plan is also all but essential for public companies based in Canada, a country with a relatively small, slow-growth domestic market.

That's the reality that shareholders decided to back when they committed cash to Northland Power's billion-dollar acquisition in Colombia.

NORTHLAND POWER (NPI) FRIDAY CLOSE: $25.26, DOWN 19¢

Associated Graphic

Northland Power is known primarily for renewable-energy facilities, such as these solar panels in Ontario, but it is now adding an electrical distribution network in South America.

JOHNNY C.Y. LAM/THE GLOBE AND MAIL


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
A sound economic plan for a better Canada, not attack ads, will win votes
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, September 23, 2019 – Page B1

The CEOs of Canada's largest companies were worried about exactly the same thing as you were going into this federal election campaign. Which party leader is best prepared to run this country for the future?

To turn around the infamous words of former Progressive Conservative prime minister Kim Campbell in 1993: An election should be a time to discuss serious issues. In that election, won handily by Jean Chrétien's Liberals, the major parties debated how to stir an economic recovery and bring down a large fiscal deficit. The 1988 election turned on the issue of free trade with the United States.

Other campaigns have been characterized by well-articulated, opposing views on defining economic matters such as inflation and the cost of living.

So far in this campaign, the Liberals and Conservatives seem focused on talking about anything other than business. To the increasing frustration of the business community, an election that should be about big ideas and inspiration is bogged down in attacks ads, sound bites and a scandal over Liberal Leader Justin Trudeau having worn blackface in the past.

Since Wednesday, political debate has revolved around images of Mr. Trudeau wearing brownface or blackface, thoughtless acts that won't change many votes in the business community. (The executive crowd knows a little about embarrassing behaviour at galas, after watching CEOs form samba lines with nearly naked dancers at past Brazilian Balls. The well-attended Toronto charity event closed down in 2012.)

Liberals on Bay Street, and they are legion, will still vote for the party, knowing full well the leader prefers photo ops to policy talks.

Conservatives in the financial community, and there are fewer than you might think, are equally set in their ways.

They were wearing "Make Trudeau a Drama Teacher Again" T-shirts long before they learned about his Arabian Nightsthemed costume from 2001.

CEOs want to hear Mr. Trudeau and Conservative Leader Andrew Scheer talk about what matters to working Canadians, because that's what's important to them and the thousands of employees they manage. They want to know what our next prime minister will do to make Canadian businesses more competitive on a world stage. Is there a way to help entrepreneurs create world-beating companies, rather than selling out at the first opportunity? What's your detailed plan, please, on the tax system, on trade, on infrastructure, and especially on the environment?

Instead, Mr. Trudeau is spending his time apologizing for wearing blackface, while Mr.

Scheer is intent on scoring populist points. In case you missed it, Mr. Scheer's major economic policy announcement last week was plans for $1.5-billion in cuts to "business welfare."

Targets of the Conservative Leader's scorn included a $12-million government grant for energy-efficient fridges at Loblaw Cos.

Ltd. and a $20-million subsidy at a chicken-processing facility that Maple Leaf Foods Inc. is building in London, Ont. The Weston clan, owners of the Loblaws chain, hand out paycheques to 200,000 people, making them the country's largest private-sector employer. Maple Leaf has 12,000 employees.

Both companies are considered leaders in dealing with environmental issues such as climate change. Are these the bad guys?

Former Conservative prime minister Stephen Harper used to say his party's policies were aimed at the folks who drank their morning coffees at Tim Hortons, not the elites who order Starbucks. Mr. Scheer is trying out the same approach, portraying himself as a man of the people, while painting Mr.Trudeau as a fan of a decaf cappuccino. It's a divisive strategy, and it's likely wrong.

The Tim Hortons-drinking, working-class voter shares the same frustrations and fears as the country's business leaders, according to pollster Nik Nanos at Nanos Research. His research shows one unifying trend - coast to coast to coast - is anxiety about the country's economic future and the standard of living of next generations.

Canadians of all income levels fear the next generation will be worse off than this one. A leader who offers a vision of hope and the promise of a better, richer Canada, will win the support of more than just CEOs.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Chinese mining company Jiangxi targeting First Quantum for potential takeover bid, sources say
space
space
By ANDREW WILLIS, NIALL MCGEE
  
  

Email this article Print this article
Saturday, September 21, 2019 – Page B2

State-controlled mining company Jiangxi Copper Corp. Ltd. is stalking Vancouverbased First Quantum Minerals Ltd., owner of the largest copper mine in Africa, an approach driven by the Chinese government's drive to lock up supplies of natural resources in the continent.

First Quantum recently hired investment bankers and lawyers to deal with a potential takeover bid from Jiangxi, China's largest copper producer, according to financial industry sources who asked not to be named because they are not authorized to speak for the company. These sources said Jiangxi has not made a formal offer, and may decide to abandon the chase.

First Quantum's share price jumped a total of 20 per cent on Thursday and Friday.

Bloomberg this week reported possible takeover interest by global miners and a toehold 9-per-cent investment in the Canadian miner by Jiangxi. First Quantum stock closed Friday at $12.21 on the Toronto Stock Exchange, valuing the company at $8.4-billion. Lisa Doddridge, director of investor relations at First Quantum, declined comment on Friday.

First Quantum expects to produce about 718,000 tonnes of copper this year, or about 3.5 per cent of the entire global market. It owns two mines in Zambia, including Kansanshi, Africa's biggest copper mine, in which it has an 80-per-cent stake. It also has properties in Europe, Australia and Panama.

Chinese entities snapped up several copper and cobalt mines in recent years in what's known as Africa's Copperbelt, a mineral-rich region that straddles Zambia and the Democratic Republic of the Congo.

The move is part of Chinese President Xi Jinping's strategy to control what the government views as essential commodities.

Publicly traded mining companies, including Freeport-McMoRan Inc. and Ivanhoe Mines Ltd., are either selling Copperbelt mines or taking on partners in the face of weak commodity prices and tax disputes with local governments.

Jiangxi currently owns mines in China and properties in Peru and Afghanistan. In 2017, the company's chairman said during a conference that Jiangxi plans to make acquisitions in Africa.

Shane Nagle, mining analyst with National Bank Financial, said First Quantum's high debt and weakened share price make it vulnerable to a takeover. "It makes sense that somebody would take an opportunistic look at First Quantum."

As of the end of June, First Quantum was carrying US$7.6-billion in debt, along with US$895-million in cash. Much of the debt was incurred by the company's 2013 acquisition of Inmet Mining Corp. and the subsequent construction of a massive copper mine in Panama. First Quantum spent about four years building Cobre Panama, a project it inherited from Inmet. The mine, which shipped its first concentrate in June, has been long touted as the company's major growth project but construction went about $400-million over budget and cost $6.7-billion to build.

A number of the large global diversified miners, such Rio Tinto PLC, BHP Billiton Ltd. and Glencore International PLC, have expressed interest in adding to their copper portfolios, Mr. Nagle said. One, or all of them, may be interested in taking a look at First Quantum, he added.

First Quantum's shares are trading at a discount compared with the large global miners in part because of its heavy exposure to copper. After trading up to US$2.97 a pound in April, copper prices have fallen about 13 per cent in the past six months, amid a weakening outlook for global economic growth and a continuing trade war between China and the United States.

Despite the frosty relationship between the Chinese and Canadian governments, mining companies based in China have successfully acquired domestic miners with operations outside Canada.

FIRST QUANTUM (FM) CLOSE: $12.21, UP $1.01


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
AGF cashes out of Britain in merger of money managers
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Friday, September 20, 2019 – Page B1

AGF Management Ltd. scored a bigger-than-expected $320-million payday from the planned merger of two large British money managers, leading analysts to shift their views on a Toronto-based investment company that had been in a long slide.

Asset manager Smith & Williamson Holdings Ltd., which is 33.6-per-cent owned by AGF, said early Thursday that it will join forces with rival Tilney Group Ltd. in a transaction that will create one of Britain's largest independent wealth managers, with £45-billion (about $75-billion) in assets.

The proceeds of the deal, which include $277million in cash and a 2.3-per-cent stake in the merged company, are significant for an entity the size of AGF, which has a market capitalization of just $500-million, after a long stretch in which it has lost clients and assets.

AGF's share price rose 6 per cent on Thursday to $6.15 and is up 35 per cent since mid-August, when Smith & Williamson confirmed that it was in merger talks. Analysts previously estimated AGF would receive approximately $240-million for its stake.

The company's decision to sell the bulk of its stake in Smith & Williamson, more than 20 years after it first entered Britain, reflects the rising cost of doing business in that country because of regulatory changes that include significant government pension changes unveiled in 2015, said AGF executive chairman Blake Goldring. He said the political uncertainty surrounding Brexit played no role in the move, as AGF began looking for an exit before the referendum on leaving the European Union in 2016.

"The U.K. is an attractive market for fund managers, it's one of the world's largest economies, but it does require scale," said Mr. Goldring. Because of concerns over Brexit-based currency moves, AGF hedged the cash portion of the proceeds from the deal to protect against any decline in the value of the British pound between now and the close of the transaction, which is expected by March, 2020.

AGF has $37.4-billion of assets under management, with a stable of products that includes mutual funds sold through financial advisers and funds targeted at institutional investors. Like many independent wealth managers, AGF struggled in recent years to retain market share in the face of competition from larger rivals, such as the banks, and lower-cost alternatives such as exchange-traded funds.

AGF chief executive Kevin McCreadie said in a news release: "The return on our investment gives us the flexibility to redeploy capital in a number of ways, including funding future share buybacks, servicing debt repayment and continuing to invest in new areas of growth."

In a research report, analyst Paul Holden at CIBC World Markets Inc. said, "We see the potential for AGF to execute on other value-surfacing transactions." Mr. Holden raised his target price on AGF shares to $8 from $7.50.

He said the company's mutual-fund sales are showing "material improvement" and AGF is diversifying its sources of growth and earnings by building out an alternative-assets business. In the past, AGF has found buyers willing to pay a premium for businesses it is selling, including the $415-million sale of its trust unit to Laurentian Bank in 2012.

"We're focused on offering investment strategies that are clearly differentiated," Mr. Goldring said. In the past five years, AGF has launched an alternativeasset management unit that focuses on infrastructure, which now has $2.4-billion in assets, and an ETFs division that manages $1.1-billion.

The tie-up with Tilney is Smith & Williamson's second attempt to strike a merger in as many years. In 2017, the company disclosed that it was in talks with London-based Rathbone Brothers, but the two were unable to agree on terms of a transaction. When the deal died, Mr. Goldring said Smith & Williamson began working on an initial public offering while also starting talks with Tilney, which culminated in a merger.

Tilney is a 183-year-old company and is emerging as a consolidator in the relatively fragmented British wealthmanagement industry. British private equity fund Permira purchased Tilney five years ago - the company was previously controlled by Deutsche Bank - and introduced a strategy of expanding through mergers and acquisitions.

Smith & Williamson was founded in Glasgow in 1881.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
CannTrust has shot at redemption but a breakup is more likely
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Wednesday, September 18, 2019 – Page B1

Health Canada handed CannTrust Holdings Inc. a slim shot at redemption by setting out the steps the company must take to win back government licences that are now suspended. But don't count on a comeback.

If management can somehow work its way back into the federal regulator's good books - no easy task - it's likely to be a rival cannabis producer that benefits, by swooping in to snap up the company's assets. As the poster child for all that has gone wrong with marijuana legalization, CannTrust's name is mud in the capital markets, and it will struggle to get the cash it needs to survive and rebuild.

CannTrust owns everything needed to become a credible player in cannabis - except, now, credibility and licences. The company has massive greenhouses in the Niagara region, a processing facility in Vaughan, Ont., a portfolio of recreational cannabis brands and more than 70,000 medical marijuana customers. What CannTrust lacks is the ability to do anything with those assets, except perhaps to cough them up to somebody else.

Health Canada formally suspended CannTrust's production licences on Tuesday, the latest in a series of regulatory setbacks. Federal regulators have stopped all cannabis sales from the company.

The sanctions come after Health Canada investigators, acting on a whistleblower's tip, discovered in June that CannTrust had grown thousands of kilograms of cannabis in unlicensed facilities.

In July, a special committee of CannTrust's board bid farewell to the company's CEO, Peter Aceto, and its chairman, Eric Paul, both of whom apparently knew of the unlicensed grow areas. The board then hired investment bank Greenhill & Co. Canada Ltd. to run a review of strategic alternatives, including "a sale of the company or a portion thereof."

CannTrust said on Tuesday that Health Canada could "potentially" reinstate its licences if the company makes a number of improvements to its operations, including ensuring cannabis will only be produced and distributed as authorized and improving its record-keeping. However, CannTrust faces a real risk of running short on cash before it wins back its licences, as the mandate for Greenhill & Co. shows.

CannTrust's was burning through $16-million a quarter to fund its operations before the company's regulatory issues became public.

Early in September, the company laid off 120 employees or 20 per cent of the work force to cut costs. In addition to keeping the lights on, CannTrust faces significant costs to deal with regulatory issues. Class-action lawyers are lining up to sue the company, which lists its stock on both the Toronto and New York exchanges.

Upstart cannabis companies typically burn far more cash than they raise through marijuana sales. They count on regular trips to the capital markets to keep their coffers full as they expand operations. But CannTrust will struggle to tap public investors, to put it mildly, in the wake of a US$200-million equity offering in May that left a stench on Wall Street and Bay Street. The financing - led by BofA Merrill Lynch, Citigroup, Credit Suisse Securities and RBC Capital Markets - featured significant stock sales from company insiders, including Mr. Paul, the former chairman.

CannTrust's share sale in May played out at US$5.50. CannTrust's shares closed Tuesday at US$1.29 on the NYSE, down 14 per cent during the session. What was a billion-dollar company earlier this year now has a market capitalization of US$181-million.

No rival wants to shoulder the regulatory burden that comes with a full-scale takeover of CannTrust, according to investment banking sources. However, executives at several cannabis companies have already said they would be interested in specific parts of the business, under the right circumstances.

Health Canada's road map to regaining cultivation licences provides potential bidders with the information they need to make offers for CannTrust's greenhouses, production facilities, recreational brands or the medical marijuana business. So the most likely end to the CannTrust saga is the breakup of the company, rather than redemption for the business.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Canadians can expect to pay as insurers brace for bad weather
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Saturday, September 14, 2019 – Page B1

I n the dry language of actuaries, the islands of the Bahamas are experiencing what's known as an insurance gap.

After being devastated by Hurricane Dorian earlier this month, the island nation faces an estimated US$32-billion in cleanup costs. Insurance companies are expected to pay just US$5-billion of the bill, according to RBC Capital Markets Inc. That leaves an insurance gap -- the difference between cost of damage and what insurers will cover - at 85 per cent of the capital required to rebuild the Bahamas. There's untold human suffering behind that gap, as home owners, businesses and governments struggle to find the money for repairs and to restore communities. The insurance industry, on the other hand, sailed through the storm.

Share prices held steady in recent weeks at property and casualty (P&C) and reinsurance companies that cover catastrophic events such as hurricanes, including Canadian players such as Intact Financial Corp. and Fairfax Financial Holdings Ltd.

What just played out in the Bahamas is an extreme example of how insurers are deftly avoiding some of the risks that come with increasingly violent storms, wildfires and other manifestations of climate change. "Underwriters are wise to the potential for complete property losses on low-lying islands in a peak hurricane zone," said analyst Mark Dwelle at RBC Capital Markets. In a report, he said the high cost of insurance in the Bahamas excludes most potential customers, and companies will not even consider insuring poorly built homes and business facilities.

Consumers and governments need to wake up to the implications of an insurance industry that's pulling back from policies it traditionally offered. As those who live in flood-prone areas of New Brunswick, Ontario and Quebec have found out in recent years, a dream home beside a lake, river or forest that was cheap to insure against flood and fire in the past will be more expensive, or simply impossible, to protect in the future.

For Canadian insurers, the cost of disaster damage has been doubling every five to seven years since the 1960s, according to data compiled by the Institute for Catastrophic Loss Reduction, affiliated with Western University.

Before 2010, statistics from the Insurance Bureau of Canada show only one year when catastrophic losses in Canada totalled more than $1-billion. That was 2005, when tornadoes tore through southern Ontario in early August.

Since 2010, catastrophic losses exceeded $1-billion in every year but one, including $5.1-billion of claims in 2016, the year of the wildfires in Fort McMurray, Alta. The cost of cleaning up after Hurricane Dorian in Nova Scotia and Newfoundland will qualify as another catastrophic loss, with claims likely to be well over $25-million, according to Toronto-based consulting firm Catastrophe Indices and Quantification Inc.

At Canada's largest P&C insurer, Intact Financial, the majority of home insurance claims used to be for fire damage. That began to change a decade back, as the insurer began paying out ever-increasing amounts to settle claims for extreme weather events, such as floods in Alberta. Last year, water damage accounted for 40 per cent of Intact's Canadian property claims, and home insurance was the Toronto-based company's fastest-growing line of business. That's prompted a shift in the company's strategy.

"We saw the canary in the coal mine 10 years ago and we've been helping our customers manage the direct effects of increased flooding, fire and other extreme weather events ever since," Charles Brindamour, Intact's chief executive officer, said in a speech at the company's annual meeting in May. "We are working with other global insurers, governments and non-government organizations on climate change."

Intact's strategic shift in the face of climate change includes philanthropy. In the past four years, the company donated more than $6-million to causes that include the Intact Centre for Climate Adaptation at the University of Waterloo. The company is also lobbying government. Mr.

Brindamour met with the Prime Minister earlier this year to make the case for natural assets as critical infrastructure, explaining that protecting wetlands can mitigate flood damage by up to 40 per cent. Intact and several other insurers made consumer education a priority, launching campaigns that show homeowners how to waterproof their basements.

Intact, a top performer on the Toronto Stock Exchange over the past decade, is also constantly refining its approach to property insurance by adjusting the price of its policies to match the rising costs of claims, and exiting areas it deems too risky. In a recent investor presentation, Mr. Brindamour highlighted the fact that Intact expects to post industry-leading profit margins on home insurance "even with severe weather."

The insurance industry is prepping to stay profitable in the face of more category-five hurricanes. For consumers, that will mean higher prices for home policies, or dealing with a growing gap between what their insurance covers and the cost of storm damage.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
ANDREESCU A HOT PROPERTY FOR ENDORSEMENT DEALS
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Thursday, September 12, 2019 – Page B18

TORONTO Bianca Andreescu expects to sign at least two major endorsement deals in the next few months, according to her agent, Jonathan Dasnières de Veigy, at sports-management agency Octagon Sports and Entertainment Network. Andreescu is currently sponsored by Nike, BMW and vegan restaurant chain Copper Branch, which signed her for approximately $50,000 annually last year.

Andreescu is "authentic, fresh, very strong and fearless," Dasnières de Veigy said, when asked to define the athlete's personal brand. "At the same time, she is a typically millennial and any teenager can see herself in Bianca."

Andreescu began working with Octagon three years ago and Dasnières de Veigy said that over the past year, the agency introduced the tennis player to marketing executives at a number of global consumer-product companies, anticipating the day when she started winning tournaments. "Honestly, we didn't think that day would come so soon, but now she's arrived, we're in a position where we don't need to rush," Dasnières de Veigy said.

"We're turning down a lot of opportunities and offers. We want to be careful and extremely [selective], to do the right partnerships.

"First and foremost, we want to ensure that Bianca is at the peak of her game as a professional athlete," said Dasnières de Veigy, a former professional tennis player. "Our job is to keep her life as simple as possible, so she can focus on tennis."

Octagon has eight employees working for Andreescu, including public-relations professionals and financial advisers.

The tennis player has another seven staff taking care of her athletic needs, including trainers, a sports psychologist and practice partners.

Octagon, which has 50 offices in 22 countries, represents 70 tennis professionals. The agency also works with former NBA most valuable player Stephen Curry and swimmer Michael Phelps. ANDREW WILLIS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
THE BRANDING OF BIANCA
space
Canada's first winner of a Grand Slam singles title is set to cash in on endorsements: 'She's a very hot commodity right now'
space
By ALEXANDRA POSADZKI, ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, September 10, 2019 – Page B1

Bianca Andreescu may be a proud Canadian, but becoming the country's first Grand Slam singles champion in tennis has catapulted her to international fame - and with that comes global sponsorship opportunities.

The 19-year-old from Mississauga already has endorsement deals from two international brands - Nike and BMW - and winning the U.S. Open last Saturday is likely to lead to new and higher offers, experts say.

Ms. Andreescu's two-set victory drew 5.3 million Canadian viewers to TSN at its peak, a record turnout for tennis in the country and a larger audience than games in the 2019 Stanley Cup final.

"She's a very hot commodity now," says David Soberman, a professor of marketing at the University of Toronto's Rotman School of Management. "The costs to get her, as a sponsor, will be much higher."

Montreal-based vegan restaurant chain Copper Branch signed an endorsement deal with Ms. Andreescu last March, prior to her winning the Rogers Cup in Toronto or the U.S. Open and ascending to the No. 5 spot in the WTA's world ranking, for a mere $50,000.

Mr. Soberman estimates she could now command at least two or three times that for a similar contract.

He added that it would be prudent for Ms. Andreescu to sign sponsorship deals now, in the wake of her victory.

"There are a lot of people who just win one Grand Slam," he said.

"You never know if they're going to pan out."

Ms. Andreescu's family roots in Romania add to her global appeal and could lead to offers from European brands as well as those in North America, Mr. Soberman added.

"This is a person with strong Romanian roots, with a Romanian name and her parents are both born in Romania," the professor said. "In Eastern Europe, she'd be very popular."

Behind the scenes, the business of Bianca is run by sports management agency Octagon Sports and Entertainment Network, which has 50 offices in 22 countries. Ms. Andreescu's team has global connections. Her agent, Jonathan Dasnières de Veigy, is based in Paris and is a former professional tennis player.

Octagon owns or runs 16 tennis tournaments, played in 12 countries. The agency based in Stamford, Conn., also represents 70 tennis pros Octagon also works with former NBA most valuable player Stephen Curry, who has built a personal brand that makes him one of North America's most recognized and respected athletes.

The firm has existing ties to international consumer products companies such as Mastercard Inc., Sony Corp.'s PlayStation division and brewer Anheuser-Busch InBev SA/NV. Octagon is a subsidiary of Interpublic Group of Cos. Inc., a publicly listed advertising and marketing agency with a head office in New York and 54,000 employees.

While Octagon is likely to be fielding a lot of calls regarding Ms.

Andreescu's opportunities, it's important for the athlete to be selective about the partnerships she takes on, says Vijay Setlur, a sports marketing instructor at York University's Schulich School of Business in Toronto.

"It's not about accumulating as many as possible, it's about associating with the right brands," Mr.

Setlur said. After all, endorsement deals come with time demands.

"If she takes on too many of these partnerships then it's going to conflict with her training, with her practice schedule and even with matches," Mr. Setlur said.

"So she has to be very selective with what she takes on, not only from an image standpoint, but also from a practicality standpoint when it comes to scheduling."

Ms. Andreescu will be playing for international audiences in late October, when she is scheduled to travel to China for the Shiseido WTA Finals in Shenzhen, China. The event features the top eight-ranked female singles and doubles players competing for a total of US$14-million in prize money, plus a Porsche for the player who enters the tournament ranked No. 1.

Ms. Andreescu is already driving a BMW X5, courtesy of her endorsement deal with the German automaker.

Although sports marketing is a bigger industry in the United States, with more lucrative contracts, experts say the opportunity to partner with Ms. Andreescu - who, as a teenager, still has a long career ahead of her - could prompt Canadian brands to shell out big bucks as well.

"I think it's an epic opportunity for Canadian brands," said Cary Kaplan, president of Cosmos Sports & Entertainment, a sports marketing agency based in Mississauga. He points to the Toronto Raptors as an example. Although the team won the NBA championship this year, few people expect them to continue to win titles in the next few years, particularly now that Kawhi Leonard has signed with the Los Angeles Clippers.

"It feels like Bianca can be a sustainable Canadian champion for a decade, and that is very unusual," Mr. Kaplan said. "Teams almost never do that."

Associated Graphic

Bianca Andreescu works with sports management agency Octagon Sports and Entertainment Network. Octagon also works with NBA star Stephen Curry, who has built a personal brand that makes him one of North America's most recognized athletes.

JOHANNES EISELE/AFP/GETTY IMAGES

Mississauga's Bianca Andreescu, seen lining up a serve against Serena Williams in New York on Saturday, has family roots in Romania, a fact that one marketing expert says would likely make her 'very popular' in Eastern Europe.

EDUARDO MUNOZ ALVAREZ/AP


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Cenovus looks to share buyback to cure its financial ills
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, September 9, 2019 – Page B1

Cenovus Energy Inc. is suffering from a two-year, deal-induced hangover.

The oil sands company's improving fortunes are finally offering a chance to cure its lingering financial headache.

Cenovus, along with a number of Calgary-based rivals, stepped up as buyers in 2017 when a wave of large foreign energy companies decided to exit Alberta. No one matched Cenovus's spending. The company dropped $17.7billion to acquire Canadian properties from Houston-based ConocoPhillips Co.

The acquisition was, to put it mildly, poorly received. Cenovus's stock price tanked, its chief executive departed four months later, Canadian heavy oil prices dropped and the company has struggled ever since to pay down debt and restore its credibility with investors.

The hangover stems from the way Cenovus paid the bill. As part of the purchase price, ConocoPhillips agreed to take 208 million Cenovus shares, plus more than $14-billion in cash. The Texas company said at the time that it would eventually sell the stake, currently worth $2.5-billion.

Cenovus's stock price has been depressed by the prospect of a massive share sale from ConocoPhillips ever since the deal was announced in March, 2017. A Reuters story last summer saying ConocoPhillips was preparing to offload the holding instantly knocked back Cenovus's stock price by 7 per cent, although nothing happened.

A number of large stock sales have flopped, as the institutional investors who make or break large transactions showed little interest in adding to their portfolios. Equity offerings this year involving Corus Entertainment Inc., New Gold Inc. and cannabis producer The Green Organic Dutchman Holdings Ltd. all proved difficult to sell, despite being offered at significant discounts to where those stocks were trading at the time.

After two years' hard slogging to pay down debt, Cenovus has another way to take out the ConocoPhillips stake: Buy it back.

The company's peers have shown the way. Right now, investors find little to love in the Canadian oil sands. Alberta oil commands a price well below North American benchmark levels.

Pipelines aren't getting built and the previous Alberta government of Rachel Notley curtailed production. Most Canadian energy stocks trade at historically low valuations, based on metrics such as price to cash flow.

Cenovus's peers, such as Imperial Oil Ltd., Canadian Natural Resources Ltd. and Suncor Energy Inc., responded to these headwinds by launching massive share buyback programs. But Cenovus couldn't contemplate buybacks, as it carried $13-billion of debt coming out of the ConocoPhillips takeover. For the past two years, paying back loans was management's priority.

The company signalled a shift in strategy when it announced its most recent financial results in late July. Debt is down to $7.1-billion and chief executive officer Alex Pourbaix said: "As we relentlessly pursue getting our net debt even lower, to $5-billion, our balance-sheet strength positions us to also consider opportunities for increasing shareholder returns and disciplined investments in our business."

An aggressive buyback program is a low-risk way for Mr.Pourbaix to deliver on the promise of better returns for shareholders, who hold stock that is more than 30-per-cent lower than where it traded when Cenovus announced the ConocoPhillips deal.

Investment bankers are already pitching the CEO on the concept.

Cenovus churned out $1.6-billion of cash flow from operations in the first six months of the year.

Going forward, a significant portion of this money could be earmarked for buying the company's own shares from investors, including ConocoPhillips. For a sense of just how quickly Cenovus could shrink the Conoco block, consider how aggressively its peers are buying back their own stock.

Imperial Oil threw off $2-billion of cash in the first six months of the year and spent $729-million on buybacks. Exxon Mobil Corp. is one of the Imperial Oil shareholders taking advantage of the program. The U.S. parent constantly raises cash by selling shares, keeping its ownership stake steady at just under 70 per cent of the Canadian company.

Canadian Natural Resources generated $2.9-billion of cash in the first half of the year and bought back $632-million of its own stock. The largest oil sands player, Suncor, churned out $5billion of cash and plowed $1.1-billion into share repurchases.

With debt now at acceptable levels, Cenovus is in a position to start a buyback program that soaks up $1-billion or more of its own stock annually (the market cap is just under $15-billion today).

By taking part, ConocoPhillips could cash in a significant portion of its holding with minimal market impact. For Mr. Pourbaix, it could be the remedy for a lingering hangover.

Associated Graphic

An oil sands facility is seen near Fort McMurray, Alta. Calgary-based Cenovus has generated $1.6-billion in cash flow from operations in the first six months of 2019.

JASON FRANSON/THE CANADIAN PRESS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Marketing appeal rises with Andreescu's star power
space
space
By ALEXANDRA POSADZKI, ANDREW WILLIS
  
  

Email this article Print this article
Saturday, September 7, 2019 – Page B1

When Copper Branch, a Montreal-based vegan restaurant chain, signed a marketing deal with Bianca Andreescu in March, for a mere $50,000 or so, its timing could not have been better.

The 19-year-old from Mississauga started the year at No. 152 in the Women's Tennis Association's rankings. Since then, she's rocketed to No.

15, and on Saturday will face off against 23-time Grand Slam champion Serena Williams in the final of the U.S. Open, the world's richest tennis tournament.

The match is expected to draw a massive viewership. Thursday night's semi-final was the most watched U.S. Open broadcast ever on TSN, the Canadian broadcaster said on Twitter. Audiences peaked at more than 1.5 million viewers at 11:14 p.m. as Ms. Andreescu sealed her victory against Switzerland's Belinda Bencic.

The big numbers for TSN are a boon to advertisers, but don't boost the network's bottom line immediately since it sells almost all its ads for the event before it starts. However, sources at the network, who were granted anonymity because they are not permitted by their employer to speak on the record, say TSN plans to increase the advertising rates on tennis tournaments featuring Ms. Andreescu in future.

Copper Branch, meanwhile, is hoping that Ms. Andreescu's meteoric rise will lead to more Canadians seeking out its power bowls and smoothies. "It's just been really amazing to see how quickly she's risen and how much exposure she's gotten so quickly," Copper Branch's marketing director Andrew Infantino said in an interview. "It's definitely been more positive than we could have imagined."

Copper Branch - which has more than 65 locations, most of them in Canada - first connected with Ms.

Andreescu through her agency, Octagon. The restaurant chain wanted to partner with a Canadian athlete who could represent its health-focused brand, and Ms. Andreescu fit the bill.

The company recorded an inspirational commercial with the young athlete devouring its Aztec bowl and is currently looking at other ways to make her image more prevalent in its restaurants.

"For us, relating to athletic performance and the extraordinary accomplishments of athletes and high performance is really an important part of our branding," Mr.Infantino said.

It may be some time before Ms.Andreescu is earning as much as her opponent. Ms. Williams, 37, will earn US$25-million from offthe-court endorsement deals this year, according to Forbes. Her long list of sponsors includes Gatorade, JPMorgan Chase and Wilson Sporting Goods.

It's not clear what Ms. Andreescu is earning from her endorsements. Her stable includes BMW Canada and Nike Inc., but is expected to get bigger, says David Soberman, a professor of marketing at the University of Toronto's Rotman School of Management.

"She was always a player with a lot of promise, but nobody could have imagined that she'd be in the finals of the U.S. Open," Prof.

Soberman said. "Any time you sponsor an athlete, it's a gamble."

Contracts are generally exclusive by category, so it's likely that Ms. Andreescu can't sign another restaurant, apparel company or automaker, but her rise to superstardom is likely to attract offers in other categories such as beverages or food products, Mr. Soberman added.

Brands that Canadians have a strong connection to - such as Canadian Tire, Tim Hortons or the big banks - are also likely to be interested, said Cary Kaplan, president of Cosmos Sports & Entertainment, a sports marketing agency.

"She talks about being Canadian all the time," Mr. Kaplan said. "She talked about how it was a dream to win the Rogers Cup. I think if you're growing up in the states or Europe, you might dream of Wimbledon or the U.S.

Open. But winning a tournament on Canadian soil was not just something she did, but something she said she always dreamed of - people really appreciate that."

Her Canadian pride is particularly poignant after Kawhi Leonard's decision to sign with the Los Angeles Clippers after leading the Toronto Raptors to their first NBA championship win, Mr. Kaplan said. And her humility and sportsmanship - exemplified by the hug she shared with Serena Williams after Ms. Williams was forced to withdraw from the Rogers Cup owing to a back injury - make her the kind of athlete that brands will want to associate themselves with, Mr. Kaplan said.

"She brings a really Canadian personality," Mr. Kaplan said.

"She's very humble. ... And she's very respectful of the sport of tennis. She appreciates what someone like Serena Williams has done in her career, and that's very endearing."

In another bit of prescient marketing, BMW signed Ms. Andreescu as a spokeswoman in June, prior to her win at the Rogers Cup and U.S. Open. The deal is part of BMW's three-year sponsorship of Tennis Canada, and is driven by the expectation that a new generation of Canadian players will captivate the public for years to come. "The choice to focus in on the highest performing young athletes has resulted in some phenomenal results. The game has never been hotter in Canada," BMW spokesman Marc Belcourt said.

As BMW's brand ambassador, Ms. Andreescu appears on socialmedia channels and is expected to make in-person appearances for the automaker. She's currently driving a BMW X5 sport-utility vehicle - its base price is $76,000 - as part of the endorsement deal, but Mr. Belcourt said the automaker expects it will soon be upgrading her ride.

Meanwhile, Copper Branch is keen to renew its one-year contract with Ms. Andreescu for the long term, but it may have to give her a big raise.

"She's doing incredibly well, so I'm sure she would demand a higher amount," Mr. Kaplan said.

Associated Graphic

Nineteen-year-old Bianca Andreescu, seen playing during the U.S. Open semi-final match she ultimately won against Belinda Bencic in New York on Thursday, is expected to see more endorsement deals as she rises to superstardom.

CLIVE BRUNSKILL/GETTY IMAGES


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Li Ka-shing company made $12.4-billion Inter Pipeline bid
space
Calgary-based utility rejected offer amid tensions between Canada, China
space
By ANDREW WILLIS, JEFFREY JONES
  
  

Email this article Print this article
Friday, September 6, 2019 – Page B1

Hong Kong-based CK Infrastructure Holdings Ltd., a company backed by one of Asia's wealthiest families, bid $12.4-billion for Inter Pipeline Ltd. this summer, only to see the Calgary-based utility spurn the takeover for reasons that include perceived political risks.

CK Infrastructure, a public company controlled by billionaire Li Ka-shing, pitched a friendly cash offer of $30 a share at Inter Pipeline in July, a 30-per-cent premium to where the company's stock was trading at the time, according to sources familiar with the two companies. The Globe and Mail is keeping the sources' names confidential because they were not authorized to speak publicly on the matter.

The Globe reported on the offer in early August, but not the identity of the bidder.

In response to a request from regulators, the Canadian utility put out a press release last month that said: "Inter Pipeline confirms that it received an unsolicited, non-binding, conditional and indicative proposal to purchase the company but it is not in negotiations with any third party."

Several analysts and bankers said the language in Inter Pipeline's press release, which refers to a "conditional" proposal, might point to an offer that was only valid if it receives government approval in Canada.

The Globe is keeping the names of the bankers and analysts confidential because they were not authorized by their employers to speak on the record.

The two countries are currently at odds over the arrest last December of Huawei Technologies Co. Ltd. chief financial officer Meng Wanzhou in Vancouver and subsequent detention of two Canadians in China, and there is a bitter trade war playing out between China and the United States. The analysts and bankers said Inter Pipeline's directors, working with lawyers and financial advisers, decided not to open talks with CK Infrastructure because they did not believe they could close the deal.

Both CK Infrastructure and Inter Pipeline declined to comment on Thursday. One of the sources familiar with the two companies said CK Infrastructure remains interested in bidding for the Canadian company.

They also say Inter Pipeline would hold a full-scale auction of the company if they do decide to sell it, rather than only negotiating with CK Infrastructure.

Inter Pipeline carries oil from Alberta's oil sands to major export pipelines and has a large natural gas liquids processing operation. It also has a network of bulk fuel terminals in Europe, which it is currently trying to sell. The company is developing a $3.5-billion petrochemical plant near Edmonton, called Heartland, that has stretched its finances.

The cost of funding Heartland - the company may have to issue equity or take on a larger debt burden to complete it had depressed Inter Pipeline's stock price, according to analysts. The analysts said Inter Pipeline's board may have turned down CK Infrastructure's overtures because the company wants to finish Heartland and see its value reflected in the share price prior to entertaining takeover talks.

CK Infrastructure already owns significant businesses in Canada, including a stake in 2,200 kilometres of oil pipelines and a water heater business with 1.7 million customers. At one time, Mr. Li was the largest single shareholder in Canadian Imperial Bank of Commerce. His son Victor Li, aged 55, is chairman of CK Infrastructure and a Canadian citizen. CK Infrastructure has a $24-billion market capitalization and invests around the world.

However, governments have blocked takeover offers from the Li family's company for what they deem as essential infrastructure. Last November, the Australian government blocked a friendly, US$9.4-billion bid for natural gas pipeline owner APA Group from a consortium led by CK Infrastructure. The Australian government ruled the takeover was "contrary to the national interest." APA brings energy to more than 70 per cent of the population of New South Wales and Victoria, Australia's most populous states.

In addition to its Canadian infrastructure holdings, the Li family controls Calgary-based Husky Energy Inc., which abandoned a $3.3-billion hostile takeover of MEG Energy Corp. in January.

The decision to walk away from what seemed a winning bid confounded many oil-patch investors. Several analysts said the experience at MEG could have led the Inter Pipeline board to question the Li family's ability to complete a difficult merger.

Walking away from MEG proved a sound business decision for Husky. Shares in the oil sands company are currently trading for half the price that Husky offered.

China's state-owned companies and private business started scaling back investment in Canadian businesses three years ago, prior to the start of the trade war with U.S. President Donald Trump and Ms. Meng's arrest.

The University of Alberta tracks domestic investment by Chinese companies, and found that in 2018, the flow of Chinese capital declined by 47 per cent from the previous year to $4.43-billion, while the number of Canadian transactions in 2018 dropped by 37 per cent to 70 deals compared with 2017. The university said: "This decline can be partially explained as a consequence of the capital outflow restrictions, imposed by Beijing in 2016 and 2017."


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
CannTrust expected to lose spot on Canada's benchmark index
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, September 3, 2019 – Page B1

CannTrust Holdings Inc. is likely to be dropped from Canada's benchmark stock index this month, the latest setback for a company that was rocked this summer by a Health Canada investigation into unlicensed cannabis production and subsequent executive departures.

CannTrust is a member of the S&P/TSX Composite Index, a group that includes 239 public companies. Its stock price is down 60 per cent since early July, when the company announced it had breached federal regulations by growing marijuana in rooms that were not approved by government. Health Canada is expected to hit CannTrust with sanctions; the most severe possible penalty would be the loss of its licence to legally grow cannabis.

The slide in CannTrust's value has put its market capitalization at about $335million, well below the threshold for membership in the index. Analysts at investment dealer AltaCorp Capital Inc. said in a report last week that the stock is likely to be deleted from the S&P/TSX benchmark.

This past Friday, CannTrust declined to comment on potential changes to the index.

AltaCorp managing director Chris Murray said that, as a rule, index investors hold about 5.5 per cent of a company's public float and sell the stock when a company is dropped. Removing the cannabis producer from the index would trigger a wave of selling, as index investors own approximately 4.8 million shares in CannTrust.

Passive investors such as index funds and exchange-traded funds can set off significant short-term price swings as they move in and out of a stock.

On a Friday afternoon in mid-August, CannTrust's share price jumped 40 per cent in the final hour of trading. The move was subsequently traced back to purchases by ETFs such as the US$1-billion ETFMG Alternative Harvest ETF, which acquired about 5.5 million CannTrust shares, according to data compiled by Bloomberg. Mr. Murray said shareprice moves are typically less dramatic when the index is adjusted, as hedge funds and investment dealers make investments in advance of the changes that smooth trading on the day stocks enter or exit the index.

S&P and the Toronto Stock Exchange are expected to announce changes to the index on Sept. 13, and add or drop stocks at the close of trading the following Friday, Sept. 20.

Membership in the index is determined by formulas that include the stock's weighting in the overall index, with a company's public float needing to account for at least 0.04 per cent of the S&P/TSX composite. AltaCorp calculates that CannTrust's public float currently accounts for just 0.012 per cent of the overall index.

Other candidates to be dropped from the index are NuVista Energy Ltd., Precision Drilling Corp., Western Forest Products, Kelt Exploration Ltd., Birchill Energy Ltd., Sierra Wireless Inc., Peyto Exploration & Development Corp. and NewGen Energy Ltd., according to AltaCorp.

Tech company Lightspeed POS Inc., which went public in March and has a $3.7-billion market capitalization, is a leading candidate to join the S&P/TSX composite in September, according to AltaCorp. Equitable Group Inc., Minto Apartment Real Estate Investment Trust, Wesdome Gold Mines Ltd. and Corus Entertainment Inc. are also potential additions.

Another TSX-listed cannabis company, Charlotte's Web Holdings Inc., is also a candidate for the domestic benchmark.

The company has a $2.2-billion market capitalization. However, Mr. Murray said members of the S&P/TSX member committee will need to decide if the business is truly Canadian, as its head office is in Boulder, Colo., and its operations are almost entirely in the United States.

The committee may also choose to welcome new, Montreal-based members to the S&P/TSX 60 Index, a benchmark of blue-chip companies, and drop another iconic Quebec-based name. Mr. Murray said industrial companies are underrepresented in the S&P/TSX 60 compared with the broader composite index.

The problem could be fixed by welcoming a relatively large company such as Air Canada, CAE Inc. or WSP Global Inc.

and dropping current index members Bombardier Inc. or SNC-Lavalin Group Inc., which are smaller companies by market capitalization.

AltaCorp's research shows index-based investors will acquire about 2.5 per cent of a company's public float when its shares go into the S&P/TSX 60.

Associated Graphic

Cannabis grows in 2018 at a Fenwick, Ont., greenhouse owned by CannTrust, which has seen a 60-per-cent drop in its stock price since early July. The slide in value has put it below the threshold for membership in the S&P/TSX Composite Index.

TIJANA MARTIN/THE CANADIAN PRESS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
On Bay Street, companies turn to their own version of an ATM to get cash
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, September 2, 2019 – Page B1

You and I stop by an ATM to pick up a little cash. An increasing number of Canada's largest companies are starting to hit their own version of an ATM to find the money for their biggest projects.

In Bay Street circles, an ATM is an at-the-market equity program. It's an approach to raising money that sees companies sell their stock into the market on an almost daily basis, rather than funding growth by periodically doing large equity offerings.

To date, at least eight domestic companies in capitalhungry sectors such as utilities, cannabis and mining have announced ATM programs, picking up on a financing trend that is now commonplace in the United States.

The corporate-finance crowd is now engaged in an active debate on the merits of selling stock through an ATM.

Pipeline operator TC Energy Corp. - that's TransCanada Corp., for those who missed the name change - is a leading proponent.

The Calgary-based utility pulled more than $1-billion from its ATM, and increased the size of the program to $2-billion.

Aurora Cannabis Inc. can tap an ATM for up to $514-million, capital that will pay for anything from new greenhouses to acquisitions.

In July, Franco-Nevada Corp.

unveiled plans to raise up to $200-million through an ATM, cash it will use to fund mining projects.

The case for ATMs is simple. It is a low-cost, flexible way to raise money.

The investment banks that run the programs charge a 1-percent to 2-per-cent fee, half the 4-per-cent commission charged on a traditional equity sale. And companies sell stock at the market price, rather than accepting a discount to where their stock is trading in order to move a large amount of equity in one underwriting.

The argument against an ATM program is slightly more academic. Some executives and bankers see a program that constantly drips out stocks weighing heavy on their share price. A chief financial officer who thinks Job 1 is maximizing the share price - a worthy goal - may be reluctant to embrace an ATM that overhangs the market every day.

After listening to both sides of this debate, Algonquin Power & Utilities Corp. Chief financial officer David Bronicheski launched a multiyear US$250-million ATM program in February. "We are one of North America's fastest growing utilities," Mr. Bronicheski said in an interview, adding that he estimates the company will invest $1-billion to $1.5-billion annually for the next five years. He said the company needs reliable access to both equity and debt markets, and "the ATM is one more tool in our tool box."

Algonquin takes a number of steps to ensure its ATM program doesn't depress the company's stock price. The utility only sells equity on days when its share price is rising, and caps sales at 10 per cent of daily trading volume on the Toronto and New York stock exchanges. Mr. Bronicheski said investment bank research shows an ATM can account for up to 25 per cent of daily trading before it starts to weigh on the share price, but Algonquin opted for a conservative approach.

Algonquin says it would consider the program a success if it raises $50-million to $80-million a year and Mr. Bronicheski said: "We never expect that ATM will be major source of our financing." Algonquin's program is run by five dealers: RBC Dominion Securities Inc., JP Morgan Securities Canada Inc., Merrill Lynch Canada Inc., Scotia Capital Inc. and TD Securities Inc.

There are also ATM programs in place at Emera Inc., Fortis Inc., Endeavour Silver Corp. and B2Gold Corp. All of these companies have a relatively constant need for capital, and significant daily trading in their stocks, which make them ideal candidates for this approach to financing. The same is true of Canadian companies in sectors such as financial services and real estate, areas that investment banks see as the next frontier for ATMs.

The bought deal isn't going away, but investors can expect to see a lot more companies tapping Bay Street's version of the ATM.

Thursday, September 12, 2019

Correction

B2Gold Corp. stopped its at-themarket equity-financing program last year. A story in the Report on Business on Sept. 2 incorrectly indicated the program is still in place.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Details emerge in O'Leary boat crash
space
Provincial police say both parties involved in last Saturday's fatal collision on Ontario lake called 911 for help
space
By ANDREW WILLIS, LAURA STONE, VJOSA ISAI
  
  

Email this article Print this article
Saturday, August 31, 2019 – Page A3

TORONTO TORONTO -- On the Muskoka lakes that form the heart of Ontario's cottage country, most everyone travels by boat between multimilliondollar vacation homes, grocery stores, golf resorts and waterfront bars. Most trips are a summer dream, a chance to skim across the water past granite cliffs and pine forests.

As cottagers arrive in Muskoka for the final long weekend of the summer, the talk on the dock is of a late-night outing on Lake Joseph last Saturday that ended in disaster. According to police, two boats collided near Emerald Island around 11:30 p.m. The boats involved were a Cobalt speedboat owned by reality-TV star Kevin O'Leary and his wife, Linda, and a water-ski boat, according to a local marine owner who services the two craft. Two of the passengers in the low-slung ski boat died in the accident. Amid conflicting versions of the events leading up to the collision, the Ontario Provincial Police are deep into an investigation. No charges have been laid.

According to the couple's friends in cottage country, Mr.O'Leary, star of Shark Tank and a former leadership candidate for the federal Conservatives, and his wife were heading back to their cottage after an evening at a friend's place. At the same time, Suzana Brito, a 48-year-old married mother of three from Uxbridge, and retired accountant Gary Poltash, aged 64, were among a group seated in a 12-passenger boat that was on its way back to a mutual friend's cottage.

They had been watching fireworks from a nearby resort and taking in the night sky.

The moon was below the skyline, so the lake was dark. According to a statement released by Mr. O'Leary, he was a passenger in the speedboat and both he and the police have not said who was at the wheel. Mr. O'Leary did say the water-ski boat had its navigation lights turned off. Relatives of Mr. Poltash, who were not on the boat, have disputed this assertion, telling U.S. media outlets the boat was running with lights.

The two boats collided about 150 metres from shore, not far from Rocky Crest golf club. Mr.Poltash died at the scene. Ms. Brito died two days later in hospital from massive head injuries.

Three other passengers from the water-ski boat were taken to hospital, treated and released.

After the accident, both boat drivers headed for shore to get help. The O'Learys pulled their boat into the nearby golf club, which was holding a wedding reception at the time. The OPP say they received 911 calls from both parties, requesting ambulances.

To date, the OPP have said little about what happened off Emerald Island, which is home to one large cottage. The day after the accident, the police hauled Mr. O'Leary's boat away from Hamer Bay Marine Ltd., which has docks next to Rocky Crest, the marine owner said. A police boat spent Thursday night touring the area with the driver of the boat that carried Mr. Poltash and Ms. Brito, according to staff at a local marina. The work is being done by the OPP's criminal investigation branch, which deals with complex cases. OPP West Parry Sound Constable Joe Scali said Friday that police are currently examining all statements.

"We're just going through everything. And we are receiving leads from the public as well," Constable Scali said. He wouldn't disclose whether there is any video evidence, or how many people have been interviewed. He said: "Because the event did happen at night, no, there were not a lot of people out travelling around there. And that's why we're canvassing [the] area as well for any kind of information. That's what the investigation is ongoing with."

As part of the OPP investigation, police are checking to see if alcohol or excessive boat speed were factors, and have yet to announce their findings.

To date this year, 15 boaters have died in Ontario in 12 accidents, including last Saturday's crash in Muskoka, according to the OPP. Last year, 14 people died on the water in 13 incidents.

U.S. celebrity website TMZ was the first outlet to report on the Muskoka accident, a reflection of Mr. O'Leary's star turn on U.S. reality TV. The former star of CBC's Dragon's Den also ran for leadership of the federal Conservative Party in 2017. He was considered a front-runner in the race before abruptly dropping out to support Maxime Bernier, who lost by a slim margin to current leader Andrew Scheer. Mr. O'Leary then launched a federal court challenge to Canada's election laws that prevent him from personally paying off his campaign debt.

Joseph Groia, a veteran securities lawyer who represents Mr.O'Leary in general matters, said Mr. O'Leary had consulted him but that he was not his lawyer with respect to the accident because "in my judgment Kevin doesn't need a lawyer." Mr. Groia, who represents Mr. O'Leary in his challenge to Canada's fundraising rules, called Mr. O'Leary simply a "witness" to the boat crash.

He said: "Obviously like everyone he's terribly upset that two people have lost their lives.

"I'm representing him as his lawyer on a number of matters, and he has consulted me, and I have been dealing with him in connection with that, but again, my experience is that most witnesses do not go out and hire lawyers," Mr. Groia said. "I've never heard of the OPP ever investigating or charging somebody who's a passenger in a car, or a boat, or a bus, or a train, or an airplane."

On Friday night, Ms. Brito's family gathered for a memorial service in Uxbridge, just north of Toronto. She leaves children aged 9, 11 and 12, her family said in a statement released by the Uxbridge mayor's office. They asked for privacy "as our family copes with her loss" and helps her children "navigate the coming days."

Associated Graphic

Suzana Brito, far left, and Gary Poltash, left, died after a speedboat crash last Saturday on Ontario's Lake Joseph, which is seen above on Friday. According to police, two boats collided near Emerald Island around 11:30 p.m., one of them, seen at right, a Cobalt speedboat owned by reality-TV star Kevin O'Leary and his wife. Mr. O'Leary says he was a passenger in his boat at the time of the crash.

CLOCKWISE FROM TOP: VJOSA ISAI/THE GLOBE AND MAIL; INSTAGRAM; FACEBOOK; FACEBOOK


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
RBC, TD case a reminder of need for adult supervision
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Wednesday, August 28, 2019 – Page B1

With the benefit of hindsight, executives at Royal Bank of Canada and Toronto-Dominion Bank must be kicking themselves for ever letting their currency traders into chat rooms without adult supervision.

In an all-too-familiar story of compliance failing to keep pace with technology, the Ontario Securities Commission alleged on Monday that RBC and TD traders enriched themselves at the expense of their customers by sharing confidential client information in online platforms over a period of at least three years. On Friday, the market watchdog is expected to announce settlements with the two banks, both significant players in global foreign exchange markets.

A similar scandal rocked bond markets back in 2012, when traders at a number of global banks (but not RBC and TD) were caught colluding in private chat rooms to manipulate benchmark interest rates such as Libor, the London interbank offered rate.

U.S. and British regulators subsequently hammered the banks with US$9-billion in fines.

What's going to haunt RBC and TD brass, and garner the full attention of the regulator, is their senior executives' failure to supervise the currency traders and keep client information confidential, despite numerous signs that something was amiss.

Understanding the OSC's allegations against the two banks requires a quick lesson in the dynamics of a currency desk.

Currency traders are paid based in large part on the volume of business they do, and the profit or spread between buyer and seller that they realize on each transaction. The currency desk also trades with the bank's money, and shares in any profits. This crowd is always looking for an edge, for insight into where markets are heading. They swap information over the phone, in pubs, at the gym and, in recent years, on electronic messaging services, such as chat rooms. Traders try to ferret out what the OSC described as "market flow," or information on who is buying and selling currencies and the specifics of their orders, and "market colour," or data on why currency prices are moving up or down.

Both RBC and TD have explicit rules prohibiting disclosure of their customers' names in chat rooms. But the OSC alleges the banks failed to provide guidelines on sharing other confidential information, such as the size and terms of their clients' orders.

"While traders were encouraged to seek and use 'market flow' and market 'colour' in the course of their trading, there was no clear indication of what, aside from customer names, was impermissible and what was permitted," the OSC's statement said. "Consequently, confidential information including specific transaction details was disclosed." Imagine a poker game where you know the cards in rival players' hands. RBC and TD currency traders enjoyed that kind of advantage when they shared specific details on customer orders.

Senior members of the currency trading teams allegedly broke the rules. A TD managing director, an executive with supervisory responsibilities, is alleged to have placed friendship above fiduciary duty by disclosing the specifics of client orders to a former colleague, who moved to a rival bank.

The OSC alleges these exchanges were "a breach of TD policies and a breach of confidentiality." In what's become a commonplace occurrence, the traders' own texts are coming back to haunt them. According to the OSC, when a trader at a rival bank sent a message that said: "mate the only reason you're up this year is cause of my info," an RBC trader replied: "i agree ur tips have been hot this year."

The OSC alleges RBC and TD traders started disclosing confidential information in chat rooms in 2011, and that executives at both banks realized there were potential problems by the summer of 2012, when the LIBOR scandal broke and some banks moved to ban employee participation in electronic forums. The market watchdog alleges RBC's foreign exchange operating committee discussed the issue in September, 2012, but decided against placing restrictions on chat rooms at that time.

Both banks changed course and imposed formal bans on chat rooms in the fall of 2013. According to the OSC's statement on TD, "from an operational perspective, the ban was insufficient. In chats, various traders discussed alternative means of communication, such as other chatrooms, WhatsApp and the telephone." And the OSC alleges RBC didn't fully fix its chat room compliance issues until 2015.

The banks, and public companies off all stripes, are justifiably fixated on doing business to the highest ethical standards, to maintain their elusive social licence and the trust of clients. According to the regulator, the country's two largest banks failed to meet that standard. The OSC said RBC and TD "did not sufficiently promote a culture of compliance in the foreign exchange trading business," an allegation that should serve as a call to action at these institutions.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Just Energy founder faces tough time getting company back on its feet
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, August 26, 2019 – Page B1

Just Energy Inc. founder Rebecca MacDonald counts some of the country's wealthiest business leaders as friends and supporters of her business. Now, she's trying to turn those relationships into a bailout for the struggling energy retailer.

Just Energy is a former market darling.

Founded in 1997, the company was a top performer as an income trust prior to the sector being shut down in 2006. Ms. MacDonald, the company's executive chair and former chief executive, has won numerous awards for her entrepreneurial skills. The Serbian-born executive used a series of acquisitions and a door-to-door sales force to build a company that delivers natural gas and electricity at fixed prices to 1.6 million customers in six countries. At the age of 66, she remains actively involved in Just Energy, and serves on blue chip boards such as Canadian Pacific Railway Ltd. and the Royal Ontario Museum.

In part due to Ms. MacDonald's marketing savvy, Vancouver billionaire Jim Pattison bought in to Just Energy, as did the late Ron Joyce, founder of Tim Hortons.

Mr. Pattison and Mr. Joyce's estate are the two largest shareholders, with a combined 30-per-cent stake, while Ms. MacDonald has an 8-per-cent holding. Just Energy also borrowed money from the Desmarais family's private-equity fund, Sagard Holdings.

Similar to many companies that expand through acquisitions, Just Energy took on debt to fund takeovers, borrowing a total of $774-million.

The company also moved into new sectors, committing $37-million last September to acquire a home water-filtration business controlled by Daniel MacDonald, the founder's son. Ms. MacDonald recused herself from negotiations on the takeover.

In June, with its stock trading at $5 compared with $7 two years ago, Just Energy's board launched a strategic review of the business in response to unsolicited takeover offers. Analysts predicted the process would result in a quick sale. The majority of Just Energy's customers are in the U.S.

and that market has been reshaped by a flurry of takeovers over the past three years. Large U.S. energy companies are snapping up smaller retailers, companies that are about the same size as Just Energy.

However, in early August, Just Energy announced the departure of its CEO, Patrick McCullough.

The following week, the company announced dismal financial results, posting a $275-million quarterly loss and $133-million of writedowns, most of which stemmed from customers in Britain and Texas who did not pay their bills. Just Energy also suspended its common share dividend.

Just Energy's share price tanked in the wake of this flood of bad news - it closed Friday at $1.52 on the Toronto Stock Exchange.

Analysts have stopped talking about takeovers and started publishing downbeat reviews of the company's prospects. Mark Jarvi at CIBC World Markets Inc. said an outright sale of the company is now unlikely. In a report, he said: "We believe it is prudent to assume downside scenarios that could include a failed sales process, weakened credibility, no yield support (assuming the dividend is gone for good) and financial liquidity pressures."

Where does this leave Just Energy's deep-pocketed backers?

Mr. Pattison and executives at Mr.Joyce's business declined to comment on Just Energy. However, sources involved in the sales process said Just Energy's two biggest shareholders have told Just Energy's bankers that they will not commit additional money.

Investment dealers Guggenheim Partners, LLC and National Bank Financial Inc. are running the strategic review. The Globe and Mail is keeping the sources confidential because they are not authorized to speak for the company.

Lenders such as Sagard are also unlikely to commit additional capital. Analysts said that the company recently borrowed another US$14-million through a high yield credit facility, and had to secure the debt with a personal guarantee from a company director. Just Energy declined comment on who provided the backstop, and would not comment on the strategic review.

Rather than a full-scale takeover, or cash infusion from the likes of Mr. Pattison and Mr. Joyce's heirs, Just Energy is expected to slowly sell off portions of its customer base, including its U.K.

division, to pay down debt. CIBC's Mr. Jarvi forecasts the stock will trade in the $1.50 to $3 range.

"U.S. wholesale generators, often cited as interested buyers, would likely want the U.S. electricity customers and not the Canadian operations," Mr. Jarvi said in a report. He said: "Selling Just Energy in a single transaction might not be simple, given the U.K. and Canadian businesses and sizable natural-gas book."

Rather than ending a 22-yearjourney at the helm of Just Energy through a takeover at a premium price, Ms. MacDonald faces the daunting prospect of restructuring a company that won an impressive list of backers on her watch.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
RBC Capital Markets chief to retire after decade of expansion
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Thursday, August 22, 2019 – Page B1

On Doug McGregor's 11-year watch as chief executive, RBC Capital Markets grew from a regional player into a leading global investment bank, navigating storms that swept away far larger institutions.

As the 63-year-old announced plans on Wednesday to retire in January, Mr. McGregor predicted his successors will continue to expand Royal Bank of Canada's capital-markets franchise, due to a combination of the firm's strong culture and its ability to overcome the structural issues that continue to bedevil many international rivals.

Derek Neldner, aged 46 and currently global head of investment banking, will take over as CEO of RBC Capital Markets in the new year.

"We did it the right way, we were careful, every step of the way, and we were fortunate to avoid major mistakes," Mr.McGregor said in an interview.

Over a decade, the investment dealer more than doubled its revenues, from $3.9-billion to $8.4billion in 2018, while assets increased from $340-billion to $576-billion. RBC shareholders earned a 12-per-cent average annual return from the capital-markets business over the past 10 years, which the bank says is the best performance of any global financial institution.

Mr. McGregor joined RBC in 1983 and took the top job at the investment dealer in 2008, in the midst of the global financial crisis. Most banks were forced to retrench at the time, but Canadian banks came through the downturn with relatively strong balance sheets. Mr. McGregor saw an opportunity for Toronto-based RBC to build client relationships, put capital to work and hire professionals in New York, London, Sydney and other international centres. However, the firm shied away from significant acquisitions, a growth strategy that Mr.

McGregor said typically creates culture clashes at investment banks.

Looking ahead, Mr. McGregor said a number of European banks, including Deutsche Bank, are expected to continue exiting capital markets and that will create opportunities for RBC to expand. He said: "The challenge is to keep building on our momentum and to keep managing the risks that come with investing globally, and Derek is more than ready for that challenge."

In a reflective moment for an executive who, by his own admission, is seldom given to introspection, Mr. McGregor said his only regrets in 37 years with RBC are "I didn't have a little more fun along the way, and didn't spend more time talking to the younger people at the firm." He said deal-making and trading, by definition, force executives to jump from one transaction to the next. As he contemplates the end of his career, Mr. McGregor said what he values most are memories of time with clients and colleagues.

Long-time clients said Mr.McGregor's strength is balancing the needs of Royal Bank with its customers' demands for loans and other support. "Doug is always about protecting the bank, but even when he said 'no' on a deal, it was always 'no, but we can do this,'" said Jon Love, CEO of real estate firm KingSett Capital Inc., who estimates he's done "tens of billions of dollars worth of business" with RBC.

"Doug is clear, he's decisive and he's loyal, and he's got a tremendous customer focus," Mr.Love said.

Mr. McGregor is a graduate of the University of Western Ontario's MBA program and former varsity wrestler who started his career in 1979 on an equity-sales desk, then moved to real estate banking in 1983 at a division of RBC. "I never thought I would work for a bank," Mr. McGregor said on Wednesday. "Frankly, I never put much thought into my career." RBC Capital Markets' CEO also said he has put little thought into retirement plans, but will likely keep busy in real estate as either an investor or an adviser to property companies.

RBC, like most public companies, tries to align the interests of shareholders and management by paying the executives a significant amount of compensation in the form of shares. Regulatory filings this spring showed Mr.McGregor owned a stake worth $73-million, nearly three times the holding of RBC CEO Dave McKay, who also joined the bank in 1983. Among active executives at Canada's big banks, only Toronto-Dominion Bank CEO Bharat Masrani and TD Securities Inc.

boss Bob Dorrance owned larger stakes, worth $76-million and $99-million respectively.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Expect Richard Baker to raise his HBC bid
space
Retailer's executive chairman can leverage his access to a number of real estate groups to help him sweeten his takeover offer
space
By ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, August 20, 2019 – Page B4

Here are two fearless predictions on the Hudson's Bay Co. takeover battle: Richard Baker and his allies will increase their $1-billion offer for the department store chain, and they will do it with other people's money.

Mr. Baker, governor and executive chairman of HBC, knows his group's current $9.45-a-share bid is "dead on arrival," to quote one of the retailer's largest shareholders, Land & Buildings Investment Management LLC. Independent HBC directors were only slightly less dismissive when they called the offer "inadequate" earlier this month, even while they awaited a formal valuation of the chain's real estate. Private equity fund Catalyst Capital Group Inc. is also snapping up shares, announcing on Monday that it has bought a 10 per cent stake in HBC for $10.11 a share. Catalyst is among the investors opposed to Mr. Baker's plan.

It is hard to imagine Mr. Baker giving up. The second-generation real estate mogul has consistently said he has a strategy to stanch the bleeding from HBC's retail operations - the chain lost $837-million last year - while coining money in the future from renovating some of its landmark properties.

The 53-year-old executive's credibility is on the line. Land & Buildings is pushing to have Mr. Baker tossed off the HBC board if the bid doesn't go forward. Moreover, the chain's managers have pointed to the value of the prize, as HBC chief executive Helena Foulkes estimated at a conference last September that the company's real estate is worth $28 a share.

If Mr. Baker and his group do up the offer, the question will be where they get extra money, and how much they need to get a deal done.

Assume for a moment a worstcase scenario, with no more cash available to Mr. Baker and his partners, Rhone Capital LLC, WeWork Property Advisors, Hanover Investments (Luxembourg) SA and Abrams Capital Management LP, a consortium that already owns 57 per cent of HBC. In this unlikely situation, Mr. Baker can simply tap his relationships with some of the deepest pockets in the real estate industry.

Several years ago, HBC struck a joint venture on 42 U.S. properties with mall owner Simon Property Group LP and other institutions, including Ivanhoé Cambridge, an arm of the Caisse de dépôt et placement du Québec. In Canada, HBC co-owns 12 properties with RioCan Real Estate Investment Trust, a list that includes prime locations in Vancouver, Calgary, Winnipeg, Toronto and Montreal.

If Mr. Baker were playing poker, HBC's joint ventures would be his extra chips. Unlike illiquid real estate, HBC can quickly convert partnerships into cash by selling a portion of its stakes. HBC currently owns 63 per cent of its U.S. joint venture and 87 per cent of the Canadian partnership. Mr. Baker's group can increase its offer for HBC by borrowing from the likes of Simon, Ivanhoé Cambridge and RioCan, knowing that once the company is private, it would have the means to repay them.

For a sense of just how much money can be made from renovating supposedly out-of-fashion retail properties, look no further than a recent project RioCan highlighted for analysts at a presentation in June. The company spent $221-million to turn a midtown Toronto street corner occupied by a bank branch into a 466unit condominium, and came away with a property worth $327million, booking a $120-million profit. Mr. Baker's group sees similar opportunities throughout the HBC portfolio.

How much will it take for Mr.Baker's group to win over HBC's independent directors and strike a friendly deal to take the company private? That dance will play out in September, after HBC's investment bankers at TD Securities Inc. turn in a formal valuation.

However, analyst Mark Petrie at CIBC World Markets says when he takes into account the significant challenges facing department stores, along with the underlying value of the real estate, he calculates HBC is worth $10.25 to $11.25 a share. An offer in the midpoint of that range would cost Mr. Baker and his allies about $150-million more than they are currently offering, cash they could easily raise from HBC's real estate partners. That may be enough to take HBC private for the second time in the storied company's 350-year history.

Associated Graphic

Richard Baker, governor and executive chairman of the Hudson's Bay Co., speaks during the company's annual general meeting in Toronto in June, 2018. Mr. Baker and his allies are looking to purchase the department store chain and take the company private.

TIJANA MARTIN/ THE CANADIAN PRESS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Newton Glassman, broken promises and the inglorious exit of Callidus
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Saturday, August 17, 2019 – Page B4

Newton Glassman has all the trappings of a successful investor. But one of his most prominent investments is a resounding failure.

Mr. Glassman unveiled what is likely to be the final stage of a brutal trip through public markets on Friday as Callidus Capital Corp., a lending company that the Toronto-based financier took public at $14 a share five years ago, announced plans to be taken private for 75 cents a share.

Callidus's share price sagged shortly after its debut, and over the next few years Mr. Glassman held out the prospect of taking the company private, pointing to a valuation of $18 to $22 a share from National Bank Financial.

Callidus's CEO and chairman launched lawsuits against those who were critical of the company and parent Catalyst Capital Group Inc., which Mr. Glassman co-founded in 2002.

For a sense of just how far Mr.Glassman is willing to go, recall that in 2017 he was involved in an unsuccessful sting operation against an Ontario judge.

And for years, Mr. Glassman held out the potential for superior returns from a $4-billion stable of private equity funds he runs at Catalyst.

Well-heeled backers, including proven Bay Street stock picker Ira Gluskin, watched Mr. Glassman repeatedly fail to cash in as promised on Catalyst holdings while flitting by private jet and helicopter between his Muskoka cottage, Toronto mansion and retreat in the Bahamas. Mr. Gluskin's frustration recently boiled over at an investor conference, when the co-founder of Gluskin Sheff + Associates Inc. called out Mr. Glassman with a series of pointed criticisms, the mildest of which was: "I am an unhappy investor who's waiting to get my money back."

Now Callidus is likely to exit the Toronto Stock Exchange at a fraction of its IPO price, courtesy of a bid from a company called Braslyn Ltd. British-born billionaire Joe Lewis, who made his fortune trading currencies alongside George Soros, controls the firm.

Mr. Lewis owns an exclusive resort in the Bahamas called Albany - Tiger Woods and Justin Timberlake are also investors - where Mr. Glassman has a home.

The inglorious departure shows Callidus's critics were right, although it doesn't put an end to litigation against a number of journalists and firms such as West Face Capital Inc., Veritas Investment Research and Canaccord Genuity Group Inc.

Callidus shareholders are being told that 75 cents a share is as good as it gets, dashing hopes raised last December when Braslyn said it was considering bidding $2 a share. The lower bid reflects the fact that Callidus owes $421-million to parent Catalyst. On Friday, Callidus said those loans won't be renewed when they come due in September, 2020, which would leave the company insolvent and equity owners with nothing.

To entice an offer from Braslyn, Callidus agreed to pay Mr.

Lewis's company 15 per cent of the proceeds from future asset sales, while Catalyst agreed to turn its loans to Callidus into common shares, a debt-for-equity swap that could leave Braslyn with a valuable stake in the business.

Braslyn's offer for Callidus comes with conflicting views on the value of the company. An independent committee of Callidus board members initially hired investment bank Blair Franklin Capital Partners Inc. to provide a fairness opinion. Blair Franklin said under the terms of agreement with Braslyn, including the debt-for-equity exchange, Callidus stock was worth between $1.55 and $2.40 a share, well above the offer. Without Braslyn's deals, Blair Franklin said: "The value attributable to holders of common shares would be negative."

Callidus board members then decided to hire another investment bank, MPA Morrison Park Advisors Inc., to get a second opinion. MPA did not attach any value to the arrangements with Braslyn and concluded the bid is fair to Callidus minority shareholders.

It is unusual, but not unheard of, for the board of a takeover target to bring in another investment bank after it receives a valuation from its first financial adviser.

The prospect of insolvency as the other likely option for their company means Callidus shareholders are likely to sell to Braslyn and end their relationship with Mr. Glassman.

The larger issue is what poor performance from Callidus will mean for investors in Catalyst funds, such as Mr. Gluskin and pension plans at the University of Toronto and McGill University.

It's far from clear when these investors can cash out of Catalyst, and what returns they can expect to receive.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
The BMO connection
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Thursday, August 15, 2019 – Page A1

B ank of Montreal is never specifically mentioned in the federal Ethics Commissioner's damning report on Prime Minister Justin Trudeau's crusade for SNC-Lavalin, but the institution is now caught up in a scandal that will haunt the federal Liberals in the fall election campaign.

Mario Dion, the federal ethics watchdog, laid bare the all-toocozy underside of Corporate Canada in finding the Prime Minister and his team violated the Conflict of Interest Act by relentlessly pushing former attorney-general Jody Wilson-Raybould to drop a criminal case against SNC-Lavalin. By naming names and detailing exactly what played out behind closed doors last fall, Mr.

Dion showed how top executives at one of the country's largest banks came to feature prominently in this political drama.

Mr. Dion's report details the role that Bank of Montreal board chairman Robert Prichard and BMO vice-chair Kevin Lynch played in lobbying the Trudeau Liberals on behalf of SNC-Lavalin, including multiple pitches the pair made to former president of the Treasury Board Scott Brison last October and November.

Here's where things get far too cute: Mr. Brison stepped down as a cabinet minister early this year to become vice-chair of the investment banking arm of, you guessed it, Bank of Montreal.

Circles are small in Canadian business, and Mr. Prichard and Mr. Lynch had every reason to be twisting arms on behalf of SNC-Lavalin, though the pair were in the Prime Minister's office so often last fall they should have been allowed to choose the furniture.

Mr. Prichard is also chair of law firm Torys, which is representing the Montreal-based engineering company. And along with his day job at BMO, Mr.

Lynch is chair of the board of SNC-Lavalin. He's also the former Clerk of the Privy Council, the country's top civil servant.

According to Mr. Dion, Mr. Prichard and Mr. Lynch first reached out to Mr.

Brison in mid-October "on an unrelated matter," then used the conversation to persuade the politician to give SNC-Lavalin a "remediation agreement."

Mr. Brison later told the Ethics Commissioner that "the company's concerns appeared sensible," and he contacted Ms. Wilson-Raybould the same day "to bring the company's concerns to her attention."

And Ms. Wilson-Raybould said something to the effect of the lady's not for turning, explaining she could not interfere in the prosecution of SNC-Lavalin.

The pitches kept coming. In early November, Mr. Prichard sent Mr. Brison an e-mail containing a legal opinion from fellow Torys lawyer Frank Iacobucci, a former Supreme Court Justice, that stated Ms. Wilson-Raybould would be justified in overturning the decision to criminally charge SNC-Lavalin. Mr. Prichard told Mr. Brison: "We are also considering other ways to make it easier for the Minister to engage and reverse the [Director of Public Prosecutions] decision.

In the end, however, it will take a deliberate decision from the center."

Mr. Brison, still a cabinet minister, dutifully forwarded Mr. Prichard's message to the nerve centre of the Liberal government. He sent it to senior members of the Prime Minister's Office.

And Mr. Dion's report shows that during a conference in Beijing in midNovember, 2018, Mr. Lynch talked to both Finance Minister Bill Morneau and Mr. Brison on behalf of SNC-Lavalin.

The Finance Minister and his former chief of staff both made a case for forgiving SNC-Lavalin to Ms. Wilson-Raybould.

"The repeated interventions by the Prime Minister, his most senior ministerial staff and public officials to have the Attorney-General find a solution, even in the face of her refusal to intervene in the matter, lead me to conclude that these actions were tantamount to political direction," Mr. Dion said in Wednesday's report.

"The authority of the Prime Minister and his office was used to circumvent, undermine and ultimately attempt to discredit the decision of the Director of Public Prosecutions as well as the authority of Ms. Wilson-Raybould as the Crown's chief law officer."

In January, Mr. Brison announced he was leaving politics. The subsequent cabinet shuffle saw Ms. Wilson-Raybould moved to Veterans Affairs, a shift she subsequently linked to her refusal to find a solution to SNC-Lavalin's woes.

Mr. Brison joined Bank of Montreal in February.

Mr. Prichard said on Wednesday he played no role in recruiting Mr. Brison, and did not learn the former cabinet minister was joining the bank until late January.

In an e-mail, Bank of Montreal spokesperson Paul Gammal said: "Kevin Lynch and Rob Prichard had absolutely no involvement in BMO Capital Markets' hiring of Scott Brison."

Mr. Brison left politics under a cloud, as he was being pulled into the criminal case against the Canadian military's former secondin-command, Vice-Admiral Mark Norman.

Lawyers for Mr. Norman alleged that as a cabinet minister, Mr. Brison tried to scotch a $668-million naval leasing contract with the Davie shipyard in Levis, Que. and instead send the business to Irving Shipbuilding, in his home province of Nova Scotia. Mr. Brison denied the allegation, and it was never tested in court. Federal prosecutors dropped the case against Mr. Norman in May.

Bank of Montreal has done more for SNC-Lavalin than just have its executives reach out to the Liberals.

When the federal government canvassed Corporate Canada for views on deferred prosecution agreements before introducing the legislation in February, 2019, only one Canadian financial institution made a written submission to support the idea.

Again, you guessed it, Bank of Montreal stepped up.

"This was a government consultation process that was open to public and private sectors," a spokesman said in an e-mail. "BMO provided perspective as an engaged corporate citizen, and one that supports harmonized regulation in the U.S. and Canada."

Canada's oldest bank may be a good corporate citizen for weighing in on proposed legislation. The bank may prove a savvy recruiter for landing a potential rainmaker in Mr. Brison. But when key executives emerge as central players in an ethical scandal that ropes in the Prime Minister and his cabinet, it's not a good look. Bank of Montreal risks the reputational damage that comes with trying too hard to help a tarnished SNC-Lavalin.

Associated Graphic

Prime Minister Justin Trudeau, seen Wednesday in Niagara-on-the-Lake, Ont., says he looks forward to implementing Anne McLellan's recommendations.

PETER POWER/THE CANADIAN PRESS

Friday, August 16, 2019

Correction

A Thursday article about SNC and the Bank of Montreal incorrectly said the legislation introducing deferred prosecution agreements was introduced in February, 2019, when it was in fact February, 2018.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Who will take the reins from Pattison?
space
As the billionaire looks to add the minority interest of Canfor to his empire, a group of potential successors is emerging
space
By ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, August 13, 2019 – Page B4

Make no mistake: The public face and driving force at Jim Pattison Group remains the company's 90-year-old founder.

However, as Jimmy Pattison vies to add another trophy to his crowded mantelpiece with a $982-million bid for the minority interest in lumber producer Canfor Corp., the supporting cast at the Vancouver-based conglomerate is stepping out of his considerable shadow. And a look at the executives involved in this deal, and other Jim Pattison Group investments, shows who is in the running to lead Canada's secondlargest private company once its irrepressible, but not irreplaceable, leader leaves the stage.

Mr. Pattison has a famously eclectic collection of holdings, ranging from the auto dealerships where he got his start in business in 1961 to supermarkets, fish packers, billboards and the Ripley's Believe It or Not chain.

"Jimmy's investments are always driven by value. He has an eagle eye for a business that can somehow be improved," said author Paul Grescoe, who co-wrote Mr.Pattison's autobiography in 1987 and subsequently took care of the company's communications for a decade. "Jimmy knows how to milk a business for every drop of value he can glean from it."

"In the back of his mind, I have no doubt that Jimmy is thinking he wants to control the forest industry in Canada," said Mr. Grescoe, who is now retired. The observation may speak to future deals, as Mr. Pattison is also a significant investor in West Fraser Timber Co. Ltd.

Mr. Grescoe says that Mr. Pattison only makes acquisitions when he perceives he's getting a bargain price, and in Canfor's case, the chart tells a tale: It was a $30 stock less than a year ago, while Mr. Pattison's proposal is for $16 a share.

Mr. Pattison's toolbox also includes a talent for delegating, according to Mr. Grescoe. He lets executives run each division, while holding them accountable in sometimes-gruelling quarterly reviews. In handing off responsibility for his far-flung holdings, which have 46,000 employees, Mr. Pattison reveals those he trusts to run the parent company on a day-to-day basis.

Through various entities, Mr.Pattison owns stakes in two major public companies - Canfor and Westshore Terminals Investment Corp. - and it is telling to see who the CEO put on both boards.

Mr. Pattison is not a director at either company. Jim Pattison Group chief operating officer Glen Clark shoulders that responsibility at both. He joined the company in 2001, two years after stepping down as British Columbia's premier.

The Canfor board also includes Ryan Barrington-Foote, head of accounting at Jim Pattison Group and a former KPMG accountant.

At Westshore, North America's largest coal terminal, lawyer Nick Desmarais, head of the legal team at Jim Pattison Group, fills the second board seat.

Rounding out the executive team are David Cobb, the head of corporate development at Jim Pattison Group and former deputy CEO for the Vancouver Winter Games, and David Bell, who runs the financial side of the business.

This small group helps Mr. Pattison run the company, which had sales of $10.6-billion last year, and likely includes his successor.

One of Mr. Pattison's three children - Jim Pattison Jr. - is on the board of the parent company, but he is president of the Floridabased entertainment franchise Ripley's, rather than working at head office.

When asked about his succession plan by reporters, Mr. Pattison has consistently said he has one, and then changed the subject.

Mr. Grescoe joked that the only people who likely know Mr. Pattison's potential replacement are his wife of 68 years, Mary, and his executive assistant, Maureen Chant, who has worked for him since 1963.

Long after the charismatic CEO leaves, the Jim Pattison Group's value approach to investing is likely to endure. However, investment bankers who work with the company do expect the founder's preoccupation with buying up businesses, but never selling assets, will change under a new leader.

One of Mr. Pattison's good friends and frequent travelling companions is William Stinson, former CEO of Canadian Pacific Ltd., once a massive publicly traded conglomerate. Mr. Stinson's successor unlocked considerable value for shareholders by breaking up Canadian Pacific. Whoever follows Mr. Pattison might take a similar approach to simplifying a sprawling collection of businesses.

Associated Graphic

Jim Pattison points to a picture of his first General Motors franchise. The 90-year-old magnate, famous for his diverse collection of holdings, got his start in business with auto dealerships before branching into everything from supermarkets to billboards and media franchises.

DARRYL DYCK/THE GLOBE AND MAIL


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
U.S. ambassador to step down, return to private sector
space
MacNaughton will move to Palantir, company with ties to U.S. immigration agency
space
By ANDREW WILLIS, ROBERT FIFE
  
  

Email this article Print this article
Friday, August 9, 2019 – Page A1

TORONTO OTTAWA -- David MacNaughton, who played a critical role in the renegotiation of the North American free-trade agreement, is leaving as Canada's ambassador to the United States to join a Silicon Valley technology company.

Mr. MacNaughton said Thursday that it was time to return home after 31/2 years serving as envoy at the country's most important diplomatic mission during a time when continental free trade was under threat from U.S. President Donald Trump.

"The President had campaigned against [NAFTA] and said he was going to rip it up," Mr. MacNaughton said during a news conference at the Canadian embassy in Washington. "Our dependence on the U.S. for our prosperity was certainly being challenged. Because we stuck together ... we are able to achieve what I think ... is a pretty damn good agreement."

Mr. MacNaughton is heading to Palantir Technologies Inc., a data-analytics company based in Palo Alto, Calif., as the Toronto-based president of its Canadian unit.

Palantir builds data-mining software for clients such as banks, manufacturers, pharmaceutical companies and government agencies, including law-enforcement and intelligence services. The company was founded in 2003, in part with funding from the Central Intelligence Agency; its surveillance technology has been used in counterterrorism work, and Palantir reportedly played a role in the campaign to track down Osama bin Laden.

"I'm fascinated by the opportunity to use data and technology to help people make better decisions," Mr. MacNaughton said in an interview with The Globe and Mail.

He said his role at Palantir will focus on building relationships in sectors such as health care, energy and financial services. Palantir opened offices in Toronto and Ottawa five years ago and has approximately 30 employees in Canada and 2,000 staff in total.

His departure comes as Canada and Mexico attempt to get the new free-trade pact approved by the U.S. Congress, where the Democrats are seeking changes to labour protection and prescription drugs in the deal, known as the United StatesMexico-Canada Agreement (USMCA).

Mr. MacNaughton has spent recent months trying to persuade the Democrat-led U.S. House of Representatives to ratify USMCA, an outcome that remains in doubt. The deal also still needs Canadian government approval. Mexico ratified the agreement in June.

Mr. MacNaughton said he remains confident that the new agreement will pass Congress, although it is possible there may be side agreements or tweaking of some of the language within the trade pact.

"I do think there is broad agreement even among the Democrats," he said. "I think when it comes down to a vote, it will pass both Houses."

A key political adviser to Prime Minister Justin Trudeau, Mr. MacNaughton officially leaves his U.S. post on Sept. 1. "I had long planned to complete my work ahead of the fall election," Mr. MacNaughton said, "particularly following the lifting of steel and aluminum tariffs - something I was absolutely determined we would get done before I left this job - and Congress's rising for the summer."

Shyam Sankar, president of Palantir, said recruiting Mr.MacNaughton is part of a strategy to do more business at Canadian companies with international ambitions. "David's role, and ours, is to help Canada Inc. win on a global stage," Mr. Sankar said.

Palantir is named after the fictional seeing stones used to communicate and view distant events in J.R.R. Tolkien's The Lord of the Rings and is currently a private company. It is widely expected to go public in the next two years in a transaction that is likely to value the company at more than US$40-billion. Mr. Shankar declined to comment on the company's financial plans.

Palantir's software helps banks such as JPMorgan Chase & Co. scrub data from multiple sources to spot fraud, while pharmaceutical companies use its products to sift through the results of drug trials or track disease outbreaks. The company's biggest customers are governments - Palantir is one of the biggest suppliers to U.S. government agencies, including Immigrations and Customs Enforcement. As a former senior civil servant, Mr. MacNaughton faces restrictions on pitching the federal government on behalf of Palantir that will expire in up to seven years.

The Prime Minister named career public servant Kirsten Hillman, currently Canada's deputy ambassador to the United States, as acting ambassador. The appointment of a new ambassador in Washington will come after the Oct. 21 federal election.

Mr. Trudeau had tapped Mr. MacNaughton because of his extensive experience working in the United States and profound understanding on how Washington operates. For many years, Mr. MacNaughton worked in New York as chair of Hill & Knowlton, one of the world's most influential consulting companies. He spent much of his time in Washington lobbying political figures and senior government officials.

As Washington envoy, he dealt with frequent broadsides from Mr. Trump and various White House officials against Mr. Trudeau, Foreign Affairs Minister Chrystia Freeland and others during the hectic trade talks, which resulted in a deal last September. The Prime Minister credited Mr. MacNaughton for helping to shape the Canadian strategy for the talks that included outreach efforts to U.S. congressional representatives and governors and making the point that Canada is the largest foreign market for U.S.-made goods and services.

"David's skill in bridging partisan and ideological divides - always putting Canadians' interests first, never deviating from objectives he knew to be both possible and desirable - has been unparalleled," Mr. Trudeau said in a statement.

He also praised the envoy for the "critical role in persuading U.S. lawmakers and the administration to end U.S. tariffs on Canadian steel and aluminum, allowing Canada to correspondingly remove our reciprocal tariffs last May."

Kelly Craft, the former U.S. ambassador to Canada who was recently confirmed by the U.S. Senate as her country's chief diplomat to the UN, described Mr. MacNaughton as a "fierce negotiator" but also said he was a "cherished friend."

Former prime minister Brian Mulroney, who was a key adviser to the Trudeau government during the trade talks, said Mr. MacNaughton excelled in dealing with the often chaotic Trump administration.

Mr. MacNaughton also won high praise from the Business Council of Canada, which represents the country's largest corporations, for his skill in dealing with the White House.

Mr. MacNaughton, who co-chaired the Liberals' 2015 election campaign in Ontario, will not have a formal role in the coming federal election but said he is ready to offer advice once the writ is dropped in September. "I am available to the Prime Minister and to my friends and colleagues to provide advice and counsel whenever they want to seek it," he said.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
CannTrust appoints head of committee investigating hidden cannabis
space
space
By MARK RENDELL, ANDREW WILLIS
  
  

Email this article Print this article
Friday, July 19, 2019 – Page B1

The board of CannTrust Holdings Inc. has hired Bay Street law firm McCarthy Tétrault LLP and appointed U.S. sporting goods executive Robert Marcovitch to lead a special committee that is investigating how the company illegally grew 12,700 kilograms of cannabis in unlicensed facilities, and who knew about it.

Federal inspectors from Health Canada are auditing Toronto-based CannTrust after discovering the company grew cannabis in five unlicensed rooms over a fivemonth period in its greenhouse in Pelham, Ont. Sanctions could range from penalties for management to the cancellation of the company's cannabis production licences, which would effectively shut down the business. CannTrust's stock price has dropped about 40 per cent since it disclosed the regulatory issues on July 8.

The special committee is also expected to hire an investment bank to advise it on how to proceed. The shares closed up more than 2.6 per cent on Thursday after a speculative media report about early efforts to find a buyer for the company or its assets.

However, a source close to the company, to whom The Globe and Mail has granted anonymity because they were not authorized to speak to the media, said there is little chance it would sell major assets until it is clearer what penalties Health Canada will impose.

Potential deals or management overhauls will depend largely on the special committee, made up of four independent directors of the company led by Mr. Marcovitch, the Seattle-based former chief executive of K2 Skis and Ride Inc.

The committee also includes John Kaden of New York-based Navy Capital, Shawna Page, a former banker with Merrill Lynch Canada, and retired accountant Mark Dawber.

CannTrust is a major Canadian cannabis supplier, with more than 70,000 medical marijuana clients. In addition to facilities in Pelham and Vaughan, Ont., the company has applied for Health Canada permits on an outdoor cultivation facility in B.C. While at least one Bay Street investment bank is trying to win business by arranging bids for the company's assets, some rival producers are leery of potential liabilities.

In addition to the regulatory proceeding, more than a dozen U.S. and Canadian law firms have launched proposed classaction suits on behalf of investors against CannTrust.

CannTrust's market capitalization on Thursday was about $540-million.

"We believe that Health Canada must make an example out of CannTrust," analyst Greg McLeish of Mackie Research Capital Corp. said in a research note. "If Health Canada does not come down hard on the company, it will set a bad precedent for other 'law abiding' industry participants."

Mr. McLeish stopped publishing research on CannTrust on Monday, saying "management has lost credibility." He said the company's ability to grow cannabis in B.C.

is now in doubt, as it still needs Health Canada approvals and must plant marijuana by Aug. 5 if it wants reach its goal of harvesting outdoor plants in 2019.

Earlier this month, CannTrust disclosed it grew cannabis in five unlicensed rooms at the Pelham facility between October of last year and this March. In April, the company said it received Health Canada permits for the five rooms. In May, CannTrust sold US$200-million of stock priced at US$5.50 a share - its shares now trade at half that price. Chairman Eric Paul and the Litwin family, long-time backers of the company, sold US$30-million of CannTrust stock as part of that offering.

The timing of events could prove crucial in class-action lawsuits. The six investment banks that sold CannTrust stock in May were working with a company that had received Health Canada permits for all its Ontario cannabis production facilities, and if they are pulled into class-action lawsuits, they are expected to say they did their due diligence. As part of the deal, lawyers for CannTrust and its banks warned that the company would struggle if it ran into regulatory problems.

In a prospectus filed as part of May's stock sale, CannTrust said: "The ability of the company to obtain, sustain or renew any such licences and permits on acceptable terms is subject to changes in regulations and policies." The company went on to say: "The failure of any governmental authority to issue or renew such licences or permits upon acceptable terms would have a material adverse impact upon the company."

The company recruited former banker Peter Aceto as CannTrust CEO in October.

The company is tightly controlled, with Mr. Paul and members of Litwin family largely calling the shots at the board level.

The company's largest shareholder is CannaMed Financial Corp., which is co-owned by Mr. Paul and the Litwin family.

Most of CannTrust's directors were appointed by CannaMed, which had a monopoly on board appointments for a year after the company went public in the spring of 2017 through a voting trust with key shareholders.

CannTrust also has a service agreement with Forum Financial Corp., a private equity company owned by Fred Litwin, whose son Mark Litwin is on the CannTrust board. As part of the agreement, Forum provides CannTrust with "various managerial, operational and administrative services, including services related to the corporation's continuous disclosure and reporting requirements," according to company filings.

CANNTRUST (TRST) CLOSE: $3.84, UP 10¢ CANNABIS PROFESSIONAL This story first appeared in Cannabis Professional, the authoritative news service tailored specifically for professionals in the rapidly evolving cannabis industry.

To subscribe, visit tgam.ca/canpro

Associated Graphic

Toronto-based CannTrust, which has more than 70,000 medical marijuana clients, has two facilities in Ontario and has applied for Health Canada permits on an outdoor cannabis cultivation facility in British Columbia.

TIJANA MARTIN/THE CANADIAN PRESS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
CannTrust probe, sector woes hurt push for U.S. pot legalization, experts say
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, July 16, 2019 – Page B1

Health Canada's investigation into CannTrust Holdings Inc. and other coming-of-age issues in the domestic cannabis industry are becoming roadblocks to legalization of recreational marijuana in the U.S. market, according to industry experts, jeopardizing the growth plans at many Canadian companies.

Vaughan, Ont.-based CannTrust, which lists its shares on New York and Toronto stock exchanges, halted all cannabis sales last week after revealing federal investigators are probing the company for producing marijuana at unlicensed facilities. Analysts predict the company will face significant sanctions, potentially including cancellation of its cannabis production licences.

"We believe Health Canada must come down hard on CannTrust if it wants to maintain any credibility," said analyst Greg McLeish of Mackie Research Capital Corp. as he terminated coverage of the company in a report on Monday.

CannTrust's shares rose 19 per cent on Monday to close at $3.98 on the Toronto Stock Exchange.

The company has three facilities in Canada and sold US$170-million of shares at US$5.50 each in May, working with Wall Street investment banks, then moved into the U.S. market in June by acquiring farmland in California.

CannTrust's regulatory issues, along with short-seller attacks on Aphria Inc. and supply problems that have plagued Canadian retailers since the federal Liberals legalized recreational cannabis last October, are now colouring the U.S. debate over legal marijuana, according to New York-based investment bank Cowen Inc.

At a conference Monday that followed the U.S. House of Representatives' first-ever hearings on cannabis legalization last week, Jaret Seiberg of Cowen said Canada is considered a political pioneer in the sector. The Washington-based financial services policy analyst said problems in the country's nine-month-old cannabis market, including the Health Canada investigation into CannTrust, are closely followed by U.S. policy-makers. "The more problems there are north of the border, the more it complicates the issue of legalization in the U.S.," he said.

Canadian analysts are also pumping the brakes on U.S. legalization in the wake of last week's hearings at the House Judiciary Crime, Terrorism and Homeland Security subcommittee. Echelon Wealth Partners analyst Matthew Pallotta said Friday in a report: "Serious questions remain on how to best pursue reform, and whether there is sufficient support in the Republicancontrolled Senate to advance cannabis policy."

While U.S. federal restrictions on recreational cannabis are expected to remain in place for the foreseeable future, analysts expect more states to legalize marijuana, if only for the potential tax revenue. Cowen's analysts said in a report: "Unlike the federal government, states cannot run deficits.

With poor state finances, governors are looking for revenue wherever they can find it."

Canada's major cannabis companies and U.S. marijuana businesses that list their stock on a Canadian exchange have committed hundreds of millions of dollars to U.S. expansion strategies, in part on the expectation that Washington will eventually legalize marijuana.

Last week, Toronto-based Green Growth Brands Inc. agreed to acquired U.S. cannabis retailer Moxie for US$310-million, snapping up 250 stores in five states. Green Growth also sells cannabis products in the United States through a partnership with Designer Brands Inc., the parent company of DSW shoe stores (NYSE: DBI) and Abercrombie & Fitch Co.

In May, Canopy Growth Corp., Canada's largest cannabis company, paid US$300million up front for the right to buy a leading U.S. player in the sector, Acreage Holdings Inc., once cannabis production and sale become federally legal in the U.S.

Acreage operates in 20 states, with 87 dispensaries and 22 cultivation sites. Canopy's aggressive growth strategy and largerthan-expected financial losses prompted controlling shareholder Constellation Brands Inc. to terminate Canopy co-chief executive officer and co-founder Bruce Linton this month.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
The future is plastics: Murray Edwards, Li Ka-Shing add to oil patch holdings as others flee
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, July 9, 2019 – Page B1

In one of the great contrarian investments of our time, billionaires such as Murray Edwards and Li Ka-Shing are pouring money into Alberta's oil sands.

While foreign energy companies were selling their oil sands holdings and investors were purging domestic energy stocks from their portfolios, Mr. Edwards's Canadian Natural Resources Ltd. (CNRL) and Li family-controlled Husky Energy Inc. have increased their stakes in the region.

As part of a massive shift in ownership that has seen more than $37billion of oil sands assets change hands, CNRL dropped $16.5-billion to acquire properties from Devon Energy Corp. and Shell Canada Ltd., while Husky spent US$435-million on a heavy oil refinery last summer.

Both companies are expected to keep investing.

Why the show of faith from Mr.Edwards and the Li clan? As Dustin Hoffman's character was told in the film The Graduate, in one word, plastics.

Research from the International Energy Agency (IEA) and other non-partisan groups shows that "petrochemicals are the fastest growing source of oil consumption, and we believe this is not well known among the investment community," said energy analyst Phil Skolnick at Canadian investment bank Eight Capital in a recent report.

When it comes to demand for what Alberta produces, the IEA's studies show countries such as China and India will look to petrochemicals produced from heavy oil as a source of everything from fertilizer to packaging, digital devices, car parts and clothing.

Globally, at least 12 major oil refineries will come on stream in the next six years, according to Mr. Skolnick's research, with the capacity to process 4.5 million barrels of oil each day, including 2.4 million barrels of heavy oil, an Alberta specialty.

This new demand will come at a time when traditional energy suppliers such as Venezuela and Iran face significant headwinds to production. Venezuela's economy is collapsing and Iran faces geopolitical headwinds from its adversaries, including the United States.

Mr. Skolnick said: "There is a major fundamental shift happening, whereby the refining industry is moving away from maximizing production of transportation fuels to maximizing production of higher margin petrochemicals."

Soaring demand for plastics is moving refineries into the centre of the climate-change debate, with the industry moving to deal with the issues that come with increasing consumption of heavy oil and other fossil fuels. Last October, the IEA tabled what it called an "ambitious but achievable pathway to reduce the environmental impacts of petrochemicals," a series of measures that would cut air pollutants from chemicals production by 90 per cent over the next three decades, reduce greenhouse gas emissions by 60 per cent and halve ocean-bound plastic waste.

In releasing the report, IEA executive director Fatih Birol said: "Petrochemicals are one of the key blind spots in the global energy debate, especially given the influence they will exert on future energy trends."

It's currently fashionable to hate CNRL, Husky, Cenovus Energy Inc. and the other Canadian players that now control Alberta's oil sands. These companies sell every barrel of oil they produce at a significant discount to the price that rival producers receive for lighter grades of oil.

There has been a long and difficult battle over plans to build new North American pipelines.

And increasing awareness of climate change is shifting consumer sentiment away from gasolinefuelled cars and single-use plastics, trends seen as curtailing future demand for oil.

Against this backdrop, it's understandable that most investors, retail and institutional, are underweight energy stocks. Their recent experience has been unpleasant. An exchange-traded fund that tracks the S&P/TSX capped energy index, which has a lot of exposure to oil sands companies, has lost more than half of its value in five years.

The contrarian thesis, quietly embraced by Mr. Edwards and the Hong Kong-based Li family, is that over the long term, global demand for heavy oil will increase, supply will tighten and many of the problems facing Canada's producers can be solved. Mr. Skolnick expects an increasing amount of Alberta oil to be transported by rail, which will help shrink the difference between the price paid to Alberta producers and those in other regions.

The bullish case for the Alberta oil sands grows stronger if the federal government moves ahead with the long-delayed expansion of the Trans Mountain pipeline.

The best-case scenario is the controversial project will be finished by 2022.

Coming close to that schedule means Trans Mountain could be moving oil to Asian customers just as China becomes the world leader in refinery capacity, an event that's expected in 2024, when the country finishes a complex on its northeastern coast that rivals anything on the Gulf of Mexico.

Eight Capital, a Toronto-based firm led by chief executive David Morrison, thinks that development will benefit investors who load up on oil sands stocks such as Cenovus, CNRL and MEG Energy Corp., which turned down a takeover offer from Husky in January.

Mr. Skolnick said: "Given the expected impact and sustainability of petrochemical-related oil demand, we believe this is a theme that could garner the interest of generalist investors." In other words, people will wake up to trends that a pair of billionaires realized years ago.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Canada's missed opportunity: Pot industry now being run out of U.S.
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Thursday, July 4, 2019 – Page B1

$151-million Value of Bruce Linton's shares and options in Canopy based on Tuesday's closing stock price.

$323-million Amount Canopy lost in its most recent quarter.

26% The decline in the company's stock price since late April.

W ith Bruce Linton's firing, it's now all too clear that the biggest companies in Canadian cannabis are run out of New York and the state of Washington.

An industry that this country seemed destined to lead when the federal Liberals legalized recreational cannabis last October is increasingly dominated by foreigners. The opportunity to create global cannabis champions, based in Canada, appears to be vanishing. There should be a conversation around that issue, in political and business circles, before the biggest head offices all disappear.

The trailblazing Mr. Linton, who created what's now an $18billion company out of an abandoned Hershey chocolate factory, lost his job because his visionary approach for Canopy Growth Corp. didn't fit with the predictable, quarter-by-quarter profits demanded by Constellation Brands Inc. CEO chief executive Bill Newlands, a booze-industry veteran and Harvard Business School grad.

Constellation dropped $5-billion last August to gain effective control of Canopy.

What Mr. Newlands wants, he gets.

Moving down a list of Canada's largest cannabis companies, you find Nanaimo, B.C.-based Tilray is run by Seattle-based CEO Brendan Kennedy. Toronto's Cronos Group Inc. is headed by New York-based Mike Gorenstein. And the interim CEO at Leamington, Ont.'s Aphria Inc. is Irwin Simon, another New Yorker, although he was born in Glace Bay, N.S. Of the 10 largest North American cannabis companies, only Aurora Cannabis Inc. in Edmonton and Gatineau-based Hexo Corp. have homegrown CEOs.

Mr. Linton's departure is similar to what has played out at many startups that get sold to multinational companies. Mr. Linton said Wednesday in an interview with The Globe and Mail that he expected taking Constellation's cash would likely mean the end of his six-year run at Canopy and its predecessor company. "I detach my personal desire from my desires for the company," Mr. Linton said. "Even when we brought that $5-billion in, I knew, from that change of structure, there would likely be implications for management, but it was the right thing to do for the company."

The cultural issue that Canadian leaders need to recognize is our entrepreneurs tend to sell successful startups at a relatively early stage, compared with jurisdictions such as the U.S. and Asia. It already happened in the beer and spirits industries, where leading domestic players such as Molson, Labatt and Seagram have long been controlled by foreigners. The trend, now happening even more rapidly in the cannabis sector, cuts into the potential future prosperity of this country.

According to all sorts of academic research - including a study last year from the Washington-based Brookings Institution and the Martin Prosperity Institute at the University of Toronto's Rotman School of Business - scaling up successful domestic businesses is essential to creating wealth and producing the next generation of corporate leaders. Canadians need to do better at turning their own companies into global champions. Silicon Valley generates enormous wealth out of a vibrant tech community. Why can't Leamington or Nanaimo aspire to do the same in cannabis?

Canadian cannabis companies were created by government policy. They sprang to life not only because pot was legalized, but because federal and provincial regulators granted the licences needed to grow and distribute their products - and local capital markets were receptive to financing them. There's no obvious public good that would come from ensuring control of the sector remains in Canada, as there is with banks or telecom companies.

But CEOs, boards and domestic politicians should be asking if the country is best served by a laissez-faire approach to cannabis that created vibrant, valuable businesses following legalization in 2018, then quickly began handing over control of the sector.

Associated Graphic

Bruce Linton's departure from Canopy Growth is similar to what has played out at many startups that get sold to multinational companies. Mr. Linton says he suspected his time was at an end: 'I detach my personal desire from my desires for the company.'

THE CANADIAN PRESS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Losses, rising tensions led to Linton's firing
space
Constellation's push for more influence over cannabis producer led to clashes over direction of company, sources say
space
By JAMESON BERKOW, TIM KILADZE, ANDREW WILLIS
  
  

Email this article Print this article
Thursday, July 4, 2019 – Page B1

Bruce Linton, the co-founder of Canopy Growth Corp. and one of the cannabis industry's most prominent executives, is out of a job after months of poor financial results and rising tensions with the company's new owner.

Canopy announced early Wednesday that Mr. Linton was no longer a cochief executive officer or board member. Mr. Linton confirmed in an interview he'd been terminated. Mark Zekulin will now lead the company on an interim basis as it searches for a new CEO.

Mr. Linton charted an aggressive course of acquisitions on the path to turning the grower based in Smiths Falls, Ont., into one of the world's largest pot companies. He said his ouster came at the hands of the leadership of New York-based Constellation Brands Inc., which gained control of Canopy after a $5-billion investment last summer.

Since that deal, Constellation has sought to exert more influence over the cannabis producer, leading to clashes between Constellation CEO Bill Newlands and Mr. Linton over the direction of the company, sources familiar with the matter said. The sources were granted anonymity because they were not authorized to speak publicly.

For Canopy, the firing marks a new chapter in the company's evolution from a medical marijuana startup to a world leader in the cannabis sector.

For the industry, the move highlights how expectations have shifted in the months since recreational marijuana was legalized last October. Canadian cannabis companies were once judged largely on their aspirations: how much weed they promised to one day produce or how many countries with whom they had signed export licences. Today, institutional backers and strategic partners have bigger seats at the table - and they want profits.

Canopy's mounting losses took their toll on the company's shares. It lost $323-million in its most recent quarter and its stock price has fallen 26 per cent since late April. And last week, Mr. Newlands voiced his displeasure with Canopy's results on a conference call.

But Mr. Linton, who had led Canopy since its founding five years ago, said it was a phone call last Friday that made him believe his days atop the company might be numbered.

Hours before the Canada Day long weekend, Mr. Linton got a call from Constellation requesting a board meeting.

"Instead of having it on the phone that day, they wanted to have it in person," Mr.Linton said in an interview. "That caused my spidey-sense to tingle."

At the meeting four days later, he was fired from the company he built into an $18-billion juggernaut.

For a serial entrepreneur, it was a familiar scene. "It was not the first time I've been fired as a founder," he said. Once the meeting starts, "you know exactly what you've walked into."

Mr. Linton is not just another CEO. He spent years as the most public face of Canada's legal cannabis industry, proudly wearing cannabis T-shirts on television, expounding on the promise of pot as a business and an investment. He helped draw billions of dollars of capital to the industry as Canopy earned a reputation as a mature force in an immature sector. Everyone seemed to want a piece of Canopy - including Constellation.

But eventually Constellation's Mr. Newlands and Canopy's other investors were bound to judge the company based on its bottom line.

"The time has come when it is critical for cannabis companies to show that you can run a profitable business and you can do it in a manner that involves investing wisely to build your brands," OrganiGram Holdings CEO Greg Engel said of the shifting expectations.

"Investors are looking for more traditional metrics and numbers that matter - Is a company cash-flow positive? What is their gross margin? What is their adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] margin?" Canopy's fourth-quarter loss, announced last month, was four times larger than analysts' expectations.

"The magnitude of losses for [Canopy] has expanded far more than we had expected, and while we commend Linton for his vision in establishing the world's leading cannabis company, we believe new leadership will be a welcome change," Cowen analyst Vivien Azer wrote in a note to clients Wednesday after the exit was made public.

Canopy had negative EBITDA of $257million in fiscal 2019 and an EBITDA loss of $36-million in fiscal 2018.

"The departure of Mr. Linton is indicative of the fact that the losses Canopy is experiencing are getting out of control," Macquarie analyst Caroline Levy wrote in a note to clients, adding losses are projected "to continue for at least the next three years as Canopy invests in Canada, the U.S.

and new markets around the world."

In the months leading up to Constellation's first investment in Canopy in 2017, a deal worth $245-million, Constellation spoke glowingly of Canopy and its management team. "Our view going in after our assessment was that Canopy was the best player. They had the best management, best science, largest market share and a strong management team," Mr. Newlands told The Globe in January.

Half a year later, Mr. Newlands used a very different tone when speaking about Canopy on Constellation's quarterly conference call last week. While Mr. Newlands said he is still optimistic about cannabis, he added, "We were not pleased with Canopy's recent reported year-end results."

Mr. Newlands, said he still strongly supports Canopy, but threw in a condition: The support is for a "more focused, longterm strategy."

Constellation declined to comment for this story.

Under Mr. Linton, Canopy was an early mover when Canada announced plans to legalize recreational marijuana in 2015. In the span of a few years, scores of rival cannabis companies emerged, leading to fears that Canada would be oversaturated with cannabis production. To pivot, the largest players started looking abroad, particularly in Europe where some countries legalized medical marijuana. Canopy now operates in 16 countries.

In April, Canopy said it would pay US$300-million to secure the right to buy Acreage Holdings Inc. should federal marijuana laws change in the United States. Canopy also agreed to pay US$3.4-billion for Acreage in the future, based on where its own shares were trading when the sale is triggered by legalization in the U.S.

While Constellation has voiced its support for the Acreage transaction, which was approved by shareholders last month, Mr. Newlands has signalled he is less interested in empire building and more into making money off cannabis in the near future.

Constellation said it will search for a new CEO for Canopy and that it will assess both internal and external candidates. Canopy's shares dropped sharply in early morning trading Wednesday but recovered throughout the day and closed up 2 per cent at $53.52.

Mr. Linton, meanwhile, expressed optimism that he will land at another company, likely outside of Canada. Mr. Linton said he has a non-compete clause with Canopy that prevents him working for a rival Canadian cannabis company for a period of time. Even if he didn't, he said, he would probably look abroad.

"When we were building Canopy my job was to never mention any of [our competitors'] names and try to run over them if we ever saw them anywhere," he said.

No matter where he lands, Mr. Linton is giving up one of his biggest roles. "The role of de-facto spokesperson will need to be actively filled by others," he said, "because I think I probably did more media work than the rest of the sector combined."

CANOPY GROWTH (WEED) CLOSE: $53.52, UP $1.03

Associated Graphic

Bruce Linton spent years as the most public face of Canada's legal cannabis industry, expounding on the promise of pot as a business and an investment.

FRED LUM/THE GLOBE AND MAIL


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Callidus warns of losses amid talks to take company private
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Wednesday, July 3, 2019 – Page B1

TORONTO -- Callidus Capital Corp. expects further losses on businesses it owns or loaned money to, a downbeat outlook for the lending company controlled by Newton Glassman as it continues to deal with an offer to take the company private.

Callidus president David Reese told shareholders at Tuesday's annual meeting in Toronto the company is struggling to rebuild five businesses it took over after they failed to pay back loans, and "may have to sell at a loss."

Mr. Reese also said Callidus has nine loans outstanding and "we anticipate we will have some loan loss provisions, as we still have some problems in our portfolio."

Callidus typically lends to industrial businesses that cannot get credit from banks and other traditional sources of credit because of financial or business difficulties. It sometimes ends up owning companies that fail to repay those loans, and will attempt to restructure and sell them to recoup some money.

The company has not made a new loan in the past 12 months and Mr. Reese said strong competition from rivals lenders and Callidus's poor financial performance are impediments to winning new business.

Publicly traded Callidus, which is 72 per cent owned by private equity fund Catalyst Capital Group Inc., lost $24.7million in the first quarter, following on a loss of $182.5-million in 2018 and a $218.5-million loss in 2017.

The company has lost money for 10 consecutive quarters and shareholders' equity - an important measure for a financial-services firm - has largely evaporated in that time, declining from $437-million at the end of 2016 to $36million as of March 31.

For the second consecutive year, Mr.Glassman, the chairman and chief executive of Callidus, did not attend the company's annual meeting for what Mr.

Reese said were "personal health reasons." When Callidus shareholders asked when Mr. Glassman would return to full-time work, Mr. Reese said there is "no firm date."

But Mr. Reese said he does see Mr. Glassman "on a fairly regular basis" at the company's offices, which it shares with Catalyst, and that Mr. Glassman remains active in the company as chair of the Callidus credit committee.

Catalyst took its distressed lending unit public at $14 a share in 2014 and its stock price hit $24 later that year. In 2017, with the stock trading around the initial public offering price, Mr. Glassman repeatedly held out the prospect of taking the company private at $18 to $22 a share, based on a valuation from National Bank Financial. Callidus stock closed Tuesday at 51 cents, giving the company a $30-million market capitalization.

Last December, Bahamas-based Braslyn Ltd. offered to buy Callidus's publicly held shares for $2 each, and Callidus struck a committee of independent directors to deal with the unsolicited bid.

On Tuesday, Mr. Reese told shareholders that negotiations with Braslyn are continuing and declined to provide a timeline on the talks. Braslyn is owned by British billionaire Joe Lewis and holds a 14.5-per-cent stake in Callidus.

At Tuesday's meeting, Callidus shareholders approved the sale of slot-machine maker Bluberi Gaming Canada Inc. to Catalyst. In return, Catalyst forgave $92.5-million of debt the fund had extended to Callidus. Accounting firm BDO Canada LLP provided a favourable fairness opinion on the transaction.

Two years ago, Callidus highlighted the profit it stood to make on the sale of Blueberi, based in part on the potential sale of up to 7,000 of the company's slot machines to Gateway Casinos & Entertainment Ltd., a company also controlled by Catalyst. Gateway filed for an IPO in November, 2018, with Morgan Stanley leading the transaction.

Catalyst's provisions for loan losses totalled $320-million at the end of 2018, including $199.5-million for impaired loans to companies in the energy sector, mainly due to problems with an unnamed lender with operations in South America. At the time, analysts said the troubled borrower is Oklahoma-based Horizontal Well Drillers, which held contracts to do work in Venezuela.

At Tuesday's meeting, shareholders asked Mr. Reese for an update on Callidus's South American exposure, and were told that while there were no new details on the loans, drilling equipment earmarked for the contract never left the United States.

Callidus paid Mr. Reese $2.9-million in 2018 and $4.7-million in 2017.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
For Raptors co-owner, another triumph
space
Larry Tanenbaum's company sells stake in ONroute chain of highway service centres to a pair of private-equity funds and proves public-private partnerships can work
space
By ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, July 2, 2019 – Page B1

Larry Tanenbaum had more than an NBA championship to celebrate this spring. The private equity investor and co-owner of the Toronto Raptors just made a significant score with the sale of Ontario's 23 ONroute service centres, and proved that public-private partnerships can work.

Mr. Tanenbaum's company, Kilmer Van Nostrand Co. Ltd., and a unit of Italian catering company Autogrill Group sold their joint interest in the Highway 400 and 401 pit stops to a pair of private equity funds, Britain-based Arjun Infrastructure Partners Ltd. and Toronto-based Fengate Asset Management Ltd.

While Kilmer is private and does not release financial results, Autogrill is a public company and disclosed it received $255-million for its ONroute stake. Kilmer will pocket slightly more on the deal, as the company also sold a 50-per-cent stake in the chain's gas stations, which it co-owned with Canadian Tire Corp. Ltd.

Kilmer, Autogrill and Canadian Tire won a 50-year lease on the ONroute stations from the Ontario government in 2010, beating out three rival bidders.

The three private-sector partners and the government invested approximately $300-million in complete renovations for the 23 sites, which the province previously leased to oil companies. Kilmer and Autogrill likely earned a fourto five-fold return on their investment over nine years.

However, Kilmer vice-chairman Ken Tanenbaum - the eldest son of Larry Tanenbaum, chairman of Maple Leaf Sports and Entertainment Ltd. - said the profit reflects the risks in the investment, which was structured by the Ontario government during the global financial crisis, along with strong interest in infrastructure assets from institutional investors such as Arjun and Fengate.

"The ONroute chain was structured as a revenue-risk partnership with the province. If we didn't sell more burgers and coffee and pump more gas, we weren't going to make money on this project," said Ken Tanenbaum, who has been running Kilmer's infrastructure and real estate business since 2006 after working at LafargeHolcim, the global building materials company.

Revenue-risk projects see private-sector companies such as Kilmer and Autogrill form a partnership with a government and co-invest in a project, with the corporate players only making a profit if they can increase sales by attracting more customers. The approach is relatively common in jurisdictions such as Australia and Britain, and is becoming more accepted in Ontario as debtstrapped governments look at new ways to fund infrastructure.

At ONroute, the province persuaded Kilmer, Autogrill and Canadian Tire to pay for soil remediation and bring the sites up to new environmental standards, as many of the gasoline storage tanks were installed in the 1950s and needed to be replaced. Mr. Tanenbaum said the service centres are also run to play a social purpose, for which the companies shoulder extra costs: The stops are open 24 hours a day, all year, and provide a place for travellers to wait out storms and road closings.

The ONroute chain is one of three revenue risk projects Kilmer has completed with the provincial government. The Torontobased company teamed up with real estate developer Dream Unlimited Corp. to build the athletes' village for the Pan American Games in 2015, which was subsequently converted into condominiums. Kilmer and Dream also joined forces to build 1,500 units of rental housing, including more than 400 units of affordable units, in downtown Toronto's West Don Lands. Mr. Tanenbaum said, "If we can't lease these units, we don't make money on these projects."

Kilmer and Autogrill decided to shop their stakes in the ONroute chain when bankers at CIBC World Markets reported strong interest in the business from institutional investors. "ONroute is what's known as infrastructureplus, as there's a long-term concession, with upside potential that comes from improving the services," Mr. Tanenbaum said.

Incoming ONroute owner Arjun is making its first North American investment, but runs U.K. service station operator Welcome Break. The British chain features hotels at many of its 27 rest stops, along with fish and chip outlets, and serves 85 million customers annually. ONroute currently welcomes approximately 40 million drivers each year, and the average visit is approximately 20 minutes.

This is Kilmer's second largest infrastructure sale this year. The firm was also part of a consortium that agreed to sell the Billy Bishop Toronto City Airport terminal in January to a group led by New York-based JPMorgan Asset Management. Kilmer and its partners acquired the downtown terminal in 2015 for an estimated $700-million.

Arjun and Fengate looked to investment bank Evercore for advice on the ONroute acquisition, with legal work done by Blake, Cassels & Graydon LLP and British firm White & Case LLP.

Associated Graphic

Larry Tanenbaum, centre, holds the Larry O'Brien NBA Championship Trophy with Toronto Raptors player Norman Powell, left, and BCE CEO George Cope after beating the Golden State Warriors last month.

LARRY W. SMITH/EPA

The ONroute chain - a series of highway service centres located in Ontario - is one of three revenue-risk projects that Larry Tanenbaum's company Kilmer Van Nostrand has completed with the provincial government.

QUADRANGLE ARCHITECTS LTD.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Peloton Capital takes stake in dental chain in first major deal
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Thursday, June 27, 2019 – Page B2

Private equity fund Peloton Capital Management is investing $75-million in national chain 123Dentist Inc., the latest financial player to target dentistry as an industry that's ripe for consolidation.

Peloton, launched last November by veterans of the Ontario Teachers' Pension Plan and entrepreneur Stephen Smith, is expected to announce its first deal on Thursday, buying a co-control position in a business with 70 dental practices in five provinces. 123Dentist is the country's second largest chain and is currently owned by its employees, including Vancouver-based chief executive Amin Shivji, a dentist who opened his first office in 1993 and still sees patients one to two days a week.

There are approximately 15,000 dental offices across Canada and 123Dentist is one of several deep-pocketed services offering to partner with dentists, typically helping recent graduates to build their business or older-practice owners to manage succession. 123Dentist's business model allows dentists to maintain minority ownership in their practice, and those who have signed up to date are typically between the ages of 40 and 45.

"A successful dentist focuses on patients, and my vision has always been to support that dentist with an excellent business service," Dr. Shivji said. He said 123Dentist considered offers from five private equity firms before settling on Peloton. With the fund's backing, Dr. Shivji expects to expand 123Dentist by 30 to 40 new offices each year, but he said: "The key is making sure we grow at a pace where we keep the culture, and keep our people happy."

Peloton co-founders and managing partners Mike Murray and Steve Faraone previously invested in one of the largest U.S. chains, Heartland Dental, while at Teachers. Heartland more than doubled annual sales to US$1.3-billion in the five years that the Teachers' fund owned the business, expanding to 840 offices from 400. Teachers sold the majority stake in Heartland last year to New York-based Kohlberg Kravis Roberts & Co. LP.

"Compared to the U.S. market, the dental market in Canada is fragmented, and we see 123Dentist as an important option for any dentist, at any stage," Mr. Faraone said. He said offering dentists continued ownership in their practices was part of Heartland's successful business model.

The largest domestic player in this sector is Dental Corp. of Canada Holdings Inc., which was founded in 2011 and now has 350 offices.

Typically, Dental Corp. owns 100 per cent of a dental practice. Last year, a consortium made up of U.S. private equity fund L Catterton and Toronto-based Imperial Capital Group Ltd. and OPTrust took an equity stake in Toronto-based Dental Corp. to help fund growth.

As part of the Peloton investment, Heartland Dental chief executive Pat Bauer will join the 123Dentist's board of directors. Investment bank RBC Dominion Securities advised Peloton Capital on the transaction. Mr. Faraone said a banker introduced Peloton to the dental business earlier this year, just as Dr. Shivji kicked off a search for growth capital.

123Dentist will use part of the money from Peloton to refinance the company's credit lines.

Peloton's founders are all keen cyclists, and chose their name because a group or peloton of riders is 40 per cent more efficient than someone cycling on their own. The firm has raised $330-million to date for its first fund, and is targeting $500-million. Backers include financial institutions and family offices, with Mr. Smith, the chairman and CEO of mortgage lender First National Financial LP, putting up a minimum of $150-million.

Peloton plans to make $25-million to $75-million initial commitments to mid-sized, profitable companies and its first fund is expected to invest in seven to 10 businesses. The fund recently landed veteran consumer products executive and ardent cyclist Irene Chang Britt as a member of its advisory board. She was previously chief strategy officer at Campbell Soup Co. and also worked at Kraft Foods and Kimberly-Clark. Peloton also recently hired former West Face Capital executive Nora Nestor as its chief financial officer and RBC Dominion Securities veteran Mike Scarola as a Peloton partner. Mr. Scarola represented Canada in the 2004 Athens Olympics in canoeing; he now spends leisure time mountain biking.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Catalyst Capital targets HBC buyout bid
space
Fund manager acquires minority stake in retailer, joining list of institutional investors and analysts opposed to $1-billion offer
space
By ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, June 25, 2019 – Page B1

Fund manager Catalyst Capital Group Inc. acquired a minority stake in Hudson's Bay Co. last week, and plans to oppose a $1billion buyout offer for the retailer led by the company's executive chairman, Richard Baker.

Catalyst, a Toronto-based fund controlled by financier Newton Glassman, snapped up a portion of a 10-per-cent stake in HBC from the Ontario Teachers' Pension Plan Thursday, according to a Catalyst spokesperson. Catalyst is known for diving into distressed investments, and frequently uses litigation as part of its business strategy.

The spokesperson said Catalyst will argue that the current $9.45-a-share offer for HBC from Mr. Baker and his partners undervalues the company's real estate and the potential for a turnaround at its department stores, which include its namesake chain, Lord & Taylor and Saks Fifth Avenue. The fund will make its pitch to a committee of HBC's independent directors, who are currently assessing the buyout offer. Catalyst's thesis is that HBC, which was founded in 1670, can use technology more effectively to win a larger share of the online shopping market.

The fund controls publicly traded distressed-lender Callidus Capital Corp., which it took public five years ago at $14 a share and now trades at 46 cents.

However, Catalyst partner Gabriel de Alba, who is responsible for the HBC investment, successfully oversaw the restructuring of European real estate company Geneba Properties NV, which owned warehouses and light industrial buildings in Germany and the Netherlands. Catalyst invested $101-million in Geneba in 2012 and made a 19.5-per-cent annualized return when it sold the company in 2017.

Mr. Baker's group declined to comment, and an HBC spokeswoman said officials weren't available to comment Monday on Catalyst's investment. Catalyst's Mr.de Alba was not available for comment, and Mr. Glassman, Catalyst's chief executive, is currently on a medical leave.

Catalyst joins a growing list of institutional investors and analysts opposed to selling HBC at the price Mr. Baker is offering.

Last week, Stamford, Conn.based Land & Buildings Investment Management LLC slammed Mr. Baker's bid as "woefully inadequate." Land & Buildings is asking the company to explore all "strategic alternatives," including a sale. Jonathan Litt, founder of Land & Buildings, said in a letter to HBC's special committee that the offer should be raised to $18 a share.

Toronto-based HBC announced financial results after Mr. Baker tabled his offer in early June, and reported 2.4 per cent growth in sales at Saks and a $275million quarterly profit, due in part to a $817-million gain on the sale of Lord & Taylor's New York flagship building.

CIBC World Markets Inc. analyst Mark Petrie reviewed the chain's performance and said in a report that HBC owns iconic properties and "with an improving retail business under competent leadership, we believe this is not adequately reflected in the $9.45 offer." He said: "In our opinion, a range of $10.25-$11.25/share would more appropriately reflect today's value."

To take HBC private, Mr. Baker's group needs approval from a majority of the company's minority shareholders. Mr. Baker is working with Rhone Capital LLC, WeWork Property Advisors, Hanover Investments (Luxembourg) SA and Abrams Capital Management LP, and the group collectively owns 57 per cent of HBC.

HBC shares closed Monday at $9.81 on the Toronto Stock Exchange, up 8 cents. The stock has mostly traded above Mr. Baker's offer since shortly after the bid was announced, a sign for some investors that the buyout offer will be sweetened.

Back in January, the Ontario Teachers' fund agreed to sell an 18-million-share stake in HBC to Mr. Baker's group for $9.45 a share. The transaction failed to close as scheduled this month and the pension plan subsequently sold its position into the public markets in trades done last Thursday by TD Securities Inc.

HUDSON'S BAY (HBC) CLOSE: $9.81, UP 8¢

Associated Graphic

Catalyst is the latest to join a growing list of institutional investors and analysts opposed to selling HBC at the $9.45-a-share offer put forward by executive chairman Richard Baker.

FRED LUM/THE GLOBE AND MAIL


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Stronach Group bans Hall of Fame trainer after horse dies at race track
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, June 24, 2019 – Page A1

The Stronach Group banned a Hall of Fame horse trainer after a thoroughbred died at its Santa Anita race track, the 30th fatality this season at a facility that has become a battleground for the future of the sport.

Jerry Hollendorfer, whose horses have won more than 7,600 races during a fivedecade career, is no longer welcome at the storied track in Southern California owned by Toronto's Stronach family. He was banned after American Currency, a fouryear-old thoroughbred, was euthanized after being injured during a training run. It was the fourth horse trained by Mr. Hollendorfer to die at Santa Anita this season.

Belinda Stronach, president and chair of The Stronach Group (TSG), rolled out a series of initiatives over the past two years aimed at making racing safer for horses.

This includes cutting medication given to horses, such as drugs that mask pain during training and races. In a press release on Saturday, TSG said: "Individuals who do not embrace the new rules and safety measures that put horse and rider safety above all else, will have no place at any Stronach Group racetrack."

TSG, a private company, generated US$1.1-billion in revenues last year from racing and related gambling and real estate ventures, but increasing opposition to racing is putting the future of the industry in doubt.

This season's fatalities at Santa Anita have prompted animal-welfare groups, California's horse racing regulator and Governor Gavin Newsom to call for a halt to racing at the track. TSG, with support from horse owners and trainers, has refused to shut down the storied site.

"I've started 33,500 horses in my career. I've never been suspended," Mr. Hollendorfer said on the weekend in a telephone interview with Reuters. He said: "I thought that was a little bit premature and extreme, but I'll probably have to step away from racing here for a while."

In addition to Santa Anita and the Golden Gate Fields facility in California, TSG owns racetracks in Florida and Maryland, where its Pimlico track is the site of the annual Preakness Stakes, part of racing's signature Triple Crown series of races.

Santa Anita staged 29 races featuring more than 200 horses on Friday, Saturday and Sunday, then closed for the summer. The track, which played host its first race in 1904, is scheduled to reopen in September and host the Breeders' Cup World Championship event in November.

Mr. Hollendorfer is the fourth trainer to be banned at Santa Anita this season and by far the highest-profile industry figure to be subject to sanctions. TSG said in a news release: "We regret that Mr. Hollendorfer's record in recent months at both Santa Anita and Golden Gate Fields has become increasingly challenging and does not match the level of safety and accountability we demand."

Over the course of his career, Mr. Hollendorfer has fielded horses that won 7,617 races, the third-most wins of all time among trainers. His horses have claimed approximately US$200-million in prize money. He was inducted into the National Museum of Racing and Hall of Fame in 2011.

Race-horse fatalities at Santa Anita are playing into the continuing court battle for control of TSG between company founder Frank Stronach and his daughter, Belinda. In recent weeks, Mr. Stronach, the 86-year-old former chief executive of auto-parts company Magna International Inc., blamed fatalities at the track on poor management at TSG, and said his daughter planned to sell the race tracks. Ms. Stronach denied these allegations in a notice of liable letter to her father.

The Stronach family is fighting for control of a family fortune worth an estimated $1.2-billion. Along with the racetracks, TSG owns real estate, a media and gambling company and an agricultural business. Mr. Stronach handed control of TSG to his daughter in 2013 when he ran for political office in his native Austria. He filed a lawsuit last November in a bid to win back the company, and more than $500million in damages, and the case is now winding its way through the courts.

On the weekend, animal-rights groups continued to call for an end to racing and said banning Mr. Hollendorfer does not change the nature of the sport. Heather Wilson, the West Coast co-ordinator for anti-racing website Horseracing Wrongs, told California newspaper The Mercury News: "They are making Hollendorfer the sacrificial lamb. It's not the trainer, it's the industry." With a report from Reuters


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
BLOOD ON THE TRACK
space
space
By TAVIA GRANT, ANDREW WILLIS
  
  

Email this article Print this article
Saturday, June 22, 2019 – Page B1

The horse-racing industry is at a crisis point.

A storied American track is at the centre of the storm.

And an epic feud in the Stronach family isn't helping.

Tavia Grant and Andrew Willis report from Arcadia, Calif., and Toronto B5


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Horse racing faces an uncertain future after a rash of animal deaths in recent years - and the Stronachs are caught in the middle
space
space
By TAVIA GRANT, ANDREW WILLIS
  
  

Email this article Print this article
Saturday, June 22, 2019 – Page B5

ARCADIA, CALIF. TORONTO -- IIt's 8:30 am at Clockers' Corner, the bustling coffee spot at the top of the stretch at Santa Anita Park, where jockeys and trainers, agents, owners and racing fans gather to watch the morning workouts.

Dr. Dionne Benson, chief veterinary officer here, sits in the stands nearby, fielding questions from a reporter. But her eyes never leave the track. She scans the thoroughbreds galloping below, looking for bobbing heads or uneven hip action - any hints of trouble.

She's not the only one watching anxiously. Santa Anita, northeast of Los Angeles, is one of the world's most beautiful and storied racetracks. It's home to legends in racing, from John Henry to American Pharoah, who made history in 2015 as the first Triple Crown winner in nearly four decades. And it's having a terrible year. Twenty-nine horses have died racing or in training at Santa Anita since late December, collapsed from a heart attack or euthanized after broken legs or shoulder or pelvic injuries.

That's not even a particularly high number for the track. Fifty-four horses died racing or training here in 2017; 59 in 2012. But a stunning 23 deaths in the first few months of 2019 - among them the famed Battle of Midway, winner of the Breeders' Cup dirt mile, who died in training, and Princess Lili B, who broke her legs during training (captured, in horrific detail, by a local TV station filming at the time) - brought a blast of media attention and calls for the track to shut down.

It did close for much of March to regroup and check the track's surface. Two days after it reopened, another horse died: Arms Runner, a five-year-old gelding, injured his right front leg in a race, fell and was euthanized. At least three more horses have died this month. In an unprecedented move, the California Horse Racing Board (CHRB), the state regulator, called in early June for the track to suspend operations, as did California Governor Gavin Newsom. But the CHRB does not have the power to shut down a track without a public meeting with 10 days notice, and Santa Anita refused to stop races. It remains open, controversially; Sunday is the last day of racing before a summer break.

After that, says Dr. Benson, "we're going to look at everything. ... And if there is anything that we can do better that will make horses safer, it is on the table, open for discussion. We want this to be the safest racetrack in the world, not just America, for horses," she adds, before heading down to her next interview with a TV crew.

There is a lot at stake - thousands of local jobs, the future of the sport at one of America's most hallowed tracks, and perhaps more than that. The racing industry has been struggling from declining attendance, attacks by animal-rights activists and an increase in scrutiny of the toll it takes on the horses. Last year, 493 horses died while racing at North American racetracks, according to data from the Jockey Club - an average of about 10 fatalities a week. Between 2009 and last year, 6,134 horses suffered fatal injuries. (Toronto's Woodbine Racetrack, site of the Queen's Plate next weekend, has a fatality rate lower then the Jockey Club's average; even so, 108 horses have died in races over the past decade.) And these data underestimate the toll, as not all tracks report fatalities, and the national numbers don't include deaths in morning training.

Race fatalities are a long-standing part of the centuries-old sport - but many say horse racing is now in crisis, with Santa Anita at the epicentre. The Globe and Mail spent a week speaking with dozens of trainers, owners, jockeys, exercise riders, bettors, company officials and ground staff about the track, along with animal-welfare advocates and area politicians. "We're all on pins and needles because we don't want to see it happen again," said Bob Baffert, the renowned trainer of two Triple Crown winners and five Kentucky Derby winners, in an hour-long interview at his stables by the track. "We're under a magnifying glass right now ... everyone's nervous."

No one knows this better than Belinda Stronach, president and chair of The Stronach Group (TSG), which owns Santa Anita and six other iconic racetracks, including Gulfstream near Miami and Pimlico in Baltimore, home of the Preakness. Ms. Stronach is arguably the second-most prominent Canadian in the world of horse racing; the first, of course, would be her father, Frank Stronach. The family has made large investments in the sport, starting in the early 1960s; the Stronachs now find themselves at the centre of its fight for survival.

And that fight comes as father and daughter are locked in a bitter legal battle over an estimated $1.2-billion fortune, much of which is tied up in horse racing and related gambling and real estate businesses.

Mr. Stronach, the 86-year-old founder of auto-parts company Magna International Inc., handed the reins of the family company to his now-53-year-old daughter five years ago in order to run for political office in his native Austria. After his political career fizzled, Mr. Stronach turned his attention to new business ambitions, including changing the way Americans eat by acquiring a massive grass-feed beef ranch in central Florida and launching a national grocery and restaurant chain.

The ventures lost vast sums of money, and Ms. Stronach cut off most funding for her father's projects in 2016, claiming the red ink ran to more than $800-million. They've been fighting for control of TSG ever since.

In this family feud, the death of a horse becomes a club Frank Stronach uses to pound away at his daughter's credibility. At a news conference near Santa Anita in April and in subsequent media interviews, Mr.

Stronach linked race-course fatalities to poor management at TSG and said his daughter and her perceived allies, such as TSG chief executive Alon Ossip, are intent on selling the race tracks, which could be worth billions of dollars to real estate developers. With cameras rolling, Mr.

Stronach said: "They are making a mess. It seems to me they have done it on purpose there, to kill racing."

Ms. Stronach has responded with a notice of libel from her lawyers, asking her father for an "unequivocal apology and retraction," for alleging that she "deliberately, negligently or otherwise caused the horse fatalities at Santa Anita." In court filings and in conversation, Ms. Stronach says Mr. Ossip, a long-time adviser to her father, stepped back from an active role at the family company in 2017 at Frank Stronach's request and has no input on corporate decisions.

Undaunted, Mr. Stronach emerged Thursday in California at a CHRB meeting to again complain about being frozen out of the family business, and make his case for safer race tracks. He told the crowd: "We have to prove to the public that horsemen do care for the horses." Mr.

Stronach's vision of the future would see the racetracks placed in a trust, controlled by horse owners and trainers, while TSG would retain and develop any land that wasn't needed for racing. The ponies would be cared for under what the former Magna CEO calls a Racing Charter of Rights that guarantees horses eight weeks of vacation a year, plus a retirement funded by setting aside a small percentage of every bet.

(Through his lawyers, Mr. Stronach declined to comment for this story.) Racing is as much, or more, of Frank Stronach's legacy as auto parts are, and friends say he is deeply hurt by being excluded from any formal role in a sport he cherishes.

But Ms. Stronach is running TSG, and has spent much of the past three months in California, dealing with the problems at Santa Anita.

In a 90-minute interview with The Globe and Mail, she laid out a series of safety initiatives that TSG is championing, in conjunction with trainers, jockeys, breeders, rival track owners and state and federal governments. "Historic change is taking place in racing," she said. She also defended her decision to keep the track open through this weekend, the end of the spring season. "If we closed the track last week, I believe it would have been the beginning of the end of horse racing in California," she said.

And she talked about plans to rejuvenate the business, to modernize the experience of a day at the races and make it relevant to audiences that have so many other ways to spend their entertainment dollar. TSG, she said, is committed to horse racing. "I have looked my father in the eye, on numerous occasions, and said, 'Dad, we are not selling the race tracks.' " T T The setting for Santa Anita Park is undeniably stunning. The palmstudded San Gabriel Mountains provide a sweeping panorama for the 85-year-old track. It's steeped in history; in 1940, Seabiscuit won the Santa Anita Handicap; in 2009, Zenyatta became the first mare to win the Breeders' Cup Classic. Bing Crosby, Marlene Dietrich and Spencer Tracy turned up to watch races here. (Though it was not all glamour and celebration; in 1942, it was a temporary detention camp for 19,000 Japanese Americans on their way to internment camps, housing thousands of people in converted horse stalls.)

The Art Deco façade, massive grandstand and vast parking lots were built for a bygone era; attendance has dwindled from peaks of 80,000 or more to 10,000 on average this season, as many who play the horses now place their bets remotely. (Ninety per cent of the money wagered on Santa Anita races is bet off-site.) Even on a lovely Friday afternoon, with free admission and US$2 beer, the stands are nearly empty.

Headlines of horse deaths and protesters outside the gates are giving potential patrons more reasons to stay away. Hector Molina sits in the stands on a Friday afternoon, some betting chits in hand.

Asked if he's a regular, he proudly pulls out his official licence, showing he's a former exercise rider - has been since he was an eight-year-old boy in Mendoza, Argentina. Now 80, he still comes to the track most days to watch. He thinks there are several factors at play in the horse deaths: "Many new people are coming, they gallop the horse and don't understand when its foot is sore," he says.

Theories abound for why so many horses have died. Initially it was thought that unusually heavy rains were affecting the surface of the dirt track. But the rain stopped, and the horses kept dying. Some blamed the practice of running horses with pre-existing medical conditions, the overuse of medication that masks pain, trainers who forced a sore horse to run, track management geared at maximizing profits and horses made to run year round.

Some think it's bad luck, a statistical anomaly, a curse on the track; animal-rights advocates say it's just a normal, hidden part of racing.

The Los Angeles County District Attorney's office has started an investigation into the horse deaths. It will examine whether "unlawful conduct or conditions" have affected the safety of horses at the track; the investigation is ongoing, and the DA's office declined to comment for this story. The CHRB is also investigating.

The deaths have raised questions about who is responsible for horse safety, from the trainers and owners to the racetrack operators and state racing regulators. Outside oversight is scant, and rules and transparency differ from state to state.

Senator Dianne Feinstein noted this month that other countries have national standards on medication use, and fewer fatalities. "We don't accept that there will be athlete fatalities in other sports; it should be no different for horse racing." Governor Newsom said last week he is troubled by the horse deaths and that "enough is enough."

About 1,800 horses run at Santa Anita over the course of the season, and more than 1,200 people work at the track. Spend a week at Clockers' Corner and you'll hear the same message, from jockeys and exercise riders to grooms, hot walkers, trainers and vets: We love the horses. We care for our horses. The do-gooder animal rights people have no clue about this sport. Thousands of jobs are at stake.

Proportionately, few horses break down, although inevitably, some will. And a lot of other sports have serious injuries too - look at basketball's Golden State Warriors in the NBA Finals. Do we close down the National Football League because of concussions?

(Though we don't euthanize injured football players.)

"As trainers ... we've learned from this, and we need to do a better job of policing ourselves," Mr. Baffert says. "If you have a horse that doesn't look 100 per cent, don't even take the chance of sending them out there."

Thoroughbreds weigh 500 kilograms, and run 55-65 kilometres an hour on spindly legs with ankles that are the same size as humans'.

Mr. Baffert says the breed has changed, becoming more fragile, with more speed. Other horses get worn out on the deeper dirt, he said.

"We lose these horses and we mourn. There's nothing worse, for the workers that work with them. When that horse doesn't come back to that stall, it's a very sad situation."

Of the 29 fatalities at Santa Anita so far this season, three horses have died under one trainer - Jerry Hollendorfer. The Globe contacted Mr. Hollendorfer by phone and asked whether he thought any of those deaths were preventable. "That's an unanswerable question ... my barn has complied with every single thing they've asked us to do," he said, before hanging up.

"It's been an educational experience for everyone involved in horses," Mr. Baffert says. "For jockeys, trainers, trackmen, I think a lot of good is going to come out of this." M M Ms. Stronach knows how it feels to watch a vibrant horse like Princess Lili B stumble and fall. It was part of her childhood experience when her parents took her to the races on weekends. Looking back, Ms. Stronach says, "I didn't enjoy my time at the track as a young person, especially when I witnessed a breakdown or catastrophic injury. That really turned me off the sport."

She says attracting new fans to the track means eliminating, or at least cutting down, on injuries to horses, and making the welfare of animals a priority. "We have to represent the values of our customers," Ms. Stronach says. "Those customers don't want to see horses being whipped. And they don't want to see horses being drugged to run."

Before the racing season began at Santa Anita, TSG introduced a number of health-related reforms. More steps were taken after fatalities mounted. The company, working with owners and trainers, rolled out more stringent regulations around the use of medication.

For example, it is commonplace to give North American horses a diuretic drug called Lasix in an attempt to improve performance. But the medication is banned in Europe. New rules cut the limit on Lasix dosages by half and Santa Anita plans to phase out the drug next year.

TSG brought more vets to the track during training and races - up to four vets now monitor daily workouts, and they have the power to scratch horses and flag thoroughbreds for additional monitoring.

The approach to triage was revisited, to ensure rehab was the first priority, as opposed to euthanizing an injured horse. TSG also added PET diagnostic equipment - a horse's version of an MRI machine - to X-rays and ultrasound equipment at Santa Anita, to help detect pre-existing conditions. "The goal is to make California racing the best and the safest in the world," Ms. Stronach says. "Part of that goal is that no horse will be racing while on medication, or training with pain-masking drugs."

Santa Anita has also reduced the jockey's use of the riding crop.

Jockeys are no longer allowed to raise the crop above their shoulder when they whip the horse. And they are pulling in outside experts to monitor the condition of tracks and establishing national databases to track a horse's health, no matter where it races.

The measures TSG has taken have won praise from a surprising source: The animal advocates at PETA, or People for the Ethical Treatment of Animals. "The Stronach Group has decided they're going to - finally - revolutionize how racing is conducted in the United States. I've certainly had my criticisms of them over this issue in the last three months, but they have made more significant changes in racing than anybody in two generations," said Kathy Guillermo, PETA's senior vice president, based in northern California.

She says horse racing is experiencing "a crisis like I've never seen before," and thinks a lack of uniform regulations across jurisdictions is one of the problems. Ms. Guillermo says PETA still opposes the use of animals for sport. "But we're also very practical. And even though racing is at a crisis point, it isn't going away tomorrow. It's a multibillion-dollar industry in this country. There are many jobs involved.

So we feel a very strong obligation to make it as safe as possible."

Others simply don't think it can be fixed at all. "Horse racing has been given cover under the banner of sport since the beginning," said Patrick Battuello, founder of Horseracing Wrongs, a group seeking to end horse racing in the United States. "In fact, it's nothing more than animal exploitation, animal cruelty and animal killing, no different than Ringling Bros, SeaWorld, and greyhound racing, all of which are either gone or are in the process of going."

For Ms. Stronach, making horse racing safer is central to her campaign to make it a sexier - and more lucrative - sport. TSG's makeover of the business started with the grandstands. After subsisting on "crappy hotdogs" while visiting tracks as a child, Ms. Stronach turned up the heat in Stronach kitchens by hiring away chefs and food and beverage executives from the Four Seasons hotel chain and Las Vegas resorts. Stealing a page from music festivals such as Coachella, TSG began staging concerts and video-game tournaments as a backdrop to races, with an emphasis on acts that appeal to millennial audiences. At a recent event at Pimlico in Baltimore, the headliners were electronic music producers Deadmau5 and Steve Aoki. At Gulfstream, singers Post Malone and Pharrell Williams joined Ms. Stronach to perform and watch the ponies. Santa Anita hosted its first eSports tournament in November, in partnership with Chinese ecommerce giant Alibaba.

Behind the scenes, TSG built a media network that puts horse races - at its own tracks and rival circuits - on TV screens in casinos and off-track betting facilities. The company also rolled out technology to allow wagering on races from any location, including a cellphone. The size of the crowd at a TSG track becomes less important if gamblers can bet on the race from anywhere in the world. Ms.

Stronach points out TSG-owned secure gambling platforms were set up ahead of a U.S. government move last year to relax gambling laws.

She believes that TSG will benefit from what is expected to be a dramatic increase in wagering on sports such as football, basketball and baseball.

Over the past five years, TSG's revenues from racing and gaming have nearly doubled, to US$1.1-billion, according to court documents filed in the Stronach family lawsuit. Ms. Stronach predicts sales could double again in the next five years, saying: "We are just getting started." TSG also nearly doubled its market share in U.S. racetrack betting since 2013. The company now accounts for 28 per cent of all legal wagering.

Profit margins on the existing business are modest, though. One source told The Globe and Mail the business makes about US$75million to US$80-million. A bigger business opportunity lies in making better use of the land. At Santa Anita, says Ms. Stronach, racing is central to the company's "live, work and play" approach to developing its real estate. Over time, Santa Anita and other TSG tracks will see their vast parking lots and aging grandstands updated with hotels, casinos, stores and homes, she said. For example, Gulfsteam executives recently hired urban planning firm DPZ Partners to launch a renovation of the Miami property that could include a rail-side luxury hotel and a pedestrian tunnel that would transform the green space in the middle of the track into a public park.

Caught in the middle of all this uncertainty about the fate of the Stronachs' assets and the future of the sport are the workers, largely Latino, whose livelihoods depend on the track. On Wednesday, a group of them gathered in a prayer circle by the Seabiscuit statue, to hold hands and pray for their jobs and the horses and the track.

"We lift up everybody that's involved with Santa Anita racetrack ... Lord, there's been a lot of negativisms said about this place, but Lord, a lot of people really don't know the inside," said Pastor Eli Hernandez, chaplain of Santa Anita racetrack.

On Thursday, dozens of low-wage workers and their families gathered at the stands for a first-ever news conference, posters in hand.

"If Santa Anita were to close, I wouldn't have a place to go. The experience that I have is not transferable to other jobs," said Dagoberto Lopez, who has worked as a groom for 35 years and whose job helps support his three children. As for the horses, "I feel like the horses under my care are like my family; I take care of them as if they were my children."

Some still fear the whole track will be shuttered and redeveloped.

April Verlato, the mayor of the town of Arcadia, (pop. 58,000), where the track is located, says the grandstand and façade are of historic significance to the state of California, suggesting there would be numerous hurdles to tearing it down. "It would be very difficult."

Zoning changes are possible, subject to council approval, to allow for development in the perimeter of the park, she says, indicating that - generally for land of that size - residential development would hypothetically be most profitable.

The land on which Santa Anita sits is vast, and valuable. House prices have soared in the past decade, driven by wealthy Asian buyers who are investing in real estate as a safe haven in the area, said Kevin Kwan, senior vice-president at Century 21 in Arcadia.

"In Los Angeles, you don't see that big [of an area] of usable land here, besides the other old racetrack, which they turned into a football stadium," he said. Mr Kwan estimates the Santa Anita site is worth at least a billion dollars.

As for the mayor, she's worried about the impact on jobs, particularly among vulnerable workers, many of them immigrants, should the track close. "People have this perception that everybody at the track is rich, they're all owners, they're all jockeys, they're celebrities," Ms. Verlato says. "But there are a lot of low-income workers ... I'm concerned for them."

Santa Anita finishes its season this weekend, with 10 races each on Saturday and Sunday.

More than 200 horses are expected to compete. Ahead of a trip back to California from Toronto, Ms. Stronach said the horse-racing industry has done a great deal to make the sport safer, but more reforms are needed. She says: "We need to raise our standards as an industry, with horse welfare at the centre of that movement. Otherwise, I don't want to be part of it."

After Sunday's last races, Santa Anita will shut down for the summer. It will reopen in September, when the days get cooler. Most of the horses will be loaded into trailers after this weekend and will head off to other tracks, including California sites such as Los Alamitos and Del Mar. They'll keep running.

Associated Graphic

At Santa Anita Park in Arcadia, Calif., 29 horses have died since late December, drawing media attention and calls for the track to close.

PHOTOS BY BARBARA DAVIDSON/THE GLOBE AND MAIL

Belinda Stronach, president of The Stronach Group, which owns Santa Anita, has resisted calls to shutter the track. The Stronachs have made large investments in horse racing and find themselves at the centre of its fight for survival.

MICHAEL ROBINSON/THE WASHINGTON POST

Jockeys and exercise riders take part in a morning workout on Wednesday at Santa Anita. The track has a storied history, with Seabiscuit and American Pharoah among the horses to have raced there.

Dozens of low-wage Santa Anita workers staged a rally on Thursday. More than 1,200 people work at the track, and many local jobs are at stake as the rash of horse deaths amplifies the voices of critics.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
GMP sells capital markets arm to U.S.-based Stifel for $70-million
space
Independent investment bank to focus on wealth management as financial sector consolidates
space
By ANDREW WILLIS, CLARE O'HARA
  
  

Email this article Print this article
Tuesday, June 18, 2019 – Page B1

GMP Capital Inc. is exiting the capital markets business, selling its investment banking arm to U.S. brokerage house Stifel Financial Corp. for approximately $70-million in a dramatic shift for what was once one of Canada's most successful independent investment dealers.

In the latest sign of consolidation in financial services, GMP Capital's bankers and traders will join St. Louis-based Stifel, which has built a national U.S. platform by making more than two dozen acquisitions during chief executive officer Ronald Kruszewski's 22 years at the helm.

GMP Capital, founded in 1995 by veteran deal makers, made its name raising money for entrepreneurial businesses such as Research in Motion - now BlackBerry Ltd. - and cannabis, mining, and oil and gas companies in recent years. But, like BlackBerry, the Toronto-based investment bank that once boasted a market value of $2-billion is undergoing a transformation. Its core business will now revolve around its 33-per-cent stake in wealth manager Richardson GMP, which has approximately $30-billion in assets and 170 teams of financial advisers.

Once the Stifel transaction closes, GMP Capital plans to buy the remaining 67 per cent of Richardson GMP from its employees and Winnipeg's Richardson family in a stock swap that will make the Richardson clan the company's largest shareholder. GMP Capital will hold approximately $198million in cash. That capital is earmarked for expanding the wealth management platform by recruiting financial advisers and potentially adding new services such as robo-advisers, specialized lending and asset management.

"This transaction is all about turning the focus onto [Richardson GMP], giving it the oxygen, the focus and the capital it requires to become a really powerful force in the wealth management space in Canada as an independent, non-bank-owned firm," said Sandy Riley, CEO of Richardson Financial Group Ltd. He said Richardson Financial is in favour of swapping its stake in the wealth management company for additional shares in GMP Capital, where the family already holds a 24-per-cent stake.

After the Stifel sale, GMP Capital plans to pay a one-time 27.5cent-a-share special dividend to shareholders.

A handful of GMP Capital veterans are expected to depart when the deal is done, including co-founder and deputy chairman Kevin Sullivan.

GMP Capital has faced years of tumult. A downturn in resource markets, declining trading commissions and a failed expansion strategy knocked the firm's market capitalization down to $150million last week. CEO Harris Fricker said it was "frustration" over a declining stock price and the issue of how to best serve clients that drove a strategic review by the board to conclude with the sale to Stifel.

"In thinking about the industry, you ask: Are you growing or declining in terms of your relevance to clients?" said Mr. Fricker, who plans to move to Stifel with most of GMP Capital's senior executives. He said that to stay relevant to GMP Capital's small to medium-sized corporate customers the firm needed far better access to U.S. capital markets, something it could not build on its own.

"The addition of GMP further enhances our institutional business given its strength in the Canadian markets and within the technology, health care, cannabis and energy verticals," Stifel's Mr.

Kruszewski said.

GMP's stock price jumped 13 per cent on news of the buyout Monday, closing at $2.29 on the Toronto Stock Exchange. The company's shareholders and regulators need to approve the transaction, which is expected to close this fall.

More than 50 independent Canadian investment dealers have been acquired in the past five years, leaving approximately 160 firms, according to the Investment Industry Association of Canada. Ian Russell, CEO of the IIAC, recently predicted that the continuing downturn in financing activity and rising regulatory costs will reduce the number of domestic dealers to fewer than 100 in the next two years, closing doors to small-cap Canadian companies looking to raise capital.

This is Stifel's second attempt to build a Canadian franchise.

The firm inherited a team with offices in Calgary and Toronto in 2010 when it acquired U.S. rival Thomas Weisel Partners Group, Inc., which previously paid $150million to buy Canadian boutique dealer Westwind Partners. GMP Capital's Mr. Fricker said Stifel brass decided the Westwind team lacked the skills and relationships needed to build a business and shut the operation down in 2013.

Most significant U.S. investment banks already have offices in Canada, and Stifel executives said the domestic market ranks fourth globally in terms of generating investment banking fees, behind only the U.S., China and Britain. Victor Nesi, co-president of Stifle, said acquiring GMP "not only extends Stifel's business into the Canadian markets but will also enhance our offerings to our U.S. and U.K. clients."

Law firm Goodmans LLP advised GMP Capital on the transaction, while Stikeman Elliott LLP, Lazard Canada Inc. and Sheumack & Co. GMC LLC worked with the special committee of GMP Capital directors.

GMP CAPITAL (GMP) CLOSE: $2.29, UP 27¢ STIFEL FINANCIAL (SF) CLOSE: US$56.30, DOWN 27 US CENTS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Stifel in talks to buy GMP Capital
space
St. Louis-based company looks to expand into Canada with acquisition of independent investment bank, sources say
space
By ANDREW WILLIS, JEFFREY JONES, NIALL MCGEE
  
  

Email this article Print this article
Monday, June 17, 2019 – Page B1

Toronto's GMP Capital Inc. is in talks to be acquired by Stifel Financial Corp., according to sources in the financial sector, in a deal that would see a U.S. company swallow one of the last sizable independent investment banks in Canada.

GMP Capital, founded in 1995, had a long run as a leading Bay Street investment dealer, but its stock price has slid steadily over eight years as it struggles with a prolonged slump in resource financing, declining trading commissions and a failed expansion strategy. At its peak in 2006, the company was worth $2-billion; its market capitalization on Friday was $150-million.

GMP Capital and Stifel declined to comment on whether the two companies are in negotiations. It is possible the talks could break down, but sources familiar with the situation said the two sides were on track to announce a deal this week. The Globe and Mail granted the sources anonymity because they weren't authorized to speak publicly about the matter.

Stifel executives were reportedly in Toronto last week trying to negotiate long-term employment contracts with key GMP executives at the Shangri-La Hotel. One source said the goal is to close the takeover deal by September.

Stifel, a full-service investment bank with approximately 7,100 employees, turned a US$385-million profit on revenues of US$3billion last year.

The company has a US$4-billion market capitalization and over the past 10 years its stock price has almost doubled.

GMP Capital is a far smaller entity, with profit of $15-million in 2018 on revenues of $178-million. But it does have one valuable asset in addition to its investment-banking business: It owns a third of wealth-management company Richardson GMP Ltd., which has assets under management of $30-billion. The Winnipeg-based Richardson family also owns a third, as do employees of Richardson GMP. Investment-banking sources said a number of GMP Capital employees move to Richardson GMP if there's a deal with Stifel.

There is a long tradition of independent investment dealers in Canada eventually selling to larger companies. The sources say GMP Capital caught the attention of several U.S dealers interested in expanding into Canada, including St.

Louis-based Stifel. In recent months, there was talk that U.S.

players such as Jefferies Financial Group Inc. and Wells Fargo & Co. were also sniffing around GMP, but executives have dismissed this speculation, to date.

Stifel has acquired a string of smaller rivals in recent years as part of a strategy aimed at building what chairman and chief executive Ronald Kruszewski refers to as a "pre-eminent middle-market" investment bank. In his comments on the company's recent financial results, Mr. Kruszewski said: "In our institutional business, our growth will continue to be driven by the addition of high-quality talent through selective hires and strategic acquisitions."

Stifel's last foray into Canada ended poorly. The company inherited a 60-person team with offices in Calgary and Toronto in 2010 when it acquired U.S. rival Thomas Weisel Partners Group, Inc., which previously paid $150-million to buy Canadian boutique dealer Westwind Partners. The Canadian unit never made inroads in domestic underwriting and stock trading and Stifel shut it down in 2013.

Stifel may be attracted to GMP by its robust relationships with cannabis-industry players, although that line of business may also represent a challenge for the U.S. company, according to the sources. U.S. federal regulations restrict investment-banking activity in the cannabis sector. A number of GMP bankers are said to be concerned that they would be forced to turn down lucrative deals in the marijuana industry if they join Stifel.

The future of GMP Capital is a source of fascination in banking circles, as the company was home to larger-thanlife founders - including financier Brad Griffiths and trader Mike Wekerle - who stepped away over the past decade. For years, GMP Capital executives were among the country's highest paid bankers; Tom Budd, the former lead energy banker in GMP's Calgary office, made $12.5-million in 2002, twice what a bank CEO made that year. In contrast, current GMP CEO Harris Fricker took home $4.3-million last year.

Over Mr. Fricker's nine-year run as CEO, GMP Capital attempted to extend its reach with acquisitions, buying Calgary-based FirstEnergy Capital Corp. for $99-million in 2016 and spending US$44-million on a New York-based fixed-income business in 2014.

The prolonged downturn in energy markets forced Mr. Fricker to retrench: GMP Capital took a $28.5-million impairment charge against goodwill from acquisitions in the most recent quarter. GMP Capital sold the U.S. fixed-income business late last year and closed a number of offices outside Canada.

GMP Capital's stock price has been trending downward for several years, closing at $2.02 last Friday compared with $9 five years ago and $27 in 2006. Employees own 24 per cent of the dealer and the Richardson clan owns another 24 per cent.

Over the past five years, more than 50 Canadian investment dealers have exited the industry through amalgamation or takeovers, leaving about 160 domestic companies, according to the Investment Industry Association of Canada (IIAC). In a recent report, IIAC CEO Ian Russell said: "We anticipate even more firms to leave the business in 2019, given the ratcheting up in operating costs and prospect of an extended period of depressed market conditions."

Mr. Russell warned that fewer independent domestic investment banks spells trouble for Canadian capital markets.

"A continuation in this trend will lead to a significant consolidation in the investment industry with the corresponding damaging impact on the competitive diversity in the domestic retail marketplace and capital-raising for small and midsized businesses in public and private markets."


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Raptors' owners score big as NBA title adds millions in value to team
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Saturday, June 15, 2019 – Page B1

When the Ontario Teachers' Pension Plan owned a majority stake in the NBA's Toronto Raptors and parent Maple Leaf Sports & Entertainment Ltd., fund executives bristled at those who accused them of milking the franchise for money, rather than trying to win.

Jane Rowe, the executive managing director of Teachers who oversaw the $1.32-billion sale of the pension fund's stake in MLSE in 2012, said at the time: "Did we not want them to win? That I find to be a very mind-boggling question."

The Raptors' magical spring, which culminated in their first title on Thursday night, captivated the country. It also means money, and lots of it. Winning alters the value of a sports franchise, often permanently. In 17 years as an owner of MLSE, Teachers made an estimated fivefold return on its investment, but never got the big score that comes with fielding a champion.

That windfall is coming instead to Rogers Communications Inc., BCE Inc. and MLSE chairman Larry Tanenbaum, who stand to turn the Raptors' championship into a serious win at the cash register.

The two telecom companies each own 37.5 per cent of the sports company, which also owns the NHL's Toronto Maple Leafs, the CFL's Toronto Argonauts and soccer club Toronto FC. Mr. Tanenbaum holds the remaining 25 per cent, and is a more traditional pro sports owner who bought into MLSE in 1998 after successful investments in paving and cable businesses.

For the Raptors, clinching the team's first NBA title is a "massive marketing and merchandising event' that matches the recent end of long-running championship droughts at two storied baseball franchises, the Boston Red Sox and Chicago Cubs, said Matt Powell, vice-president and senior adviser on sports for New York-based consulting firm NPD Group.

"If I was running the Raptors, I would renegotiate every commercial agreement on merchandise and sponsorship, and I would look at increasing ticket prices to the extent I could do so without alienating fans," Mr. Powell said.

"Those would be my secondary priorities," he added. "My first priority would be re-signing Kawhi Leonard."

From both a marketing and personal point of view, the team's three owners stand to reap rewards that are hard to measure, but far more valuable than selling more Raptors swag ahead of Monday's victory parade in Toronto.

They're winners: Weeks of gripping playoff games and one wild night of partying across Canada have washed away years of disappointment.

The Raptors' championship adds new lustre to its backers and their brands.

"There's a direct benefit that comes from winning," said David Soberman, a professor at the University of Toronto's Rotman School of Management who specializes in marketing. While a portion of the windfall is easy to calculate - a run on Raptors T-shirts and caps, a spike in TV advertising at Bell- and Rogers-owned cable networks - Mr. Soderman said the larger and longerlasting benefits come from building brands that help consumers distinguish between otherwise interchangeable products such as cellphones or savings accounts. Mr. Soberman said: "Even if they don't admit it, subconsciously, people will sign up for Bell or Rogers phones because they associate the logo with the Raptors."

The halo of success around Canada's only NBA team will last longest for companies with brands or a value proposition that line up with what the team represents. Ken Wong, a professor at Queen's University's Smith School of Business, said there's a short-term boost for companies that jumped on the Raptors bandwagon with TV advertising campaigns, such as website developer GoDaddy Inc.

A winning season forges deeper ties for sponsors such as Tangerine, the online bank owned by Bank of Nova Scotia. Mr.Wong pointed out that the Raptors' ethnically diverse, digitally savvy fan base is neatly aligned with Tangerine's target customers. "Sponsors have far more to gain if their brand and the Raptors' build off each other," he said.

Winning is fuelling an already impressive run in the value of Toronto's NBA franchise.

The Raptors played their first game in 1995, after the team's original owners paid the league a record expansion fee of US$125-million.

By the start of this season, the team was worth an estimated US$1.68-billion, slightly under the league average of US$1.87-billion.

By comparison, the Toronto Maple Leafs are valued at US$1.45-billion, far above the NHL's average team value of US$630-million. Sports economist John Vrooman of Vanderbilt University says winning a title boosts the Raptors' value into the upper echelon for NBA teams, as it's the long game that matters most for team valuations. Hoisting the Stanley Cup matters less than market size for NHL valuations, he says, using the oft-beleaguered Leafs as an example. But in basketball, Mr.

Vrooman said: "Consistent winning over a cumulative five-to-10-year span is relatively important for NBA club values."

With a report from Josh O'Kane


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
For market and Teachers, Baker's property deals are no longer enough
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, June 11, 2019 – Page B1

Richard Baker has shown he sees value in real estate that eludes the rest of us.

As the 39th governor of the venerable Hudson's Bay Co., Mr.Baker has tried to find new ways to make a buck at the country's oldest company, which was founded in 1670.

The New York-based financier authored one of Canada's greatest real estate trades. Mr. Baker was widely expected to lose a pant-load of money on the Zellers chain as Walmart Inc. crushed its rival in Canada. Instead, he flipped the leases on 220 Zellers stores to Target Corp. in 2011 for $1.8-billion. This may qualify as the most one-sided property transaction of all time: Target quit Canada within four years after horribly botching its launch.

Why, then, has HBC stock performed so poorly, potentially handing Mr. Baker the company through Monday's buyout offer, and all the upside that will come with redeveloping the flagship properties that remain in the chain's 300-store portfolio?

Consider Mr. Baker's run.

Where many department stores became wastelands as shoppers moved online, the HBC boss turned empty floors into trendy shared office space by partnering with WeWork Companies Inc. Mr.Baker's sale of a flagship store on New York's Fifth Avenue to WeWork in 2017 put US$850-million in HBC's coffers.

The sale also forged a relationship that saw WeWork join forces with Mr. Baker in Monday's $1billion bid to take HBC private.

The WeWork sale was the latest in a series of transactions that come with one common theme: Mr. Baker sold an asset for far more than anyone else thought it was worth.

In Vancouver, Mr. Baker sold the landmark Hudson's Bay store last year for $675-million to Asian investors. The previous year in Toronto, he flipped a downtown store to Cadillac Fairview Corp.

Ltd. for $650-million. That deal ensured the real estate arm of the Ontario Teachers' Pension Plan footed at least part of the bill and risk that came from converting half the property into a Saks Fifth Avenue store.

There are no prizes for guessing what Mr. Baker will do if his $9.45-a-share offer for HBC is accepted by investors. Freed from the tyranny of quarterly reporting, he'll quietly keep selling real estate, repurposing stores and attempting to keep familiar retail chains relevant to a new generation of people who shop using their phones rather than visiting a store.

Despite Mr. Baker's enviable track record, sophisticated investors such as Ontario Teachers no longer want to be along for the ride. The pension fund sold 18 million HBC shares to Mr. Baker last week at $9.45. The fact that HBC shares closed at $9.07 on Monday, below the offer price, signals there's no expected competitor to the buyout bid, and no expectation Mr. Baker will increase his offer.

The market, and Ontario Teachers, are signalling that Mr.Baker's deft touch is no longer enough to fix the company. Even with real estate sales, HBC is bleeding red ink. The company lost $631-million last year, compared with a $139-million loss the previous year.

Investors who are selling into the $9.45-a-share buyout price - a 47-per-cent premium to Friday's close - are taking a view that the HBC's governor will run out of trophy properties to sell before he fixes all that ails his various retail brands. Besides Saks and Hudson's Bay, the company owns the Lord & Taylor chain and Belgium's Galeria INNO. HBC properties in Germany were sold Monday for $1.5-billion.

HBC stock did rally in 2014 after Mr. Baker took the company public in 2012 at $17 a share, but then went on a four-year slide that has led to Monday's buyout offer.

For all the real estate deals and for all the talk of the value of the underlying land - HBC minority shareholder Land & Buildings Investment Management LLC put a $31-a-share valuation on the properties last November - a great many investors have lost faith.

The special committee of HBC directors named on Monday, and advisors Blake, Cassels & Graydon LLP and J.P. Morgan Securities, will be conscious of the fact that many investors want to hand this company over to Mr. Baker and let the real estate mogul work with his own money.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Activist investors dig into mining companies for the long haul
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, June 10, 2019 – Page B1

Activist investors shook up Canada's clubby gold mining industry over the past two years by targeting boards at a dozen companies and winning an impressive number of battles. More campaigns are in the works, and even the largest mining companies may be vulnerable.

But can the activists deliver on the heightened expectations that come with their successful board fights?

It's easy to understand why outsiders such as hedge fund Paulson & Co.

Inc. get broad support when they target a laggard such as Detour Gold Corp.

Detour's stock, which hit $35 in the summer of 2016, plunged below the $10 mark last year amid a litany of problems at its flagship mine, northeast of Timmins, Ont.

That kind of story is too familiar in gold mining.

Over the past 10 years, returns from Canadian gold company shares have trailed gold prices by a large margin.

Shareholder services firm Kingsdale Advisors, a central player in a number of boardroom battles, published a report on the mood of the gold sector last week that said, "We have heard shareholders complain - first privately and now increasingly publicly - about sustained poor performance vs. peers or the index; poor market guidance; project delays; capital overruns; inability to secure 'routine' permits and negotiate licenses; and excessive compensation."

Paulson's year-long campaign against Detour saw it turn over the majority of the board of the Torontobased gold miner.

The New York-based fund, best known for founder John Paulson's profitable bet against subprime mortgages prior to the global financial crisis, is also working at uniting fellow grumpy investors by backing an activist group called the Shareholders' Gold Council.

The Detour campaign was one of 13 proxy battles to play out in the gold sector over the past 26 months. Activists achieved all or part of their goals in all but three contests. "Investors have lost faith in the boards of gold mining companies' ability to manage risk and are seeking out ways to push for change," Kingsdale said. "Any company, no matter its profile, size or asset base, can be an activist target."

But like the dog that chases a car, then catches it, there's the nagging question of what comes after an activist victory in a proxy battle.

Detour shows that boardroom victories don't quickly translate into stock market gains.

Throughout its long proxy battle, Paulson & Co.'s game plan for Detour consisted of installing new management, then selling the company. Step one is done. Step two - finding a buyer for a miner with a single property, in Northern Ontario - is proving far more difficult so far, in a sector that is skittish about paying high prices for acquisitions. Paulson & Co. has won boardroom battles at Detour, but to date, the fund has lost money on this investment.

Most activist funds use the same playbook as Paulson. They target poor performers with the goal of putting the company in play. These funds capitalize on justifiable investor frustration with management teams that took home massive pay packages for posting subpar results. In mining, that means activists often end up with board seats at companies with significant operational problems; even the most successful mine is a daily engineering challenge.

Only a handful of fund managers have the experience and stamina required to fix busted mining plays. Brookfield Asset Management Inc. recently did it with North American Palladium Ltd. Former Barrick Gold chief executive officer Aaron Regent, who runs Magris Resources Inc., also uses operating skills as the starting point for investing in mines. As activists began roiling the sector, Magris spent US$500-million to acquire properties in Quebec from Iamgold Corp.

Kingsdale's report highlighted the fact that many of the activists now targeting gold miners are patient money. "For the most part, these are not your short-term corporate raiders or anklebiters," the advisory firm said. "Their interests are long term; they're not only in it for a quick lift in share price."

That long-term view is useful for anyone diving into mining stocks. The sector's fortunes are going to be driven in large part by commodity prices and the ability of management teams to deliver complex projects, on time and on budget. For gold stocks, the whims of bullion markets - which have been strong lately - are always going to have a big impact on the share price. The arrival of activist investors promises to reshape boardrooms at gold mining companies, but it doesn't change the underlying dynamics of the sector for investors.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Ford's desire to get beer into corner stores conflicts with his 'Open for Business' agenda
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Thursday, June 6, 2019 – Page B5

Ontario Premier Doug Ford's obsession with getting six packs into corner stores is now officially killing his Progressive Conservative government's "Open for Business" agenda.

The populist Premier picked a fight with the world's biggest brewers last week by threatening to tear up a deal that grants the Beer Store, a 445-outlet chain primarily owned by the foreign brewing giants behind Labatt, Molson and Sleeman, a near-monopoly on retail beer sales.

The PC government plans to rip up a 10-year agreement with the Beer Store, signed in 2015 by the previous Liberal government, in order to pave the way for beer and wine sales in convenience stores and big-box retailers.

It's the latest faceoff between the Ford government and corporations over broken contracts. Since coming to power a year ago, the PC government cancelled plans for wind farms owned by a German company and meddled in Hydro One Ltd., scotching a planned $4.4-billion cross-border takeover. Partly privatized Hydro One and German energy company wpd AG opted to avoid a public fight. In contrast, Big Beer has pulled out the big guns - deploying corporate lobbying groups to make their case.

"There are few factors more critical to investment and economic growth than the legal certainty and predictability fostered by respect for the rule of law," Neil Herrington, senior vicepresident of the U.S. Chamber of Commerce, said in an open letter to the Premier on Wednesday.

The U.S. group, which recently played host to Mr. Ford at its Washington office, said terminating the Beer Store contract "could undermine ... the case the Ford government has made that the province is open for business."

"Our strong concern is that terminating an existing contract, and doing so without compensation ... risks sending a negative signal to U.S. and other international investors about the business and investment climate in Ontario," Mr. Herrington said.

He speaks for an organization with three million members, including Anheuser-Busch InBev SA, which owns Labatt and is the world's largest brewer, and Molson Coors Brewing Co., home to politically connected chairman Peter Coors.

The same closed-for-business sentiment is coming out of Mr. Ford's home turf. Ontario Chamber of Commerce chief executive Rocco Rossi wrote an open letter to the government last week, saying: "Cancelling a contract sends an alarming message to the business community in Ontario and beyond, which could potentially deter investment."

Making it easier to get beer and cannabis is the bright, shiny object Mr. Ford seems intent on waving in front of voters. The government recently introduced legislation that allows booze during tailgate parties at sports events and served up "buck-a-beer" to consumers by lowering the minimum price.

The Ford government is expected to announce as early as Thursday that up to 80 additional grocery stores will be stocking beer and wine, and approximately 200 new provincially supervised retail outlets known as agency stores will open their doors. Both moves can take place under the existing contract with the Beer Store. The government will soon announce plans for at least 50 new cannabis outlets, according to sources close to the government, after giving permits this spring to 25 privately owned shops across the province.

A flurry of booze and cannabis store openings may win fans among Mr. Ford's voter base, but corporate leaders are shaking their heads.

In his letter, Mr. Rossi said, "Our members believe the government of Ontario must take a strategic - rather than a piecemeal - approach to alcohol policy."

The Ford government's preoccupation with booze is also handing the opposition a club they can use to beat on the PCs' image as business friendly.

"Nobody wants to see the government blow possibly hundreds of millions of dollars to break a contract," NDP Leader Andrea Horwath said on Wednesday. "No businesses are going to want to invest in a province where the climate is such that the government is indicating that they have no interest in the rule of law."

The Beer Store is warning Ontario will face hundreds of millions of dollars in penalties if contracts are broken, including potential lawsuits anchored in the North American freetrade agreement. The retailer's union is telling the government that its confrontational approach will alienate workers.

Labatt, Molson and Sleeman collectively contribute $4-billion annually to the provincial economy. For a government that considered stamping "Open for Business" on Ontario licence plates, there's a rich irony in these battles with some of the province's biggest consumerproducts companies.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
DHX Media receives 'unusual' bid from Indian auto company
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Wednesday, June 5, 2019 – Page B2

An auto-parts company from India is making an unsolicited and unusual takeover overture for TV production company DHX Media Ltd., saying it is offering to buy the owner of the Peanuts and Teletubbies brands at a 300-percent premium to where its stock was trading.

Sakthi Global Holdings said in a news release that it is making an "unsolicited merger proposal" for Halifaxbased DHX priced at $5.32 a share, with $1.32 to be paid in cash and $4 to be paid in Sakthi stock, which is thinly traded on the U.S. over-the-counter (OTC) market.

DHX shares closed on Tuesday at $1.96 on the Toronto Stock Exchange, up 9 per cent from the previous day but well below the Sakthi offer. The stock traded at $2.28 early in the session. At Tuesday's close, DHX's market capitalization was $290-million, while the Sakthi offers values DHX at $718-million.

In response to Sakthi's early morning news release, DHX put out its own release on Tuesday that said: "At this time, Sakthi Global Holdings has not responded to questions from DHX Media and DHX Media has not been able to verify the ability of Sakthi Global Holdings to carry out a transaction."

Halifax-based DHX said its board of directors will review any formal offer for the company, but cautioned, "There can be no certainty that a transaction will take place with Sakthi Global Holdings or any other party."

DHX's board held a formal strategic review last year that included potentially selling the company, and concluded that process in September after selling a minority stake in the Peanuts cartoon brand to Sony Music Entertainment (Japan) Inc. for $235.6-million.

"The whole approach of Sakthi appears unusual to us," analyst Aravinda Galappatthige at Canaccord Genuity Group Inc. said in a report on Tuesday.

He listed five major obstacles to a deal, including foreign ownership restrictions on Canadian media companies, a lack of capital at Sakthi needed to fund the $180-million cash portion of the bid and an OTC-listed Sakthi stock that is "not a reliable currency" for the $4-per-share stock component of the offer.

Sakthi's release describes the company as a manufacturer of car chassis and powertrain components with a US$1.2billion market capitalization. The company's announcement of the DHX bid was riddled with spelling mistakes and grammatical errors: The potential buyer said if the takeover is successful it will see "Sakthi Global shareholders emerging as the majority shares [sic] holders of the combined companies."

Phone calls to Sakthi's U.S. office in Bethesda, Md., went to a voice mailbox that was full and could not accept messages.

In the past, foreign entities have occasionally broached the idea of taking over Canadian companies, then fade away in the face of scrutiny from boards of directors, financial advisers and regulators.

DHX MEDIA (DHX) CLOSE: $1.99, UP 21¢


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
COURTSIDE AT THE 2019 NBA FINALS
space
space
By ANDREW WILLIS, MEGAN DEVLIN
  
  

Email this article Print this article
Monday, June 3, 2019 – Page A8

TORONTO -- For a basketball connoisseur like NBA commissioner Adam Silver, the best seats in Scotiabank Arena are a few rows back from the court, where he's just high enough in the stands to take in all the action as the Raptors play for their first championship.

A few CEOs with an eye for value hold the same view.

Royal Bank of Canada boss Dave McKay and retired Bank of Nova Scotia head Rick Waugh will take in the playoffs from a dozen rows back, near the corner of the court where Raptors president Masai Ujiri occasionally stands during games.

But for a select group of Toronto's corporate elite, the only place to be for a basketball game is courtside. It's one of the toughest tickets to score in professional sports, an opportunity to watch the NBA Finals with your feet on the parquet. The face value of a ticket to the finals is $11,054, but as the ads say, these tickets are really priceless.

There are approximately 110 courtside slots in the arena - the number drops during the playoffs as seating is revamped to squeeze in additional TV broadcasters. From this perch, CEOs, entrepreneurs and celebrities of various flavours become part of the game, with Kawhi Leonard lining up buzzer-beating shots directly in front of them, Drake heckling a few seats away and the occasional errant pass whizzing by their heads.

The couple sitting between Raptors head coach Nick Nurse and Drake? That's David Kassie and wife Susan Harris, CEO of Executive Coaching Associates. He's the executive chairman of investment bank Canaccord Genuity and a former guard on McGill University's basketball team.

The past and present of pro basketball in Toronto hold the best seats in the house, directly across from the teams' benches. On one side of centre court, next to the U.S. broadcasters, you'll find John Bitove, the private equity kingpin who teamed up with broadcaster Allan Slaight to bring an NBA franchise to Toronto in 1993. Mr. Bitove eventually sold the team but kept his prime spot. His neighbour is Cargojet founder Ajay Virmani, who recently struck a marketing partnership with the Drake. Mr. Virmani makes a cameo in a recent post on Drake's Instagram feed, which has 57 million followers, when the rapper tours Cargojet's tricked-out "Air Drake" Boeing 767 jet.

On the other side of centre court sits Maple Leaf Sports & Entertainment (MLSE) chairman Larry Tanenbaum and wife Judy - he's the one with the ear-to-ear grin as he moves closer to realizing a lifelong dream of bringing championships to Canada. MLSE owns the Raptors, pro soccer's Toronto FC, the CFL's Argos and the NHL's Maple Leafs. Mr.

Tanenbaum, a billionaire from investments that include paving, bottling Coca-Cola and cable, is also chairman of the NBA's board of governors, which makes him Mr. Silver's boss and the big wheel in pro basketball.

Mr. Tanenbaum could sit wherever he wants. It speaks volumes that he opts to cede the four best slots, closest to the middle of the floor, to his MLSE co-owners. Bell Canada boss George Cope is a regular, while the other seats are typically taken by Rogers Communications CEO Joe Natale or chairman Edward Rogers, who was at Thursday's game against the Warriors. Fashionista wife Suzanne Rogers made an appearance last week to watch the Raptors finish off the Milwaukee Bucks.

For years, during deep playoff runs and some truly brutal campaigns, the Tanenbaums have sat next to Indigo Books and Music founder and CEO Heather Reisman and husband Gerry Schwartz, founder and CEO of asset manager Onex.

Mr. Schwartz notably came and went during the nail-biting Game 7 win over the Philadelphia 76ers. The next morning, Onex announced a friendly $3.5-billion bid for WestJet. For the first game of the championship, the couple played host to actor Cynthia Dale and retired CBC anchor Peter Mansbridge. The next two seats are home to real estate mogul Ed Sonshine and wife Fran.

A revolving cast of actors, musicians and athletes are mixed in among the CEOs and featured prominently on the arena's Jumbotron screens. No league welcomes celebrities and their attendant buzz like the NBA. MLSE spokesman Dave Haggith says the team's owner holds four seats and fills them with celebrities by working with agents and promoters. He said: "It's an age-old tradition in the NBA, and Toronto is known as Hollywood North. There are always a lot of celebrities in town."

Skier Lindsey Vonn and hockey-player boyfriend P.K.

Subban, a Toronto native, got an invite early in the playoffs, as did singer Shawn Mendes, a native of Pickering, Ont.

Golfer Bubba Watson made the list for the first game against the Warriors. Maple Leafs forward Mitch Marner, who is negotiating a new contract with the hockey club this summer, has been a courtside regular during the Raptors' playoff run.

The seats under the basket near the Raptors' bench are home to Canada Goose CEO Dani Reiss and mining financier Sheldon Inwentash - when players fly off the court after a layup, they end up in Mr. Inwentash's lap. Mutual fund manager Blake Goldring has slightly safer seats, just around the corner.

Under the basket near the Warriors' bench you'll see selfdescribed superfan Nav Bhatia, the feel-good story of this playoff run. An immigrant who has never missed a Raptors home game in 24 years, the auto dealership owner is a classic self-made success.

Down the row is real estate agent extraordinaire Sam McDadi, tech entrepreneur and former Dragons' Den cast member Bruce Croxon, and fellow dragon and Boston Pizza chairman Jim Treliving. In a moment he'll never live down, Mr. Treliving was photographed sitting stone-faced when Kawhi Leonard sank a heart-stopping buzzer beater.

Associated Graphic

PHOTOGRAPHY BY FRED LUM/THE GLOBE AND MAIL GRAPHIC BY JASON CHIU


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Analysts stand by Corus despite recent hiccups
space
Viewership dip amid NBA Finals, last week's share sale seen as minor bumps ahead of company's third-quarter results at end of June
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, June 3, 2019 – Page B5

Analysts see better days ahead for Corus Entertainment Inc. as the company bounces back from a poorly received share sale last month and a temporary loss in viewers and advertisers to Toronto Raptors playoff games on rival networks.

Investment banks began publishing reports on Corus last week that highlighted the potential for rising advertising revenues, lower debt and a higher stock price, after being temporarily silenced for two weeks during a $548-million sale of Corus stock. Regulators restrict what analysts can say about a company when it is in the midst of an underwriting.

Toronto-based Corus, owner of the Global television network, specialty TV channels and radio stations, reports third-quarter results on June 26, and is coming off two consecutive quarters of better-than-expected financial performance.

In a report on Friday, analyst Adam Shine at National Bank Financial said, "Notwithstanding the deeper run by the Raptors in the NBA playoffs, Corus' third quarter optimism isn't likely to be dampened."

Raptors games are broadcast in Canada by TV networks owned by Rogers Communications Inc.

and BCE Inc., both of which hold stakes in the team. The Raptors' run to the NBA championship is temporarily reshaping the TV advertising market, as corporations jump at the opportunity to link their brands with the team.

Looking ahead to Corus's prospects after the NBA season, which will end by mid-June, Mr.Shine said, "Besides expectations of better results in a seasonallystrong third quarter and possible momentum in the fourth quarter, the start of fiscal 2020 should benefit from federal election spending."

Mr. Shine raised his target price on Corus stock to $8.50 from $8, and pointed out the company trades at a significant discount to the valuation of comparable U.S. broadcasters such as Viacom Inc. and Discovery Communications Inc.

A number of Bay Street analysts also had target prices for Corus in the $8 range going into last month's stock offering. Corus shares closed Friday at $6.45 on the Toronto Stock Exchange, up 14 cents.

Corus stock went on a rollercoaster ride last month after a group of 13 investment dealers led by TD Securities Inc. purchased 80.6 million shares from Shaw Communications Inc. on May 14, then attempted to sell the stock to investors for $6.80 a share in what is known as a bought deal. Corus shares were changing hands at $8 before the launch of the deal.

The underwriting sold poorly and the banks subsequently cut the price to $6.25 in an attempt to sell approximately 60 million remaining shares. The transaction closed on May 31, and sources who worked on the share sale said the investment dealers lost more than $20-million on the bought deal. The Globe granted anonymity to the sources because they are not authorized to speak publicly about the matter.

One headwind in the Corus stock sale was a lack of demand from index funds, which hold shares in every company that is in a benchmark such as the S&P/ TSX Composite Index. Corus was taken out of the S&P/TSX index in September, 2018, after a sharp decline in the share price - Corus stock was below $4 at the time.

Investment bankers working on last month's offering said after the recent increase in the share price, Corus could rejoin the benchmark as early as this fall.

Returning to the S&P/TSX index would result in demand for approximately 10 million Corus shares.

Shaw Communications sold a stake in Corus acquired in 2016 and is focusing on expanding its wireless and cable networks.

Analyst Robert Bek at CIBC World Markets said in a recent report, "While the deal does not move the needle from a valuation perspective, it does make a lot of sense for strategy as it allows Shaw to get off what was clearly a non-core asset all the while raising some funds to further its wireless growth strategy."

The Calgary-based Shaw family continues to control Corus through a dual-share structure.

Both Corus and Shaw Communications were founded by 84-yearold entrepreneur J.R. Shaw. His daughter Heather Shaw is the executive chair of Corus, a position she has held since the company went public in 1999, and her sister Julie Shaw is vice-chair.

Associated Graphic

Television and radio broadcaster Corus is coming off two consecutive quarters of better-than-expected financial performance ahead of reporting third-quarter results on June 26.

COLE BURSTON/THE CANADIAN PRESS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Who's cashing in on the Raptors
space
After 24 years, Toronto has made the NBA Finals. It's a moment that marks a new apex for basketball in Canada - and the team's brand
space
By SUSAN KRASHINSKY ROBERTSON, JAMES BRADSHAW, ANDREW WILLIS
  
  

Email this article Print this article
Saturday, June 1, 2019 – Page B6

If a puck drops in St. Louis - and the only Canadian team left in the spring postseason wears sneakers instead of skates - does it make a sound?

Well, yes, but it's drowned out by the euphoric rumpus of Toronto Raptors fans, both the long-suffering and the newly minted. Deep down, hockey is still intrinsic to Canada's DNA.

But at this heady time for Canada's only NBA franchise, you'd be forgiven for thinking you're in basketball country.

It's taken 24 years for the Raptors to make the Finals, a historic moment for sports fans in the city and across the country. It's the first time the National Basketball Association Finals have come to a court outside the United States, turning a multitude of eyes toward Toronto. However the series shakes out after that exhilarating first win, and even if Toronto is once again served a nosh of humble pie, this represents a new apex for basketball in Canada - and for the Raptors brand.

Among the team's sponsors, advertisers, the broadcasters that air the games and others - it has tipped off a mad scramble to make the most of the celebrations and capitalize on the Raptors' success.

"This is as busy a week as I can remember in our history," said Bart Yabsley, president of Rogers Communications Inc.'s Sportsnet.

SCOTIABANK AND TANGERINE Industry insiders did spit takes at the price tag Bank of Nova Scotia paid to rebrand the home of the Toronto Maple Leafs and the Raptors in 2017. The namingrights deal, which changed Air Canada Centre to Scotiabank Arena, was a whopping $800million over 20 years.

It also allowed Scotiabank to take over as the official bank of the Raptors, as soon as rival Bank of Montreal's five-year contract with the team expired in July, 2018. Scotiabank then bestowed the title on its low-cost digital subsidiary, Tangerine Bank.

The rationale was simple: Scotiabank already held the coveted spot as the official bank of the Leafs, and with its no-fee accounts and branchless strategy, Tangerine was a good match for the younger, more diverse and digitally savvy Raptors fan base.

"One-third of our customer base at Tangerine are Raptors fans," Tangerine chief executive officer Gillian Riley said in an interview.

For BMO, which spent five years as a sponsor only to lose its affiliation just as the team finally took it to the next level by making it to the Finals, the recent run of success must be a bitter pill to swallow. What's more, BMO sponsors the Milwaukee Bucks, who fell to the Raptors in the last round. A BMO spokesperson declined comment.

Now, every time the Raptors take to the court for a playoff game, and the sprawling crowd roars in Jurassic Park outside Scotiabank Arena, Tangerine feels the tremors. On playoff game days and the day after, Tangerine sees a 50-per-cent spike in traffic to its website and a 20-per-cent bump in customers who sign up by creating a customer ID.

The bank's dream scenario is still to have the Leafs make the Stanley Cup finals, which would draw "man-on-the-moon kind of viewership," said John Doig, Scotiabank's executive vice-president of retail distribution, who was formerly chief marketing officer and one of the architects of the Scotiabank Arena deal. But this is "a really close second."

The first measure of any sponsorship is its ability to raise awareness of a brand. When the NBA season started last fall, only 6 per cent of Raptors fans were aware of Tangerine; by the start of the playoffs, that number was 40 per cent, and Ms. Riley suspects it is now "well in excess of 50 [per cent]."

Tangerine logos are plastered all over Scotiabank Arena. And this week, Scotiabank went so far as to wrap 15 of its downtown Toronto branches, and part of its headquarters, in Tangerine orange - a rare instance of merging the two brands, which are typically kept separate.

The bank also scrambled earlier this week to tweak and refresh its Raptors-themed ads, tailoring them to the team's arrival in the Finals. "Saturday night, after [Game 6], everything changed," Mr. Doig said. "Sometimes you plan for it. Sometimes you do an emotional, emotive spot, and then you get lucky to be able to play it."

For Scotiabank, the Raptors connection has been a chance to woo clients and to host its highest-value customers and prospects in luxury suites or courtside seats.

Looking back at the $800-million, "we don't have a worry in the world there," Mr. Doig said.

OTHER SPONSORS AND ADVERTISERS "We're in the war room right now with clients talking about how to leverage this," said Brian Cooper, chairman and CEO of MKTG, which helps negotiate sponsorship deals and counts a number of Raptors sponsors among its clients. "It is a marketer's dream.

... Everyone is now looking for new budget, because none of this was planned."

Some deals are made within a day. Cineplex Inc. quickly secured approval from the team owners and the league to host viewing parties in its movie theatres across the country. (None of its Toronto theatres are participating, as the city already has celebrations at multiple outdoor venues.) The events will bring in plenty of concession revenue, but CEO Ellis Jacob said it's also a marketing opportunity for the cinema chain, which has been working to attract new audiences and to diversify beyond the sometimes volatile movie business.

"It reinforces us as an entertainment company, and wanting to give people opportunities to come to the theatres," he said.

Sneaker company New Balance, which has a sponsorship deal with Raptors star Kawhi Leonard, attracted incalculable buzz last weekend in Toronto when it released a very limited run of T-shirts with the words "fun guy," riffing on the famously stoic player's description of himself, stated in a characteristic deadpan at a news conference.

Epic lineups formed outside stores, and a small offering online sold out almost instantly.

Long-time sponsor Sun Life Financial Inc. jumped at the opportunity when the Raptors first put a logo patch on their jerseys at the start of the 2017 season. It gave the brand visibility in every close-up of a Raptors player. The insurer's research has found a three-fold increase in consumer awareness of the company. "The icing on the cake for us is that basketball is a global game, and we are a global brand," said Milos Vranesevic, Sun Life's chief marketing officer. In addition to increased North American media exposure, the Raptors' twomonth playoff run is significantly increasing exposure for the company in key Asian markets such as China and the Philippines.

Not all sponsors have had the best luck.

Scotiabank exercised a veto in its deal on competing financial institutions, ending the team's sponsorship with Horizons ETFs Management (Canada) Inc. as of the 2018 season. "As you can imagine, I'm not too happy with Scotiabank, because we were extremely proud of our partnership with MLSE and the Raptors," Horizons ETFs CEO Steven Hawkins said.

GoDaddy, a sponsor since late 2016, has watched two of the three players it chose to star in its ads - Jonas Valanciunas and C.J.

Miles - lost to trades.

"We would have sold out," said Anne de Aragon, country manager at GoDaddy Canada, of C.J.'s PJs. The line of pyjamas was sold through a GoDaddy website to promote the company's sitebuilding services. Thousands of units sold before the trade. But Ms. Aragon's team had prepared for the possibility, dressing Mr.

Miles in generic gear rather than a Raptors uniform for its most recent campaign. The company is still happy to be associated with the team, especially now, she said. Her team is brainstorming ways to offload the leftover merchandise. "We don't have a ton," she said cheerily. "We'll figure out what to do with our PJs."

THE OWNERS AND BROADCASTERS What makes the fan base valuable to advertisers and sponsors is not just that they are younger and more diverse than your average hockey devotee, it's that the demographic does not tend to congregate by gathering around TVs to watch the same thing at the same time.

"They're a harder-to-reach [demographic] when it comes to television," said Stewart Johnston, president of media sales and marketing for TSN.

Through their stakes in team owner Maple Leaf Sports & Entertainment Ltd., BCE Inc.'s TSN and Rogers Communications Inc.'s Sportsnet divide the broadcast rights for the Raptors. As luck would have it, Sportsnet was the broadcaster for Mr. Leonard's dramatic buzzer-beater that clinched the series against Philadelphia, the series-winning victory against Milwaukee and the Game 1 win against Golden State on Thursday.

The latter drew a record average audience of 3.3 million viewers. Aside from shows such as The Big Bang Theory and Game of Thrones, few television programs draw millions of viewers to a single broadcast any more.

The NHL playoffs usually pull in big numbers, but with no Canadian teams still in it, ratings have corroded. Game 1 of the finals between St. Louis and Boston drew an average audience of 1.8 million to Sportsnet - a respectable number, but nowhere near what the finals usually pull in. According to Numeris data, NHL games did not crack the top 30 programs for English Canada for three weeks in a row starting April 29. The most recent numbers are for May 13-19, a week when the Bruins completed their sweep of the Carolina Hurricanes and the Blues played four of their five games against the San Jose Sharks. Among the shows that did make the top 30 that week were Island of Bryan, Station 19 and Whiskey Cavalier.

"It has not been a disappointing or lacklustre season," said Sportsnet's Mr. Yabsley, adding the company feels fortunate to have both hockey and basketball rights. The Raptors' success has kicked off a whirlwind of TV content planning and advertising sales at Rogers.

Unlike hockey, where advertisers more frequently sign deals that lock in playoff ads ahead of time, a Canadian playoff run in basketball opens up more ad inventory to be sold at the last minute - and at a premium.

That premium might be higher if the broadcast rights were exclusive, but as it is, Bell and Rogers are competing with each other in the market.

THE TEAM AND THE CITY This playoff run is forming lasting bonds between the team and its fans, many of whom weren't alive to see Toronto's greatest sporting moments, such as the Blue Jays' World Series wins in 1992 and 1993 or the last time the Maple Leafs won the Stanley Cup - in 1967.

"This is establishing new levels of emotional connection, of engagement, of national reach that has always been [the Raptors'] aspirational goal," said Gord Hendren, president of Charlton Insights Inc., an independent research company.

The NBA fan base in Canada increased significantly from 2014 to 2018, according to Torontobased Solutions Research Group, especially among people 18 to 34.

"We expect that number to increase substantially by a factor of 39 per cent based on a current study we are doing," said SRG president and research director Kaan Yigit.

Previously casual fans are now invested in the Finals, and a certain percentage of them will be converted into more engaged long-term followers of the team.

That could increase the value of the team - much more so if they manage a win. Research has shown that a championship can have long-term benefits for merchandise sales, advertising and sponsorships.

"That's the real difference between winning the championship and just going to the Finals - the championship has this enduring effect," said Norm O'Reilly, a leading scholar on the business of sport at the University of Guelph. If the balloon pops, the team loses, and Mr. Leonard leaves town, the impact will not be totally erased, he added. "But it's significantly lower than if they win."

The team began remaking its image in 2014, working with advertising agency Sid Lee to redesign the Raptors logo and brand.

Sid Lee also developed the "We the North" campaign, a slogan that has been adopted en masse by fans.

"We didn't want something that felt like an advertising campaign," said Tom Koukodimos, co-managing partner of Sid Lee Toronto and a creative director on the Raptors account. The work was meant to harness a feeling of being outsiders - both as the only Canadian team in the league and for a fan base that includes many people who have come to Canada from elsewhere - and to transform that outsider status into a rallying cry.

"The attitude and the confidence in the fans - there's a different confidence, it's unapologetic," Mr. Koukodimos said.

"It's not your typical Canadian attitude. That's what we wanted to tap into from the get-go."

Does anyone embody that attitude more than Drake? He has worked with the team for six years as its "brand ambassador."

As part of the partnership, the Raptors recently renamed their practice facility the OVO Athletic Centre, a nod to Drake's record label and clothing brand, October's Very Own.

Drake has delivered. The rapper's courtside antics - from exuberant shouting to massaging head coach Nick Nurse's shoulders and trolling the Warriors' Stephen Curry by wearing a retro Raptors "Curry" jersey as a reminder that the opposing star's father once played for Toronto - are gleefully unapologetic. But they are just a microcosm of his larger work to boost the cachet of the team - and of Toronto.

In May, 2018, Charlton Insight estimated Drake's economic impact on Toronto at $440-million.

But considering the massive attention he has drawn during the playoffs, it's a safe bet that the effect on tourism and international exposure for the city "has increased significantly" in recent weeks, Mr. Hendren said.

"Any brand in the world would benefit from having someone like him as your ambassador," Mr.Koukodimos said.

This kind of cultural phenomenon is what the Raptors' founders - John Bitove, along with former Ontario premier David Peterson, businessman Phil Granovsky and others - worked to build more than two decades ago when they met with the NBA.

"We were trying to get their confidence that we would do it differently and create a basketball culture, not just own a sports team," Mr. Bitove said. "I have to give the current ownership a lot of credit. I don't think we'd have as good a team and as avid a fan base if they didn't give it the financial resources, from both a marketing and a player payroll perspective."

He and co-founder Allan Slaight envisioned a team for "the next generation" of Canadians.

Watching the Finals is "very emotional," he said.

"There is a real basketball culture here now."

Associated Graphic

PHOTOS BY VAUGHN RIDLEY/GETTY IMAGES, GREGORY SHAMUS/GETTY IMAGES. PHOTO ILLUSTRATION BY THE GLOBE AND MAIL

SOURCE: YOUGOV SPORT; BASE: ROLLING 1-WEEK AVERAGE AMONG ONTARIO RESPONDENTS AGED 18+; CHARLTON INSIGHT


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Oil-loving banks must reckon with the future
space
CEOs' support for energy projects will be unable to withstand investors' push for better climate initiatives
space
By ANDREW WILLIS
  
  

Email this article Print this article
Saturday, June 1, 2019 – Page B4

At first glance, Canada's big banks look to be solidly behind the country's major energy companies when it comes to exploiting the massive reserves locked up in Alberta's oil sands.

Toronto-Dominion Bank showed its faith this week by committing $3.25-billion to Canadian Natural Resources Ltd., a loan the Calgary-based company used to snap up 1.5 million acres of oil sands properties from Devon Energy Corp., the latest foreign player to exit the sector.

The same support shone through in recent speeches bank chief executives delivered in Calgary, a city that's still reeling from a downturn in energy prices that dates back five years.

Bank of Nova Scotia boss Brian Porter pounded the table for new pipelines and quicker government approval of energy projects. That followed a pitch from Royal Bank of Canada CEO Dave McKay for using the oil sands to transform the country's economy.

To date, global banks have also stood fast in the face of criticism from environmentalists over their involvement in what they brand, with considerable venom, the "tar sands." Groups such as Greenpeace and the Rainforest Action Network have spent years staging protests against JPMorgan Chase & Co.

over its close ties to energy companies. Yet JPMorgan, along with Goldman Sachs Group Inc., proudly stepped forward this week as advisers to Devon Energy on the sale of its Canadian assets.

Look deeper, and it becomes clear the bankers' support for energy companies in general and the oil sands in particular is becoming more qualified. There are clear trends in finance circles that will make it far more difficult for energy companies to raise capital, such as institutional investors' widening embrace of environmental, social and governance (ESG) criteria in managing portfolios.

European investors were early to the idea that ESG principals are central to deciding what stocks to buy and sell. Their influence played a part in last year's decision to curtail lending on new oil sands projects at Europe's largest bank, HSBC Holdings PLC.

For some time, ESG concepts have percolated through North American institutions, including massive index-fund managers such as BlackRock Inc. and Vanguard Group Inc., which are among the largest shareholders in every Canadian bank. Placing a larger emphasis on ESG criteria puts oil sands investments in a different light.

Scotiabank held a well-attended conference on ESG trends this spring. One oil-company chairman who was in the room said institutional investors talked of being fed up with companies that attempt to gloss over their environmental impact with public-relations stunts, such as an airline company that highlighted a program to recycle paper straws rather than dealing with fuel consumption and other material issues. Energy companies can be guilty of the same sleight of hand - focusing on steps taken to ensure ducks don't land in tailings ponds rather than on their emissions of greenhouse gases.

Bank CEOs can afford to ignore protests from environmentalists. They can reason with regulators. Bank CEOs cannot disregard demands from their largest shareholders. If significant numbers of institutional investors start telling bank boards and management teams that they no longer support lending on oil sands projects, including pipelines, then capital will dry up.

Bankers can read the tea leaves. TD Bank CEO Bharat Masrani is stepping up for oil sands clients by lending billions to the likes of Canadian Natural Resources. He's willing to wade into the public debate around energy policy by devoting a few lines of his speech at the bank's recent annual meeting to the need for new pipelines and new global markets for Canadian oil.

But Mr. Masrani spent a far larger portion of his presentation to TD's shareholders talking about what the bank is doing to support Canada's transition to a low-carbon economy. He said TD plans to devote up to $100-billion to green projects by 2030, a bank-wide initiative that sweeps in lending, financing and asset management. The bank is already 30 per cent of the way to this target, and Mr. Masrani estimates this contributed $15-billion to GDP, supported 76,000 jobs and avoided 780,000 tonnes of greenhouse gas emissions. He said: "Clearly this transition can be good for the environment and the economy."

Today, the banks are shoulderto-shoulder with Alberta's oil sands companies. That support cannot withstand a shift in sentiment among institutional investors. Over time, the financial crowd will push for a greener future.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Moneyball: How corporate Canada is cashing in on the Raptors' stunning success
space
space
By SUSAN KRASHINSKY ROBERTSON, JAMES BRADSHAW, ANDREW WILLIS
  
  

Email this article Print this article
Saturday, June 1, 2019 – Page B1

The Toronto Raptors' run to the NBA Finals is a marketer's dream, as young, diverse fans celebrate across the country.

Companies that hitched themselves to the team are reaping the rewards, while rivals sit on the bench.

Susan Krashinsky Robertson, James Bradshaw and Andrew Willis report B6

Associated Graphic

Fans gather outside Scotiabank Arena before the Toronto Raptors' NBA Finals match against the Golden State Warriors on Thursday.

MELISSA TAIT/THE GLOBE AND MAIL


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Ford takes on beer industry with bill that paves way for corner-store sales
space
space
By JEFF GRAY, ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, May 28, 2019 – Page A1

TORONTO -- Ontario Premier Doug Ford is tearing up a deal with the big-brewery-owned Beer Store retail chain to avoid having the province pay hundreds of millions in penalties as he seeks to fulfill a campaign promise to allow beer and wine sales in corner stores.

And owners of the beer retailer warn the battle could now be headed to court.

Mr. Ford's Finance Minister, Vic Fedeli, introduced a bill in the Ontario Legislature on Monday that would terminate the 2015 deal signed by the previous Liberal government with the quasi-monopoly Beer Store, which is primarily owned by the foreign brewing giants behind Labatt, Molson and Sleeman and operates 445 outlets across the province. Negotiations between the government and Beer Store are expected to continue, but Mr. Fedeli is escalating the fight by giving the Progressive Conservatives the power to unilaterally transform a retail network first launched in 1927.

The bill comes after weeks of talks and amid a public-relations battle between the government and the Beer Store over Mr.Ford's pledge to allow beer and wine in corner stores, more grocery outlets and big-box retailers. The 2015 "master framework agreement" between the brewers and Queen's Park was negotiated to allow the government of Kathleen Wynne to expand beer sales in just 450 grocery stores, but was meant to stay in place for 10 years.

Since being elected, Mr. Ford's government also introduced legislation that allows booze during tailgate parties at sports events, and served up "buck-a-beer" to consumers by lowering the minimum price on a bottle of suds.

The bill on beer sales came without any public warning on the same day that Mr.Ford announced a temporary climb-down in his fight with Toronto Mayor John Tory and other mayors about cuts to public health, ambulances and daycares, and after a series of polls showing sagging support for Ontario's PC government, first elected about a year ago.

The bill also came on the same day the government unveiled a bill to overhaul mental-health and addiction services, as well as lay the groundwork for joining a B.C. class action lawsuit aimed at holding pharmaceutical companies responsible for the opioid overdose crisis.

Monday's proposed legislation on beer sales, barely four pages long, would wipe out the 2015 deal and cancel the Beer Store's long-held exclusive right to sell beer in 12- and 24-packs in most places. Mr.

Fedeli said the government plans to pass the bill before the legislature rises for the summer in two weeks. But he also suggested that the government remains open to future talks with the Beer Store on allowing corner-store sales.

Speaking to reporters, Mr. Fedeli dismissed the notion that tearing up a contract would put a chill on doing business with the province, calling it a terrible deal, and saying no other place in the world allows private brewers this kind of retail monopoly: "This is a Kathleen Wynne sweetheart deal. It is anti-competitive, and quite frankly if left alone would continue to be anti-competitive for the next six years."

The Beer Store immediately warned it would challenge Mr. Fedeli's move in court.

In a letter dated Monday and obtained by The Globe and Mail, the Beer Store's lawyers warn Attorney-General Caroline Mulroney and an external lawyer for the government on the file that ripping up the deal will "legislate 7,000 Ontario-based Beer Store employees out of work and cause billions of dollars in damages" as well as "result in higher costs and prices for consumers."

The letter warns that the brewers may sue Mr. Ford's government "on the basis that the legislative process has been improperly used by third-party interests" or on the grounds that the bill is "unconstitutional and constitutes misfeasance in public office." The Beer Store's lawyers warn the government to preserve all records, including texts and e-mails, for a list of officials that includes Mr. Ford and his chief of staff, Dean French, and including any communication with industry groups working with the government pushing for the changes, including the Ontario Convenience Store Association and the Retail Council of Canada.

Industry sources had warned that ironclad language in the Beer Store deal, signed by the previous Liberal government in 2015, would force the government to pay hundreds of millions in damages if it violated it. But constitutional law experts say it is impossible to bind a provincial government in such an agreement, as it retains its power to simply pass a law declaring any such contract void and eliminating the need to pay any compensation. However, it is regarded as an extreme move that has prompted court challenges to other governments in the past.

Both the Beer Store and its union had recently launched ad campaigns targeting the government's liberalization plans.

"Doug Ford promised no one would lose their jobs as a result of his policies," said John Nock, president of United Food and Commercial Workers Local 12R24, which represents the Beer Store's 7,300 employees. "Now he's cancelling contracts, creating chaos and kicking good jobs to the curb."

Mr. Fedeli's bill comes just days after the government's special adviser on liberalizing alcohol sales, Ken Hughes, submitted a report on the future of the sector to Mr. Fedeli. The report, released Monday afternoon just after Mr. Fedeli introduced his bill, is harshly critical of the Beer Store and the 2015 deal, which merely extended arrangements that date back decades and have been blessed by governments of every stripe. However, the report stops short of recommending ripping up the Beer Store deal, instead urging the government to "do everything possible" under the agreement to allow beer in more outlets but also to consider "other available options" if talks fail.

The government does not need to put the bill into effect as soon as it is passed, meaning that talks could continue with the Beer Store. But with the legislature rising for the summer, the legislation clearly puts the option of completely terminating the deal on the table, if another round of talks with the Beer Store fails.

The opposition at Queen's Park accused the government of making the Beer Store announcement to distract from its other problems.

"This government has an obsession with alcohol ... I don't think it is in line with Ontarians' most important priorities: health care and and education," interim Liberal leader John Fraser told reporters.

Associated Graphic

After Ontario Finance Minister Vic Fedeli, seen at right with Premier Doug Ford in 2018, unveiled the proposed beer-sales bill on Monday, the Beer Store immediately warned it would challenge the move in court.

COLE BURSTON/THE CANADIAN PRESS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
CMHC boss takes aim at big banks for 'cavalier' mortgage lending
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, May 27, 2019 – Page B1

Evan Siddall, the guy who backstops $448billion in mortgages for Canadian homeowners, is calling out the big banks for what he calls irresponsible behaviour that's fuelling a highly leveraged residential real estate market.

Mr. Siddall is chief executive of Canada Mortgage and Housing Corp. He's important. He runs a Crown corporation that helped 123,000 people purchase homes last year by stepping up with mortgage insurance. But Mr. Siddall is still a civil servant. And government officials don't typically tear a strip off executives at the country's biggest banks. The CMHC boss must have missed that memo.

Mr. Siddall engaged in a round of name and shame last week with economists at Toronto-Dominion Bank and Canadian Imperial Bank of Commerce over what he portrayed as a self-interested campaign to ease the mortgage stress tests put in place by federal regulators in recent years to cool the housing market. His pointed criticism, laid out in a public letter the CMHC sent to the House of Commons finance committee, is part of far larger concerns over the state of the country.

Canadians continue to carry far too much debt, according to CMHC data, which puts the country at risk of an economic slowdown.

Riffing off studies of past downturns, including the 2008 global financial crisis, he said: "The combination of high house prices and elevated debt led inexorably to reduced future economic growth."

Mr. Siddall sounded like he wrote the letter while Game of Thrones was on his TV and took to heart the show's oft-repeated warning that winter is coming.

Federal Conservative Leader Andrew Scheer is banging the same drum, warning in a recent speech that the federal Liberals are living beyond their means while the economy is humming, that today's deficit spending will hamstring the government down the road, when GDP growth slows and stimulus is required.

In refreshingly plain terms, Mr.Siddall pointed out that the mortgage stress tests are proving to be excellent public policy. He conceded that tougher lending requirements make it more difficult for some potential buyers to get a loan from their bank. But the CMHC and the federal government want to make housing affordable for as many Canadians as possible by reining in excessive borrowing, which only jacks up prices. "Changes in stress test requirements since 2010 have helped reduce house prices nationally by 3.4 per cent versus where they otherwise would have been," Mr. Siddall said.

Then he turned his guns on the banks, which drum up mortgages and backstop their higher-risk loans at the CMHC. Looking back at recent bank publications, Mr.Siddall said: "In an astonishing piece of work, economists at TD Bank argued that the stress test should be removed so that house prices can increase by $32,000.

CIBC's economist has also called for a re-assessment of the stress test.

"Since a federal government guarantee stands behind lenders' insured mortgages, these appear to be cases of evident moral hazard. I doubt they'd be as cavalier if it were their risk."

For those who need a quick refresher on the concept of "moral hazard," this civil servant is saying TD and CIBC economists are recommending a high-risk course of action because the bankers know the CMHC bears the consequences of their behaviour. It's worth noting that Mr. Siddall is not your typical career mandarin.

He was a senior executive at Goldman Sachs Group Inc. and Bank of Montreal prior to joining the CMHC.

By coincidence, TD, CIBC and Royal Bank of Canada were reporting their financial results as the CMHC boss sounded off. In each bank's call with analysts, senior executives faced queries about the performance of their mortgage portfolios, which are heavily weighted to urban centres such as Toronto and Vancouver, where home prices have soared.

None of the bankers showed concerns over the rising consumer debt levels highlighted by the CMHC. The common theme of the calls: Don't worry, we got this.

To their credit, all three banks reported extremely low losses on home loans. Top brass at each bank said they're aware residential housing markets are frothy.

But each insisted they have systems in place to sift through mortgage applications and lend to deserving homebuyers while rejecting potential deadbeats. Of course, those systems have never been tested by a significant downturn in residential real estate markets.

There were no echoes of Game of Thrones in this crowd. Canadian bankers don't seem to believe that winter is coming when it comes to mortgages. Or at least they sleep well, knowing that the CMHC - and by extension the Canadian taxpayer - is shouldering the risk of a downturn in housing markets.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Remaking Scotiabank Brian Porter is making big changes, but will investors buy in?
space
space
By JAMES BRADSHAW, ANDREW WILLIS
  
  

Email this article Print this article
Saturday, May 25, 2019 – Page B6

In 2014, shortly after taking over as chief executive officer at Bank of Nova Scotia, Brian Porter took 150 or so of the bank's most senior executives to the Sheraton in Toronto for an off-site strategy session. The presentation included a slide that listed the words staff most closely associated with working for the country's thirdlargest bank.

Mr. Porter highlighted words drawn from employee surveys that talked of a collegial, almost familial organization. It spoke to a deeply ingrained culture of loyalty and continuity. Most managers in the ballroom were lifelong Scotiabankers. At times, their promotions and paycheques reflected seniority as much as talent.

But apart from front-line staff, only 10 per cent of employees had used the word "customer" in the surveys.

Mr. Porter told the bank's leaders that Scotiabank could no longer rest on its familial spirit alone. He intended to push a different culture, defined by different words, such as "performance" and "accountability." He has been true to his word.

Five and a half years into his tenure, the 61-year-old has remade a 187-year-old bank. Your view of his handiwork depends on where you sit.

There are clients, employees and institutional investors who say his constant push for transformation is essential to ensuring Scotiabank can keep pace with digital and regulatory changes.

And there are detractors, including long-time employees both current and former, who say the CEO is moving too quickly and knock him for curbing the collegiality that made Scotiabank a great place to work and for sacrificing institutional memory.

Moreover, there's a dissenting view from the market: After years of commanding a premium valuation, the stock now trades at a significant discount to peers.

Mr. Porter wanted the bank to measure itself against rivals more often. But many of the large strategic moves he's made - such as a $7-billion string of acquisitions over the past year - are multiyear bets that have yet to strengthen the bottom line, and investors have been loath to pay for potential. The bank's total return of 28.8 per cent in the past five years ranks it leagues behind four of its Big Six competitors.

Last August, when Scotiabank had the worst-performing stock among Canada's big banks, CIBC World Markets Inc. analyst Robert Sedran wrote in a research note that its share price had been "hurt by macro themes like the outlook for global trade, emerging markets and bank-specific issues like an aggressive acquisition calendar. ... We think these issues have obscured some of the things that are going right for this bank." In 2019, Scotiabank shares are still near the back of the pack and Mr. Sedran's sentiments hold true.

Everyone agrees Mr. Porter won the top job in November, 2013, with a mandate to retool Scotiabank. As the most international of Canada's banks, with significant operations in South America, the Caribbean, Asia and the United States, it was heavily buffeted by the regulatory winds of change that blew through markets after the global financial crisis in 2008. And yet, it was relatively small in Canadian retail banking, especially in lucrative business lines such as wealth management and credit cards.

The debate now is about whether Mr. Porter is making the right changes, at the right pace. On the issue of speed, the CEO's mind is made up: He says the bank is "not rash, we're not impetuous" - that colleagues yearning for the Scotiabank of yesterday need to adjust to a new reality.

"I don't want to leave here when my time's up saying 'coulda, woulda, shoulda,' and 'we weren't bold enough,' or 'we didn't have the courage,' " Mr. Porter said. A voracious reader, he highlights a business book that studied the common traits of successful CEOs: "When asked, 'What would you do differently?,' they all said, 'I would have moved faster.' They mean that in a thoughtful, rigorous way."

AGENT OF CHANGE Scotiabank's board anointed Mr. Porter as CEO in part because he proposed an ambitious agenda: Streamlining international operations, expanding the wealth management business and embracing digital technology. He also wanted the bank to focus more on customer satisfaction and to benchmark itself more often against rivals.

Tom O'Neill, who recently retired as chairman after overseeing Mr.Porter's first five years as CEO, called the plan "off-the-charts brave."

Mr. Porter broke with the bank's tradition of rewarding loyalty. He replaced virtually all of the most senior executives around him - some retired, but a number of veterans departed abruptly and unceremoniously. The core Canadian banking and capital-markets divisions have cycled through two sets of leaders in five years. And the bank's succession plans have been redrawn almost from scratch.

Inside Scotiabank, some departed managers are characterized as "blockers" - a management-consulting term for those unwilling or unable to change. Yet, some say the unrelenting churn in the senior ranks has had an unintended consequence: Employees whose mentors have left now live in fear of making mistakes, making them loath to take necessary risks.

The new wave of Scotiabank leaders is younger, hard-charging and fiercely loyal to Mr. Porter. They include Dan Rees, who was just named head of the core Canadian banking division, and Jake Lawrence and James Neate, the new co-heads of the corporate- and investment-banking arm.

Mr. Porter also recruited key executives who had built their careers at rivals, marking a radical shift for a bank that had historically promoted from within. Michael Zerbs came aboard to head the technology group in 2014 after running a money manager and an arm of IBM.

Ignacio (Nacho) Deschamps arrived in 2016 to run the international unit and shape its digital transformation after serving as CEO of Mexico's largest bank, Grupo Financiero BBVA Bancomer.

The bank had traditionally aspired to be a fast follower on technology but was late to innovations such as ATMs and mobile apps.

"That's not the case today. We put a line in the sand," Mr. Porter says.

Mr. Deschamps and Mr. Zerbs were tasked with driving a new digital agenda. Early on, Mr. Porter took senior bankers and board members to Silicon Valley for a lesson in pace.

"He wanted that mindset to be understood," Mr. Zerbs says. "A mediocre outcome is clearly not okay any more. Like, we have to be the best ... and also make mistakes along the way."

Much of the heavy lifting on technology occurs behind the scenes, as the bank strips costs out of its legacy infrastructure through automation, cloud computing and advances in artificial intelligence. But to incubate the necessary sense of urgency, Scotiabank set up "digital factories" in five countries - Canada, Mexico, Peru, Chile and Colombia. The labs undertake rapid-fire projects aimed at solving bank-wide pain points for customers, sometimes rewriting computer code that can be deployed in the span of a few days.

Mr. Porter "didn't tell us, 'Build a digital factory.' He asked us the question: How does it become impactful? How do you scale? And then we came back with the idea of the factory," Mr. Zerbs says. It took only a short discussion with Mr. Porter and a visit to the bank's powerful operating committee to get the green light. "[After] maybe a 10- or 15-minute discussion, we had the go."

A CALLING Mr. Porter isn't shy about breaking with tradition, but he knows Scotiabank's roots. He points with pride to an oak table stacked with papers in his Toronto office. Bank directors gathered around this same table in the 1800s, when the bank shared office space in Halifax with Dalhousie University. The school surprised Mr. Porter, a graduate of its commerce program, by giving it to him when he became CEO.

His great-grandfather Hector McInnes was a director at the bank, as was Mr. McInnes's son, Donald. "I see banking as a calling," Mr. Porter says. "We take seriously our role in the economic and social fabric of every country we operate in."

Mr. Porter was born in Calgary, where he attended high school, before graduating from Dalhousie in 1981. Unlike his predecessor CEOs Rick Waugh, Peter Godsoe and Cedric Richie, he is not a career Scotiabanker. His first job in finance was at employee-owned investment dealer McLeod Young Weir. The firm was a powerhouse in Canadian bond markets, run by traders who thrived on quick market calls, and the rapid-fire culture shaped Mr. Porter's approach to business.

He joined Scotiabank in 1988, when the bank bought McLeod. Two decades later, Scotiabank is still trying to knit together two cultures in its capital-markets arm to win more lucrative investment-banking business. It consistently ranks among North America's largest corporate lenders but lags rivals such as Royal Bank of Canada when it comes to turning credit relationships into broader advisory mandates.

Mr. Porter embraced both worlds. He first emerged as one of several candidates for the top job in the late 1990s, as the head of its equity capital-markets team. Succeeding in the role required close ties to corporate clients, skills honed by investment bankers. It also meant he was responsible for committing significant amounts of the bank's capital to deals, which require a credit officer's tool box. He subsequently served as the bank's chief risk officer, then head of international operations and president.

"Look how he grew up in the bank. He was in the markets advising clients on big deals, doing big trades. Upstairs, these guys are making decisions every minute that count," says Mr. O'Neill, the former chairman. "So he's used to velocity, I guess is the way I'd put it, whereas a lot of the bank isn't used to velocity. And so the speed with which he acted was 100 per cent supported by the board."

There have been plenty of tough decisions to make, not least of which was the jarring overhaul of the bank's employees. But Mr. Porter - a private person who is most often described as decisive, focused and demanding - doesn't see those decisions as personal. To him, business is business, even if many former Scotiabankers resent the way their careers were cut short.

"He's not running the bank for the moment. He's running the bank for the future," says Barbara Mason, a member of Scotiabank's nineperson operating committee and its chief human resources officer.

Ms. Mason has worked at the bank for 37 years - including a stint running wealth management - and adds: "The balance between today and tomorrow is different under Brian's watch. The balance of today and tomorrow in previous regimes would have been much more weighted toward today."

PRUNING BRANCHES For ages, Scotiabank has pegged its brand to being Canada's most international bank, with a history that goes back to 1889, when it ventured into the Caribbean to finance trade in sugar and rum. By the time Mr. Porter took over as CEO, the bank was in 54 countries spanning 17 time zones. It had planted many of these flags opportunistically, taking minority stakes in foreign banks and opening outposts to follow clients as they did business abroad.

The strategy landed it in countries such as Turkey, Egypt, Venezuela and Russia. Occasionally, it landed the bank in deep trouble, such as with its investment in one of Argentina's largest commercial banks. In 2002, after the country defaulted on foreign debt, Scotiabank walked away, incurring a $540-million writedown. More recently, the bank has all but written off its 26-per-cent stake in Venezuela's Banco del Caribe and barred employees from travelling to the country, amid an economic collapse and political unrest Mr. Porter calls a "human tragedy."

In the Caribbean, Scotiabank still holds a commanding position.

But several of the region's economies have fallen on hard times and have restructured sovereign debt in recent years. And the island countries remain vulnerable to a range of risks, including climate change and money laundering.

Before the global financial crisis, when regulations were looser and banks had access to plentiful capital and liquidity, a strategy to plant flags in far-flung locales was defensible. The assets were profitable and helped the bank stand out from its Canadian peers. But after the crash, regulators required banks to hold more capital and liquidity, and the costs of complying with local rules in dozens of markets increased. Under new rules, banks were required to deduct minority stakes in other banks from their capital requirements, making it more punitive to hold the investments. Suddenly, aspects of Scotiabank's vast reach started to look as if they were liabilities.

Mr. Porter set about pruning the bank's international ambitions.

The idea was to double down in four Latin American countries where Scotiabank believed it could be a real player: Mexico, Peru, Chile and Colombia. With combined populations of 230 million people and a growing middle class, Mr. Porter saw the potential for higher returns than Scotiabank could earn in North America or Asia. Net income after taxes from international banking has grown 82 per cent since 2013, both by acquisitions and internal growth.

Scotiabank's boldest move to bolster its Latin American business on Mr. Porter's watch was a $2.9-billion deal to acquire control of rival bank BBVA Chile from Banco Bilbao Vizcaya Argentaria SA. Previously, it had also outmanoeuvred BBVA to buy a controlling interest in Peru's Banco Cencosud, making Scotiabank that country's secondlargest credit-card issuer.

In 2018, 85 per cent of Scotiabank's profits came from Canada, the United States and those four Latin American countries. It now has more Spanish-speaking employees than English speakers and is the third-largest bank in Peru and Chile. But without additional acquisitions, it could be years before Scotiabank reaches the 10-per-cent market share it aspires to have in Mexico and Colombia, where it ranks sixth and fifth, respectively.

At the same time, Scotiabank sold assets it didn't consider vital in the Dominican Republic, El Salvador and Thailand, among other countries, and pulled out of nine Caribbean countries. That pared its global presence to 36 countries, and it has cut its assets in Asia by half to divert capital elsewhere.

"We exited what we thought were higher-risk jurisdictions for all the reasons you read about in the paper, whether it's geopolitics, AML [anti-money laundering], operational risk, et cetera," Mr. Porter says.

"We could get a better return deploying that capital in Canada, the U.S.

or Latin America."

Even so, Scotiabank continues to face significant risks from its Latin American operations. Simmering trade tensions, volatile commodity prices and a crackdown on banking fees by Mexico's new leftist President, Andres Manuel Lopez Obrador, have clouded the bank's outlook in Latin America. But there are also structural challenges, as economic growth has dipped in those markets.

Money laundering also remains a major red flag. Scotiabank spends about $300-million annually to stem the flow of illicit funds across its network and has been working to set the same standards and controls in every country it does business. Mr. Porter is keenly aware of the damage done to Nordic lenders Danske Bank and Swedbank after lapses in anti-money laundering controls.

Some major banks such as Citigroup Inc. have retrenched from Latin America in the face of those risks. But Scotiabank believes it has chosen markets that are more resilient to economic and political cycles, with stronger democratic institutions, independent central banks and increasing openness to foreign investment. Mr. Deschamps says: "We operate in higher-risk markets, but also well-compensated by price. Our risk-adjusted margin is higher."

Even so, many investors still attach a higher risk rating to Scotiabank's international operations, "and I think they should," says Steve Belisle, senior portfolio manager at Manulife Asset Management, which has been buying Scotiabank shares of late. "[They're] higherrisk jurisdictions. But the key markets where they are, I think, generally are less risky than, say, Brazil, Argentina, Venezuela. The markets where they are are well-selected."

Mr. Porter knows he still has work to do to win over investors. In 2016, the bank hosted an investor day in Mexico City to give institutional shareholders a close-up look at the region. This fall, it will host a similar session in Santiago, Chile's capital. "That's our job: We've got to spend more time educating the investment community at large about the potential of our Latin American businesses," Mr. Porter says.

TROPHY ASSETS The tough work in the early years of Mr. Porter's tenure - which included cutting $1.2-billion in costs, some of which was reinvested in digital initiatives - made Scotiabank more efficient, which in turn helped it generate more capital and build an impressive war chest.

Early in 2018, it had the highest capital ratios of any Canadian bank.

But it still wouldn't be enough to digest the flurry of deals to come.

The first shoe to drop was the BBVA Chile transaction, which closed last year. It doubled Scotiabank's share of Chile's banking market to 14 per cent, adding $29-billion in assets, 4,000 staff and 127 branches.

The deal promised Scotiabank a leap forward in a key country and the bank laid out a detailed, day-by-day plan to merge the two businesses, making it easy for investors and analysts to digest.

Mr. Porter and his team then turned their attention to wealth management - an acknowledged weak spot relative to other banks, made even smaller after Scotiabank unloaded most of its 37-per-cent stake in fund manager CI Financial Corp. Less than three months after announcing the BBVA deal, Scotiabank bought independent asset manager Jarislowsky Fraser Ltd. for $950-million to get stronger in its asset-management business tailored to institutional-investor clients.

That deal never went to auction and was the fruit of careful cultivation: Mr. Porter and Charles Emond, a senior investment banker who has since left Scotiabank, repeatedly courted the firm's venerated founder, Stephen Jarislowsky. At the time, Scotiabank noted that asset managers with rosters of institutional clients are hard to come by - and more readily bought than built from scratch.

Less than four months after that, Scotiabank was back with another splash, shelling out $2.6-billion to buy MD Financial Management, a wealth manager that caters to doctors. "We were kind of surprised on the timing when it came to market," Mr. Porter says. As with BBVA Chile and Jarislowsky, he considers MD a "trophy asset" because it came with an extensive set of high-net-worth clients with complicated wealth-management needs, from medical school to retirement.

And buying MD added to the bank's existing franchise as a prominent financial adviser to dentists - for years, there's been an escalator in Scotiabank's main Toronto branch that whisks clients who are medical professionals to dedicated offices on the second floor.

Mr. Porter calls Jarislowsky and MD "cornerstones" of Scotiabank's revamped wealth-management business. Traditional money management is changing, as passive investing puts pressure on fees just as baby boomers reach retirement age. But Jarislowsky and MD give Scotiabank a foothold with customers who are harder for competitors to dislodge: Institutional investors and high-earning doctors who often run their own practices. And Mr. Porter is already musing about exporting MD's physician-focused strategy to other countries, such as Mexico.

"We're the third-largest active asset manager in the country and we've got a whole suite of products that go along with that, so we are really pleased with what we've done," he says.

Not everyone is happy. Some doctors voiced concerns about a bank absorbing what had been an independent wealth manager. Scotiabank has spent considerable time reassuring MD clients, but rivals sense an opportunity: Toronto-Dominion Bank and Canadian Imperial Bank of Commerce have both rolled out wealth-management offerings targeting physicians.

Some investors were also less impressed. The expenditures arrived in quick succession, forcing Scotiabank to issue roughly $1.7-billion in stock to help pay for MD. The new businesses won't make a significant contribution to the bank's profits for at least two years, a reflection of the premium price and financing costs of the acquisitions, and many investors operate on far shorter timelines. The decision to sell equity was a marked contrast to that of rival Canadian banks, which were buying back shares and reaping hundreds of millions of dollars in benefits from U.S. tax cuts.

The deals also made Scotiabank less predictable. For years, Bay Street analysts joked that BNS stood for Bank of No Surprises. Quarter after quarter, its profits would modestly exceed analysts' expectations. But on Mr. Porter's watch, capital markets became more volatile and Scotiabank made occasionally chunky investments in technology and acquisitions. On occasion, it surprised markets by falling short on forecast profits and investors punished the bank.

Some shareholders also question the steep price it paid to secure MD - 5.3 per cent of assets under management, well above a typical range of 1 per cent to 3 per cent for Canadian money managers. And to Manulife's Mr. Belisle, the expected return from the Jarislowsky deal seems "questionable" - he can't model the rate of return Scotiabank has projected without using "very optimistic assumptions."

"Integration of asset managers is always very difficult. You lose people, you lose assets. So I can't really see the benefits to the bank of doing that deal and I think the market punished the stock a lot for that," Mr. Belisle said. "It's just a bad move from a capital-allocation perspective."

He's "less negative" on the MD acquisition but knows "some investors didn't like it either." After the deals, Scotiabank's share price, which had already lagged that of other Canadian banks, fell further behind the group - it trades at a multiple of about 10 times price to earnings, compared with an average of roughly 11 times among the other big banks.

"I think the next 12 to 18 months will be very important to assess what [Mr. Porter] has been able to do," he says.

Scotiabank is now pouring its energy into integrating the new businesses and pursuing organic growth. But even if Mr. Porter has made the right calls, the full benefits may not be immediately apparent.

"The bank has taken on some strategic change and there's some risk incrementally to the bank's strategy. So the market increases your cost of capital for a period. And that happens over and over again" in banking, says Robert Wessel, managing partner of financials-focused asset manager Hamilton Capital.

To improve its stock price and price-to-earnings ratio, Scotiabank will need to show its international business can continue to grow rapidly, it can weave together its new wealth-management assets to form a serious competitor and its core Canadian business can produce steady results by boosting revenue and smoothing out expenses.

In the meantime, Mr. Porter has no qualms about being held accountable for his decisions. "I think that the share price will take care of itself. We're not buying anything else. The noise will calm down on divestitures," he says. "It comes with the territory."

Associated Graphic

FISCAL UNDER ASSETS MANAGEMENT, YEARS, ASSETS FISCAL YEARS UNDER MANAGEMENT

Scotiabank CEO and president Brian Porter's great-grandfather Hector McInnes was a director at the bank, as was Mr. McInnes's son, Donald.

CHRISTOPHER KATSAROV/THE GLOBE AND MAIL


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
The Scotiabank remake
space
space
By JAMES BRADSHAW, ANDREW WILLIS
  
  

Email this article Print this article
Saturday, May 25, 2019 – Page B1

At Bank of Nova Scotia, Brian Porter has upended a cozy culture, pushed out long-time executives, spent billions on new acquisitions and dumped parts of its much-touted international division. Now if only the stock market would buy his plan. James Bradshaw and Andrew Willis report B6

Associated Graphic

Brian Porter won the top job in November, 2013, with a mandate to retool Scotiabank.

CHRISTOPHER KATSAROV/THE GLOBE AND MAIL


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Banks expected to lose millions after Corus deal fails to sell
space
space
By ALEXANDRA POSADZKI, TIM KILADZE, ANDREW WILLIS
  
  

Email this article Print this article
Friday, May 24, 2019 – Page B1

A syndicate of investment banks is expected to lose tens of millions of dollars after repricing a secondary offering of Corus Entertainment shares due to lowerthan-expected demand.

The syndicate of underwriters, led by TD Securities, has repriced the offering of Class B Corus shares to $6.25 each, down from $6.80, according to people familiar with the matter and documents obtained by The Globe and Mail.

The estimated hit to all of the banks in the syndicate is expected to be roughly $24-million, according to a source familiar with the matter, an unusually large loss for a bought deal. The estimated loss to TD Securities is roughly $7-million.

The original deal size was expected to be 80.6 million shares for total proceeds of around $548-million, but roughly twothirds of the deal didn't sell, according to sources, to whom The Globe granted anonymity because they are not authorized to speak publicly about the matter.

Shaw Communications Inc. announced a deal on May 14 to sell its 38.6-per-cent stake in Corus to the syndicate after struggling to sell the position to a single buyer last year. The deal was priced at $6.80 per Class B share, representing an unusually large 15.6-per-cent discount to Corus's closing price. Typically, such bought deals are sold at a discount of between 2 per cent to 4 per cent. In a bought-deal arrangement, members of the syndicate buy the shares in order to resell them to various investors and earn a commission, but they take the risk that weak demand could leave them stuck with unwanted shares and losses.

Corus owns the Global Television Network as well as a number of specialty television channels such as HGTV Canada and Food Network Canada.

The Corus shares proved difficult to sell because investors are skeptical about the outlook for TV advertising spending, a key element of the broadcaster's future revenue, according to investment bankers working on the transaction. There were also concerns about buying into a media company when Shaw, a long-standing player in sector, is exiting.

Other banks in the syndicate include CIBC World Markets and RBC Dominion Securities, with each representing 12.5 per cent of the deal, and Scotia Capital, BMO Nesbitt Burns and National Bank Financial at 5 per cent each. Spokespeople for TD Securities, National Bank, CIBC and Scotiabank declined to comment and other banks in the syndicate could not immediately be reached for comment.

TD Securities hopes that repricing the shares at a lower level will boost demand from both institutional and retail investors, according to a document obtained by The Globe. But if that demand fails to materialize, TD could be left with millions of shares, according to the document.

Shaw Communications will not be affected as it has already received $6.80 a share for its Corus stake.

Losses of this magnitude are rare on Bay Street, but they have been seen before.

In one instance, in 2015, when a $1-billion bought deal for Silver Wheaton failed to sell, estimates pegged losses suffered by Scotia Capital, the lead underwriter, at between $5-million and $10-million.

Investment banks pitched Corus shares to clients as a play on a recovery in television advertising. The company used an investor presentation in late April to highlight a 5-per-cent increase in revenues from its networks and a 10-per-cent increase in profits from the TV division, which made $114-million in the most recent quarter.

BCE Inc., owner of rival network CTV, also talked up rising advertising sales at its TV properties as part of its most recent financial results.

Shaw sold its Corus shares as part of a strategic shift that is seeing the Calgary-based company focus on expanding its wireless and cable businesses. Shaw acquired the Corus shares in 2016 as payment for broadcasting assets, including Global, sold by the telecom company. Shaw previously spun out Corus as an independent entity in 1999. Both companies are controlled by the Shaw family.

CORUS ENTERTAINMENT (CJR.B) CLOSE: $6.55, DOWN 6¢


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Changes to Canada's airline industry are good for business travellers - and bad for the rest
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Saturday, May 18, 2019 – Page B1

Canada's two largest carriers are remaking the country's airline industry and the wheeling and dealing isn't expected to stop until there's a new owner for Porter Airlines Inc.

Porter, the Toronto-based regional carrier with the raccoon logo, is in the enviable position of being a perfect complement to the country's second-largest player, WestJet Airlines Ltd., which agreed to a friendly $3.5-billion buyout from private-equity firm Onex Corp. last Monday.

The case for consolidation grew stronger on Thursday, when market leader Air Canada announced it's in exclusive talks to acquire charter company Transat A.T. Inc. for $520million.

These two takeovers are driven by WestJet and Air Canada's shared goal of putting more business travellers in their planes.

The acquisition of Transat and any potential deal involving Porter hold no joy for the rest of the flying public. Airline consolidation in a country that limits access for foreign carriers is going to mean less competition, in the form of fewer seat sales and higher ticket prices.

After announcing an offer for WestJet, Onex managing director Tawfiq Popatia said his company had no plans to stage what the private-equity types call a "roll up" strategy by moving quickly to snap up smaller rivals. And at Porter, spokesman Brad Cicero said the two recent deals "highlight general investment interest in the airline industry, but have no direct impact on Porter's business. Porter is not considering a sale process."

However, in finance circles, there is widespread expectation Onex's long-term plan for transforming WestJet into a far more serious competitor to Air Canada will involve additional acquisitions.

Calgary-based WestJet's potential interest in Porter starts with the airline's network across the eastern United States, Ontario, Quebec and the Atlantic provinces.

These are high-volume destinations, and Canada's financial centre is minutes away from Porter's main hub at Billy Bishop Toronto City Airport.

For business travellers, convenience counts.

Convenience is an issue when New York-bound passengers book a Porter flight. Their planes are routed through the airport in Newark, N.J., easily an hour from Manhattan. WestJet could shift those flights to its eight existing slots at a far more convenient airport, New York's LaGuardia, which is currently getting a long-overdue renovation.

The logistics of a partnership between Porter and WestJet work well. The two carriers already fly the same plane - the 80-passenger, propeller-driven Bombardier Q400. And both airlines can claim a customer-friendly service culture.

It's worth noting that Porter has been up for sale in the past. Its owners are founder Robert Deluce and his family - son Michael Deluce took the reins as CEO last month - along with private-equity investors Edgestone Capital Partners and the Ontario Municipal Employees Retirement System, or OMERS. The group attempted to take the company public in 2010, but pulled the offering when they couldn't get the price they wanted, opting instead to sell the terminal in Toronto for an estimated $700-million.

Looking further ahead, Porter has long lobbied for permission to fly jets from Toronto's island airport. To date, the federal government has nixed the idea. But if a new generation of quieter jets is allowed to take off and land at Billy Bishop - a move endorsed by Ontario Premier Doug Ford - it would dramatically increase Porter traffic through Toronto. That sort of game-changing shift is straight out of the private-equity playbook followed by investors such as Onex. An equally seismic shift would result from allowing foreign airlines greater access to the domestic market, or the opportunity to own a Canadian carrier.

The history of Canadian aviation is filled with airlines that soared for a time, only to hit turbulence and be sold to stronger rivals. That list includes Wardair, Pacific Western, Canadian Airlines and Air Ontario, which the Deluce family sold to Air Canada in 1986. The current round of consolidation is notable because it will see two deep-pocketed carriers with strong leaders - Air Canada under CEO Calin Rovinescu and founder Gerry Schwartz at Onex - vying to dominate the domestic skies. It's a corporate battle that will captivate Bay Street and benefit the business flier, and leave the rest of us paying more to check our baggage.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
BMO chops 100 capital markets jobs as part of cost-cutting
space
space
By JAMES BRADSHAW, ANDREW WILLIS
  
  

Email this article Print this article
Friday, May 17, 2019 – Page B1

Bank of Montreal is trimming the ranks of its capital-markets arm, eliminating approximately 100 jobs as the bank continues to hunt for ways to control its costs.

The job cuts were announced internally over the course of a few days this week, according to sources who were granted anonymity by The Globe and Mail because they were not authorized to discuss the changes. The job losses span a range of divisions and seniority levels in Canada and the United States, as well as in other countries where BMO does business.

In April, BMO revamped the leadership of its capital-markets team, as four senior bankers left. And that shuffle came six months after Dan Barclay was installed as chief executive officer of BMO Nesbitt Burns Inc., succeeding Pat Cronin, who had been promoted to be BMO's chief risk officer.

Like many of its peers, BMO had to weather volatile conditions for capital markets at the tail end of 2018 and while markets have calmed since then, the division continues to face a challenging climate.

In its first fiscal quarter, which ended Jan. 31, BMO reported a 6-per-cent drop in profit from capital markets, compared with a year earlier - and that stood out as a good result relative to several other major banks.

BMO is also in the midst of a bank-wide drive toward greater efficiency that has been a key priority for chief executive Darryl White, who is himself a former head of the capital-markets division.

BMO's efficiency ratio, which measures expenses as a percentage of revenue, is above 60 per cent, trailing other large Canadian banks by a wide margin.

"Our strategy is clear and unchanged and will continue to be client driven. From time to time, we make adjustments to align with the current market environment," a BMO spokesperson said in a written statement.

As of the end of January, BMO Capital markets had 2,747 fulltime equivalent employees, up from 2,375 two years earlier.

As part of its efficiency drive, BMO has been scrutinizing every corner of the bank, from staffing levels to procurement contracts.

And while Mr. White has declined to project what that will mean for BMO's total headcount, he said at the bank's 2018 annual shareholders meeting that "I don't think it'll be a heavier bank going forward, put it that way."


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Corus shares sink after Shaw sells its stake
space
Telecom's move is part of strategic shift to focus on wireless, cable businesses
space
By ANDREW WILLIS
  
  

Email this article Print this article
Thursday, May 16, 2019 – Page B2

Investors gave a cold reception to the $548-million sale of Corus Entertainment Inc. stock, knocking back the stock price by 17 per cent on Wednesday, a day after Shaw Communications Inc. cut ties with the Toronto-based broadcaster.

Shaw announced late on Tuesday it sold its entire 36.8-per-cent stake in Corus to a syndicate of 13 investment banks led by TD Securities Inc., which in turn offered the stock to investors for $6.80 a share. The sale was priced at a 15.6-per-cent discount to the closing price of Corus stock on Tuesday, a larger cut in price than the 2-to-4 reduction typically seen on what are known as "bought deal" financings. Corus shares closed Wednesday at $6.70 on the Toronto Stock Exchange, down $1.36 from the previous session.

Investment banks pitched Corus shares to clients as a play on a recovery in television advertising, after the company used an investor presentation in late April to highlight a 5-per-cent increase in revenues from its networks and a 10-per-cent increase in profits from the TV division, which made $114-million in the most recent quarter. Corus owns the Global Television Network and a slate of specialty TV channels, such as Food Network Canada and HGTV Canada. BCE Inc., owner of rival network CTV, also talked up rising advertising sales at its TV properties as part of its most recent financial results.

Shaw sold its Corus shares as part of a strategic shift that is seeing the Calgary-based company focus on expanding its wireless and cable businesses. Shaw attempted to find a single buyer for the Corus stake last year, but was unsuccessful. On Wednesday, one banker working on the sale called it a cleanup of Shaw's most recent involvement in Toronto-based Corus.

Shaw acquired the Corus shares in 2016 as payment for broadcasting assets, including Global, sold by the telecom company. Shaw previously spun out Corus as an independent entity in 1999. Both companies are controlled by the Shaw family.

Corus shares are relatively thinly traded and the 81 million shares sold on Tuesday represent approximately 80 days of the company's average turnover on the Toronto Stock Exchange.

Sources working on the transaction, to whom The Globe and Mail granted anonymity because the deal has not closed, said Corus has a relatively large following among individual shareholders and reaching out to these investors means the sales process is expected to take several days.

While Corus stock is trading below the price of the offering, the investment banks still stand to make a profit on the transaction, as there is a $22-million fee on the transaction, or 27 cents a share. This commission means Corus's share price would need to fall below $6.53 before the banks lose money on the deal.

The transaction is expected to close on May 31.

Shaw's decision to unload its stake in Corus is the latest in a series of what are known as secondary share offerings from long-time backers exiting public companies. In March, the founder of Northland Power Inc. sold a $750-million stake in the company, after Northland shut down a strategic review the previous year without finding a buyer for the company. In addition, a private-equity fund recently sold a $437-million stake in retailer Aritzia LP and a foreign real estate company raised $1.2-billion by selling the bulk of its holding in First Capital Realty Inc.

CORUS (CJR.B) CLOSE: $6.70, DOWN $1.36 SHAW (SJR.B) CLOSE: $26.73, DOWN 48¢


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Shaw resorts to secondary offering to sell Corus stake after failing to find a single buyer
space
space
By TIM KILADZE, ANDREW WILLIS
  
  

Email this article Print this article
Wednesday, May 15, 2019 – Page B1

Shaw Communications Inc. is unloading its 38.6-per-cent stake in Corus Entertainment Inc. in a $548million share sale, after struggling to sell the position to a single buyer last year.

The offering, announced after the market closed on Tuesday, is priced at $6.80 per Class B share, representing a 15.6-per-cent discount to Corus's closing price. Corus is the owner of the Global television network and a slate of specialty TV channels, such as Food Network Canada and HGTV Canada.

Typically, share sales are sold at a discount of between 2 per cent and 4 per cent to market prices, yet the circumstances of this deal are unique.

Chiefly, the offering comes after Shaw hired a financial adviser in 2018 to try to sell the position to a strategic buyer, such as Rogers Communications, or to a private equity firm. After an exhaustive search, the effort proved fruitless - partly because foreign-ownership restrictions prevented any non-Canadian buyers from acquiring the stake on a path to full control of Corus.

Months later, Calgary-based Shaw is now selling its stake to public investors by way of a bought deal. Under this model, investment banks led by TD Securities will buy the entire position and then resell the shares to institutional and retail investors.

The discount is a reflection of both the size of the stake, as well as Corus's ownership structure.

After the sale, Shaw Communications will not own any Class A or Class B shares of Corus - yet the Shaw family will continue to control Corus through its ownership of Class A shares.

Shaw and Corus both declined to comment for this story.

The offering also comes on the heels of a strong run for Corus's share price, with the stock up 69 per cent since the start of the year. Corus blew away analyst expectations when it last reported quarterly earnings in April, delivering an 11-per-cent lift in TV advertising revenue.

"This transaction is a positive for Shaw, given the capital that will be required to expand its wireless network and acquire high-band spectrum in preparation for 5G," Canaccord Genuity analyst Aravinda Galappatthige wrote in a note to clients.

Shaw's decision to unload the stake in a public offering marks the latest chapter in a dynamic relationship between Shaw and Corus. In 1999, the Shaw family spun out Corus to make Shaw Communications more of a pure play on cable.

Yet in 2010, Shaw ended up acquiring more media holdings by paying $2-billion to purchase CanWest Global Communications Corp.'s broadcast assets after that company's restructuring.

The deal gave Shaw control of the Global Television network, as well as Food Network Canada, HGTV Canada and Showcase.

In 2016, the Shaw family decided to shake things up again, with Shaw Communications selling its media division to Corus for $2.65-billion to help pay for its acquisition of wireless startup Wind Mobile. The purchase came in two parts: $1.85-billion in cash, and 71 million Corus class-B nonvoting shares at $11.21 per share.

The Class B shares included are those now being sold to public investors - albeit at a much lower price.

The price drop reflects the tough market for television networks. When Corus acquired Shaw Media three years ago, it made a bet on the power of women, believing that owning all six of the top six specialty channels watched by women would attract advertisers. Women tend to make their households' spending decisions.

The deal was also a bet on content, which can be distributed or syndicated. On a conference call to discuss the purchase in 2016, Corus CEO Doug Murphy said there was a "content-hungry global marketplace."

But Corus has struggled since because fewer people gather around television sets at the same time, which makes advertisers wonder whether TV ad buys are worth it. Facebook and Google have also gobbled up much of the ad money devoted to digital and social-media channels.

Corus's balance sheet had also been weighed down by some $2billion in debt. Under financial stress, the company slashed its dividend in June, 2018, and also took a $1-billion impairment charge.

Lately, though, Corus has surprised analysts. For the quarter ended Feb. 28, its television ad revenue was surprisingly strong, and the share price has popped 25 per cent since. Shaw is selling its stake into this rally.

Mr. Murphy is hoping to build off the recent momentum, saying on a conference call in April that digital companies such as Trivago, Expedia, Amazon and Google are all seeing the value in TV ads. "I mean that guy on Trivago, the reason why you see him all the time is because television advertising works," he said on the call.

He also flagged a recent study conducted by Accenture consultancy that was commissioned by industry group ThinkTV, which argued that advertisers across four key segments - automotive, consumer packaged goods, overthe-counter drugs and telecommunications - are overspending on digital. The study called for a correction in spending - more on TV, less on digital.

With reports from Christine Dobby and Susan Krashinsky Robertson SHAW (SJR.B) CLOSE: $27.21, DOWN 7¢ CORUS (CJR.B) CLOSE: $8.06, UP 9¢


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Fox Corp.'s 'insanely simple' bet on sports wagering
space
U.S. media mogul Murdoch sees gambling as the next big wave in the industry, and he's taking Canada's Stars Group along for the ride
space
By ANDREW WILLIS
  
  

Email this article Print this article
Saturday, May 11, 2019 – Page B3

Rupert Murdoch unveiled his vision of the future of entertainment this week, and it was tied to the potential of Canada's largest online gambling company.

In what the 88-year-old media mogul described as a strategic "pivot" for Fox Corp., the global media company, Mr. Murdoch announced a U.S. sports wagering platform called Fox Bet on Thursday in partnership with Toronto-based Stars Group Inc., best known as owner of the PokerStars website.

Fox spent US$236-million for a 5-percent stake in Stars Group, Mr. Murdoch's first significant move after selling his Hollywood studios and TV stations to Walt Disney Co. for US$71-billion.

The deal, unveiled as the centrepiece of a Fox investor day, signals how Mr. Murdoch expects audiences to interact with sports in the future. The investment also establishes Stars Group - formerly known as Amaya Inc. - as a leading player in North American sports wagering. Stars Group's stock price jumped 14 per cent after the venture was announced, adding $1-billion to the value of the company.

If Mr. Murdoch has it right, in the nottoo-distant future, a fan would tune in to Game 7 of a Toronto Raptors playoff series, for example, and use Fox Bet to wager on which basketball team will win and the point spread, while taking in the action. His son, Lachlan Murdoch, the chief executive of Fox, called the strategy "insanely simple" at Thursday's session. He said: "We outpunch competitors in the amount of live television we deliver to American households."

Where media companies such as Disney, AT&T Inc. and Netflix Inc.

see the future in streaming movies and TV series such as Game of Thrones to viewers, Fox believes it can attract eyeballs with a mix of sports and news. The network broadcasts baseball, auto racing, soccer and the top-drawing programming on television, NFL football.

Fox and Stars Group are first movers in a U.S. market that opened up last year, when the U.S. Supreme Court allowed states to legalize sports gambling. Fox executives said they expect Americans to bet US$9-billion online annually by 2025, a projection that may prove conservative, as "illegal" wagers on the NFL's Super Bowl total an estimated US$5-billion.

While the U.S. venture is breaking new ground, sports betting is familiar territory for Stars Group in Europe. The company paid US$4.7-billion last April to acquire Sky Betting and Gaming, the dominant British online wagering platform. British fans look to Sky for games such as Soccer Saturday Super 6, a free contest that sees participants snag cash prizes for picking six winning teams. Sky also lets clients wager on matches - this in a country where punters bet on everything from Manchester United to the names of Royal Family babies. The same two-tiered approach - free contests and bets on games in states that allow gambling - is expected to be rolled out in the United States in time for the NFL's kickoff in September.

"Stars Group clearly has the operational ingredients for success while Fox has the strategic reach and customer resonance," said a report on Friday from British gaming consultant Regulus Partners. "While there is certainly risk to changes in sports content consumption ... the Fox deal makes Stars Group a very credible massmarket contender in the U.S."

The potential audience for sports betting is huge; broadcasts by Fox Sports reach 100 million Americans. Only ESPN is in more homes, but the Disney-owned network has historically been reluctant to embrace sports gambling, which should leave the sports gaming field relatively clear for Stars Group. The Canadian company struck a 25-year alliance with Fox, and the deal gives Mr. Murdoch the right to acquire up to 50 per cent of Stars Group's U.S. business over the next 10 years.

The costs involved are also huge: Stars Group lost US$109-million last year on revenues of US$2-billion as it grew its European operations. Regulus Partners said Stars Group is now at the forefront of an emerging U.S. sports gaming industry, but then added: "We would caution, however, that this emergence is still likely to be long, fiddly and financially draining for most protagonists for some time to come."

Mr. Murdoch has successfully surfed media for six decades, deftly moving from newspapers in his native Australia into television, film and professional sports. He and his son see gambling as the next big wave, and they are taking Stars Group along for the ride.

Rafi Ashkenazi, chief executive of Stars Group said: "We believe this strategic partnership uniquely positions us to build a leading betting business in the U.S., which represents one of the most exciting longterm growth opportunities for our company."


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Ontario to gain an extra $13-million a year after Hydro One increases dividend payment
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Friday, May 10, 2019 – Page B1

At Hydro One Ltd.'s last annual meeting, Progressive Conservative candidate Doug Ford joined protesters on the sidewalk outside the gathering to attack the utility's CEO and his $6-million pay package.

Mr. Ford, now Ontario's Premier, didn't come to Hydro One's shareholder meeting this year, but the results of his successful, populist campaign were clear.

The utility's new board and boss used the gathering to announce modest growth plans, along with better-than-expected financial results that included a roughly $7-million quarterly dividend increase.

The dividend hike puts an additional $13-million or so into provincial coffers annually, as the Ontario government owns a 47-per-cent stake in the partly privatized company.

Toronto-based Hydro One introduced newly named chief executive Mark Poweska to shareholders at Thursday's meeting, one day before the former BC Hydro executive formally takes the reins.

Mr. Poweska's brief speech focused on serving customers in Ontario - and made no mention of the U.S. expansion strategy introduced by his predecessor, Mayo Schmidt. Speaking in a methodical, friendly tone, Mr. Poweska said he is joining the utility "at a critical time in Hydro One's transformation into a customerfocused and innovative company, focused on safety, driving down costs and delivering great value to customers, communities and shareholders."

His blue suit was decorated with green and purple ribbons in tribute to five Hydro One employees who died on the job in the past two years, as were the lapels of other executives and board members. In response to a shareholder question on potential changes in strategy, the new CEO said he plans to spend the next four months working with the board, employees, major customers and other stakeholders before speaking publicly about his plans.

The job of summing up a year that saw Mr. Schmidt leave and the entire board resign after Mr.Ford's election win, along with the scrapping of a planned $4.4-billion takeover of U.S. utility Avista Corp., fell to Hydro One chairman Tom Woods, who was appointed by the province in August. In response to a shareholder question about the state of Hydro One's relationship with its largest shareholder, Mr. Wood said he was "very optimistic" that the company's leaders can work constructively with the government, adding that the board has an "open dialogue" with Mr. Ford and his team.

After Mr. Schmidt left, the government capped the compensation of the CEO at $1.5-million and cut pay packages for all senior employees. At BC Hydro, a Crown corporation, Mr. Poweska made $405,720 last year. Several Hydro One executives departed this spring, and interim CEO Paul Dobson is expected to leave this summer after just more than a year with the company. On Thursday, the utility named Chris Lopez as chief financial officer.

Hydro One announced Thursday that it made a profit of $311million, or 52 cents a share, in the most recent quarter, excluding $140-million in costs associated with the cancelled Avista takeover, compared with a profit of $210-million, or 35 cents a share, in the same period last year. The results were well above the 45 cents a share forecast by analysts.

Hydro One increased its quarterly dividend by 5 per cent and, in a news release, Mr. Poweska said: "This increase reflects the strong fundamentals of the business and confidence in our continued ability to produce solid financial results."

Hydro One delivers electricity to 1.4 million customers over a 30,000-kilometre network, almost twice the size of BC Hydro's transmission system.

"Hydro One continues to focus on improving operational efficiency," said analyst David Galison at Canaccord Genuity Corp., who raised his target price on the stock to $22 from $21.50. In a report, Mr. Galison said: "The increase in our target price is due to higher earnings, benefiting from lower taxes."

HYDRO ONE (H) CLOSE: $21.72, DOWN 2¢

Associated Graphic

Ontario utility Hydro One reported a profit of $311-million for the most recent quarter, well above analysts' expectations.

TIM FRASER/ THE GLOBE AND MAIL


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Ferrovial, CPPIB expected to match bid for SNC's stake in 407
space
Toll road's consistent financial results appeal to institutional investors as they seek alternatives to fixed-income assests such as infrastructure
space
By ANDREW WILLIS
  
  

Email this article Print this article
Friday, May 3, 2019 – Page B2

Spain's largest construction company and Canada's biggest pension plan are expected to increase their stakes in Ontario's Highway 407 by matching a $3.25-billion offer for SNC-Lavalin Group Inc.'s holding in the toll road, a move that demonstrates the value of infrastructure to institutional investors.

Montreal-based SNC struck a deal in early April to sell 10 per cent of the 108-kilometre highway to the Ontario Municipal Employees Retirement System (OMERS) pension plan for $3-billion, with an additional $250million of performance-based payments. SNC plans to use a portion of this cash to pay down debt and will continue to hold a 6.8-per-cent stake in the highway.

The two other shareholders in Highway 407 - Spain's Ferrovial SA with 43.2 per cent and the Canada Pension Plan Investment Board (CPPIB) with 40 per cent - have the right to match any offer for the SNC stake, an option that expires after 30 days.

SNC announced financial results on Thursday and said in a news release that it "has been informed that a Highway 407 ETR shareholder may exercise its right of first refusal."

Ferrovial, which has a $24-billion market capitalization, and the $368-billion CPPIB have not disclosed their plans, but sources familiar with the negotiations who were not authorized to speak on the record said the two investors are expected to each take a portion of SNC's stake in Highway 407. The toll road consistently turns in strong financial results, with revenues that rise in step with inflation and predictable maintenance costs.

A spokesperson for CPPIB declined to comment Thursday on the fund's intentions for its Highway 407 investment, and a Ferrovial spokesperson also declined to comment. During a conference call on Thursday, SNC chief executive Neil Bruce said while the identity of the buyer of its stake is still being decided, binding contracts struck with OMERS, Ferrovial and CPPIB ensure the Highway 407 sale will close in June.

Institutional investors such as pension plans are buying infrastructure such as toll roads as an alternative to fixed-income investments. CPPIB has approximately 8 per cent of its assets, or $28-billion, invested in infrastructure, up from a $15-billion investment in the sector in 2015.

OMERS, a $97-billion fund, owns about $18-billion of infrastructure and earned a 10.6-per-cent return from the portfolio in 2018, compared with a 1.8-per-cent return on its fixed-income investments.

If Toronto-based OMERS loses out on its planned investment in Highway 407, the pension plan will walk away with approximately $80-million for its troubles.

On Thursday, SNC said if the sale to OMERS does not go forward, it will pay the fund a "break fee" of 2.5 per cent of the purchase price.

SNC's decision in April to sell 10 per cent of Highway 407 means the company is parting with a larger portion of its stake in the toll road than the roughly 7 per cent originally planned, underscoring the balance-sheet stress that forced the engineering company to slash its dividend by about 65 per cent earlier this year.

Fund manager Stephen Jarislowsky, a former director of SNC, is pushing the engineering company to hold a shareholder vote on the decision to sell its stake in Highway 407, and said the asset is likely to double in value in the next decade.

Mr. Jarislowsky, founder of Montreal-based Jarislowsky Fraser Ltd., said the toll road "is one of the finest investments that I know, as it is quasi-governmentguaranteed, plus enjoys the full growth of the traffic around Toronto."

SNC faces charges of bribery and fraud related to business dealings in Libya from 2001 to 2011. Federal prosecutors have so far declined to invite the company to negotiate a settlement on those charges in order to avoid a lengthy trial. That decision set off a political row in Ottawa that has cost Prime Minister Justin Trudeau two cabinet ministers, a top aide as well as a senior bureaucrat.

In 1999, the Ontario government sold Highway 407 for about $3.1-billion. The toll road has been significantly expanded over the past two decades. Based on the value of SNC's stake, the highway is now worth $32.5-billion.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Another cannabis deal, another billionaire investor involved with both companies
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Thursday, May 2, 2019 – Page B6

One of the largest U.S. East Coast cannabis retailers, Curaleaf Holdings Inc., plans to acquire the leading West Coast cannabis-oil producer for $1.27-billion in a deal that features a billionaire investor on both sides of the table and minimal opportunities for independent scrutiny of the takeover.

Curaleaf, which owns 44 stores in 12 states, made an all-stock offer on Wednesday for a private company named Cura Partners Inc. that sells oils under the Select brand and is the market-share leader in four states, including California. Curaleaf, a public company listed on the Canadian Securities Exchange (CSE), is controlled and 30-per-cent owned by executive chairman Boris Jordan, who made his first fortune as an investor in newly privatized Russian companies in the 1990s.

A private equity fund that Mr.Jordan manages, called Measure 8 Venture Partners, owns an 11.5per-cent stake in Cura Partners, based in Portland, Ore., that is now worth more than $150-million. In an interview on Wednesday, Mr. Jordan said the two companies worked to the highest standards of governance. Although he is on the board of directors at both companies, Mr. Jordan recused himself from all discussions of the transaction and he is abstaining from all votes on the offer. He said: "I made an introduction a year ago. I was never involved in negotiations, and all voting is done without me."

This the latest in a series of cannabis transactions to feature insiders investing on both sides of the transaction. Aphria Inc. was targeted by short-sellers in December who said the company overpaid when it spent about $300-million last fall to buy businesses in Jamaica, Colombia and Argentina that were partly owned by the company's executives and long-time backers. After a review requested by the Ontario Securities Commission, Aphria wrote down the value of the newly acquired assets by $50-million in April.

One institutional investor who owns a stake in privately held Cura Partners said this takeover is significantly different from the Aphria transaction, because Cura Partners is controlled and largely owned by sophisticated investors who are totally independent of Mr. Jordan, while Aphria featured the same individuals on both sides of the deal.

Curaleaf had sales of US$88million last year, and Cura Partners sold US$117-million of cannabis oil. Curaleaf shares rose 12 per cent on news of the takeover, closing Wednesday at $14.90 on the CSE, which gives the Wakefield, Mass.-based company a $5billion market capitalization.

When the deal closes, Cura Partners shareholders will own 16 per cent of the combined companies.

As part of the transaction, shareholders in Cura Partners have an opportunity to earn an additional US$200-million, paid in Curaleaf shares, if the company exceeds 2020 sales goals. Cura Partners founder Cameron Forni will join Curaleaf as a board member and president of its Select division. In a press release, Mr. Forni said: "The leading companies in the industry on the West Coast and the East Coast are now joining forces to progress the legalization and mainstream acceptance of cannabis across the country."

Curaleaf's offer makes use of exemptions in Canadian securities law to avoid both a formal valuation of its bid and a vote on the offer by Curaleaf shareholders; the owners of privately held Cura Partners will hold a vote. To deal with governance issues, Curaleaf's board struck a special committee that the company said in a news release was free of conflicts of interest. That committee received an opinion from investment bank Beacon Securities Ltd.

that said the offer is fair to Curaleaf shareholders from a financial point of view, based on "assumptions, limitations and qualifications set forth therein." Curaleaf did not release the fairness opinion.

Law firm Stikeman Elliott LLP is advising Curaleaf on the takeover, along with U.S. firm Loeb & Loeb LLP. Stikeman was also Aphria's legal counsel on its Caribbean and Latin American acquisitions last year. Stikeman is no longer Aphria's law firm of record. On Wednesday, Stikeman declined to comment on the Curaleaf and Aphria transactions.

Curaleaf tapped investment banks GMP Securities LP and Eight Capital as its financial advisers on the transaction, while Canaccord Genuity Corp. and Bayline Capital Partners worked with Cura Partners, along with law firms Dentons US LLP and Goodmans LLP.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Macquarie's retreat signals a streamlining of investment banking
space
The Australian firm's Canadian restructuring is a wake-up call not only for small-cap companies that look to independent dealers for funding, but for the capital-raising community as a whole
space
By ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, April 30, 2019 – Page B4

Australia's largest investment bank, Macquarie Group Ltd., spent $350million over more than a decade building a brokerage house that was intended to be a force in Canadian capital markets.

On Monday, Macquarie's leaders recognized all their efforts created a domestic dealer suited to fighting the last war, a dubious strategy in both business and combat. In Canada, Macquarie fielded more than 50 equitysales, trading and research professionals, all trained to sell stories to portfolio managers. As more and more funds take a passive investment approach, buying securities based on an algorithm, Macquarie realized it didn't need an expensive team to pitch stocks to computers.

After two years finishing outside the top 20 Canadian dealers in equity league tables, a standard measure of market prowess, Macquarie pulled the plug Monday on its entire 50-plus-employee Canadian institutionalequity platform. The restructuring should be a wake-up call to both small-cap Canadian companies, which traditionally look to independent dealers for capital, and the entire investment-banking community. In equity markets, fighting the last war means losing the current fight for business.

Macquarie, and most other dealers, used to view their institutional-sales desks as a primary point of contact with clients. If a mining company needed $100million to dig a pit or acquire a rival, a banker drafted a prospectus, an analyst wrote a report, the sales team pitched the idea to fund managers and traders moved the stock.

Stricter regulations around roles within dealers and the rise of trading technology revolutionized the industry.

Now, small-cap companies that want to raise both capital and awareness need to step up their own investor-relations efforts, across websites and social media, and ensure their bankers are wired into an increasingly small community of active institutional investors.

And today, the most profitable shops on Bay Street are advisory boutiques such as Infor Financial Group and Maxit Capital, firms staffed entirely by investment bankers, with no equity desks. At the other extreme are the bankowned dealers, which have scaled back their equity-sales and research teams in recent years, and foreign-based investment banks, which house a handful of dealmakers in Canada, backed by trading desks outside the country. That's the model Macquarie is now embracing.

There are only a handful of dealers left in the middle ground here - independent houses with significant equity sales, trading and research teams. There's Raymond James Ltd., which looks to analysts to support significant Canadian wealth-management businesses, and the likes of Cannacord Genuity Group Inc., GMP Capital Inc. and Eight Capital.

The recent boom in financing cannabis companies boosted the fortunes of many independent brokerages houses, but Macquarie was never a factor in underwriting pot producers. Longer term, these dealers face the same challenges in the institutionalequity markets that drove the Australians out of the sector.

Consolidation around the strongest firms is expected to be a continuing theme in domestic investment banking, with experts at the Investment Industry Association of Canada (IIAC) predicting a sector that has 161 firms will soon be home to approximately 100.

In a recent report, IIAC chief executive Ian Russell said, "We anticipate even more firms to leave the business in 2019, given the ratcheting up in operating costs and prospect of an extended period of depressed market conditions and decelerating growth in retail and investment banking revenues."

IIAC's statistics show profits from equity trading at 60 Canadian institutional firms, including Macquarie, fell by 49 per cent last year, to $157-million.

Mr. Russell said current industry trends "will lead to a significant consolidation in the investment industry with the corresponding damaging impact on the competitive diversity in the domestic retail marketplace and capital-raising for small- and mid-sized businesses in public and private markets."


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
THE A TEAM
space
RBC Capital Markets is becoming the New England Patriots of Bay Street--increasingly, it's them versus all the other investment dealers
space
By ANDREW WILLIS
  
  

Email this article Print this article
Friday, April 26, 2019 – Page P27

It's time to acknowledge that when it comes to investment banking, RBC Capital Markets is playing in a different league than its Canadian rivals. The deal-making arm of Royal Bank of Canada churned out $8.4 billion in revenue last year, almost as much as its second- and thirdranked domestic competitors put together. In the same way it seems preordained that football's New England Patriots will be Super Bowl favourites every year, it now appears certain that RBC Capital Markets will make far more money than any other Bay Street dealer.

What's the secret to this run? Like the most successful coaches in sports, Royal Bank CEO Dave McKay says staying on top in increasingly complex markets starts with keeping things simple. "The beauty of the capital markets strategy is consistency and what I call the simplicity," he said at a conference in March. "It is [built] around great people, using your balance sheet, creating value, advising and cross-selling, and it takes time to build up those relationships." To use another gridiron adage, it's also about the team, rather than individual superstars. When that teamwork kicks in, it can turbocharge revenues and earnings.

Like many perennial winners, McKay pushes his team to do better each year, too. RBC Capital Markets earned a $2.8-billion profit in 2018, which translated into a healthy 13% return on equity--a performance any other Canadian bank would envy. But McKay isn't measuring his team mainly against Bay Street rivals such as Bank of Nova Scotia, which posted capital markets revenue of $4.5 billion in 2018. Royal Bank is competing against global players such as JP Morgan Chase, which generated $35.4 billion (U.S.) in revenue from corporate and investment banking.

RBC Capital Markets began to pull away from the rest of the Canadian bank-owned dealers in the late 1990s, when it found itself advising many of its Canadian corporate clients on international expansion plans. The division's leaders in that era, including long-time CEO Anthony (Tony) Fell, decided that to stay relevant to those clients, it needed to grow with them abroad, with an initial focus on the U.S. market.

In 2000, Royal Bank spent $1.5 billion (U.S.) to acquire a technologyfocused investment bank, Minneapolis-based Dain Rauscher Corp.

When the tech bubble burst in 2001, Dain Rauscher started losing money. Royal Bank also targeted relatively small growth companies, which was out of step with its focus on large-cap clients in established industries. Veteran real estate banker Doug McGregor was dispatched from the head office in Toronto to Minneapolis to turn things around.

McGregor and his colleagues stuck with a U.S. expansion strategy, but eschewed another acquisition, opting to take a slow-and-steady approach by hiring individuals and some entire teams from U.S. banks.

They did the same with British, French and German rivals in Europe.

If Dave McKay is Royal Bank's head coach, the role of quarterback falls to the 61-year-old McGregor, who's chair and CEO of RBC Capital Markets and head of the bank's investor and treasury services. A champion wrestler in his university days, McGregor looks like he could still pin an opponent, and he is disarmingly blunt and direct.

He says the big-ego Masters of the Universe financiers made famous by author Tom Wolfe were never welcome at RBC Capital Markets. McGregor has hired 31 senior bankers in recent months, and says his goal in every interview has been ensuring the new partners are a "safe" cultural fit, which means "understated and team-oriented."

As the bank has expanded internationally--RBC Capital Markets now has 3,300 employees in the U.S., 2,700 in Canada and 1,300 in Europe--McGregor and his colleagues say the concept of teamwork became more essential. No one player can do everything for large and complex corporations.

Take health care. Derek Neldner, RBC Capital Markets head of global investment banking, says that a generation back, one banker could be the sole contact with a pharmaceutical company. Now, he says, "if you are going to offer serious coverage to a health care client, you need an analyst who can talk authoritatively on medical devices, an expert on pharmaceuticals, one on biotech and so on."

To cover the cost of employing all those specialists, a bank needs global scale, Neldner says. He adds that one of RBC Capital Markets' most significant internal accomplishments in recent years was devising a compensation system that ensures bankers and traders get paid for helping on a transaction even if they don't have direct ties to that client.

RBC Capital Markets' reach now vastly exceeds that of any domestic rival. The firm played a role in $1.5 trillion (U.S.) worth of syndicated loans last year, $74 billion (U.S.) in stock sales and $764 billion (U.S.) in bond offerings for Canadian and international clients.

Teamwork often boosts revenues, which is why McKay fixates on cross-selling. Jonathan Hunter, RBC global head of fixed income currencies and commodities, remembers working on an acquisition in British Columbia for a German client. Along with helping negotiate the deal, RBC arranged debt financing and used derivatives to hedge currency risk. "If our fee was a dollar on a conventional advisory assignment, we were able to earn a buck-sixty here by providing extra services while also doing a better job for the client," Hunter says.

Size and outsized profits in capital markets also bolster the premium valuation for Royal Bank stock, analysts say. "When the waves pick up, we prefer to be on a bigger boat," said CIBC World Markets analyst Rob Sedran in a recent report on Royal Bank. Like the Patriots, in good markets and bad, McKay's team just keeps winning.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Aritzia's new take on share buybacks inspires First Capital Realty to help shareholder unload $1.2-billion stake
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, April 15, 2019 – Page B2

TORONTO -- The new spring lines from fashion retailer Aritzia Inc. feature a floral-pattern Sunday Best Cropsey Romper that rivals may knock off, along with an innovative $437-million deal for a long-time backer that Bay Street bankers are already emulating.

Aritzia offered a new take on an old-fashioned financing tool, a share buyback, to pave the way for a recent stock sale by private equity fund Berkshire Partners LLC. Within weeks, real estate company First Capital Realty Inc. used the same approach to help a long-time shareholder unload a $1.2-billion stake.

Buybacks are typically unremarkable. They simply see cash-rich companies repurchase and cancel their own stock, returning capital to their owners and boosting earnings per share.

At Aritzia and First Capital Realty, share buybacks served a different purpose. They solved a problem that plagues public companies when significant shareholders - typically founders or private equity funds - cash in their holdings.

These exits typically see the seller forced to accept a price for its shares that is 10 per cent or more below where the stock is trading.

For example, the British and Italian companies that owned a stake in Montreal-based lumber company Stella Jones Inc. accepted a 13-per-cent discount when they sold $877million of stock last July.

Any investor who followed Aritzia knew Berkshire wanted for more than 14 years to move the last of a stake the fund owned. The Boston-based fund has been selling down gradually since Aritzia went public in 2016. The prospect of further stock sales by Berkshire weighed heavy on the share price over the past year, and strong performance from the chain's 90 clothing stores and website never translated into a pop in the stock.

Rather than see Berkshire dump its entire holding into the market, the typical approach, cash-heavy Ariztia offered to buy back $107-million of its own stock from the fund, while Berkshire sold the remaining $330-million of its stake to the public.

In a news release, Brian Hill, founder and chief executive of Aritzia, said, "The repurchase of shares from Berkshire Partners represents a compelling opportunity to deploy Aritzia's capital in a manner that is accretive to shareholders."

By decreasing the amount of stock that public investors needed to soak up, Berkshire was able to sell at a relatively thin 6-per-cent discount to Aritzia's share price the day of the deal. CIBC World Markets, RBC Dominion Securities and TD Securities led the Aritzia deal, along with Stikeman Elliott lawyers.

Ariztia struck a special board committee to bless the transaction, advised by Greenhill & Co. Canada Ltd. and law firm Borden Ladner Gervais LLP. Since the transaction was announced in mid-February, Aritzia's stock price is up 9 per cent, closing Friday at $18.47 on the Toronto Stock Exchange.

Fast fashion is a concept in finance as well as haute couture: Weeks after the Aritzia deal, First Capital Realty (FCR) is using a similar approach to help Gazit-Globe Ltd. sell a $1.2-billion position. FCR was motivated to invest in its own stock because shares in the Toronto-based company traded at a discount to that of rival REITs, owing in part to speculation that Gazit, a mall owner based in Israel, planned to dump its stake.

In a transaction announced in late February and led by RBC Dominion Securities, with legal input from Torys LLP, FCR offered to buy back $742-million of its stock from Gazit at the same time the Israeli company sold $453-million of FCR stock to the public.

Again, a board committee signed off on the transaction, advised by Blair Franklin Capital Partners Inc. and Stikeman Elliott LLP. Gazit sold its stake at a 4-per-cent discount to the price of FCR stock on the day the deal was announced.

Gazit still owns a 9.9-per-cent stake in the Canadian company. Adam Paul, CEO of FCR, said paving the way for Gazit to exit "will bring certainty to FCR's ownership structure." In a vote last Wednesday, 99 per cent of FCR shareholders approved the buyback.

Investment bankers and corporate lawyers can be like kids with Swiss Army knives, always trying out new blades.

This spring, the blade of choice is share buybacks, a previously mundane form of financing that's now being used in ways the Street has never seen before.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Dear dairy: Saputo may be eyeing a risky move
space
Analysts say Montreal company is looking at U.S. milk producer Dean Foods, but they warn a takeover may be poorly received
space
By ANDREW WILLIS
  
  

Email this article Print this article
Saturday, April 13, 2019 – Page B6

Lino Saputo Jr. and his father have built one of the world's largest dairy companies with a string of more than 30 successful acquisitions. The 52-yearold CEO's next takeover may be his toughest challenge to date.

Just about every analyst who covers Saputo Inc. says a team from the Montreal-based company is currently going through the books of Dean Foods Co., the largest U.S. milk producer and owner of 50 brands of sour cream, butter and ice cream. Dallas-based Dean Foods effectively put up a "for sale" sign in late February by announcing its board is exploring strategic options after posting a largerthan-expected US$374-million annual loss and suspending its common share dividend.

At the same time Dean Foods went on the auction block, Saputo realigned its senior management to deepen its bench of its U.S. operations, which accounted for half of the company's $11-billion in sales last year. In recent presentations to analysts, Mr.Saputo and his executive team pointed out that the company has the financial and operational strength to do an acquisition valued at up to $3-billion. The company declined to comment on any interest in Dean Foods or other potential acquisitions.

Dean Foods is a poster child for all that ails the U.S. dairy industry. Americans drink less milk with each passing year, farmers have excess capacity and retail chains such as Amazon and Walmart are pushing their own brands rather than buying milk from traditional suppliers. The 94-year-old company's sales fell to US$7.8-billion last year from US$9.5-billion four years ago, against a backdrop of cost-cutting and restructuring.

The attraction to a buyer such as Saputo is clear: For all its problems, Dean Foods is a market leader, selling one in three jugs of milk consumed by Americans each day. And the equity is relatively inexpensive, with a market capitalization of about US$200million. In comparison, Saputo dropped $1.7-billion in February to acquire a British company called Dairy Crest Group plc that had sales of $786-million last year, and turned a $257-million profit.

The risks that come with acquiring Dean Foods are equally clear. There is nothing to suggest the U.S. dairy industry will stabilize in the near future, so a new owner may be grabbing a falling knife. And the Dallas-based company is carrying US$887-million of debt, which an acquirer would shoulder. In fact, if credit markets have it right, no buyer will step forward for Dean Foods. The company's bonds are currently trading for 50 cents on the dollar, a discount that signals there's no quick solution to the company's financial problems. Standard & Poor's rates the company a dismal CCC+.

Analysts who follow Saputo are warning that a takeover of Dean Foods, or any U.S. dairy business, may be poorly received by investors, who have awarded the Canadian company a premium valuation in the past based on its operational skills and takeover savvy.

"While we expect Saputo to be part of the process every time major assets come to market, given the strong pipeline of potential transactions globally, we expect Saputo to stick to its playbook to extend its footprint in growing and attractive milk sheds" or regions, said a recent report from analyst Irene Nattel at RBC Capital Markets. Right now, the U.S. milk market is neither growing nor attractive.

Saputo is also seen as a potential bidder for U.S. sour cream and cottage cheese maker Breakstone. Owner Kraft Heinz Co. is reported to have put it up for sale as part of a larger restructuring of the company, with an estimated price tag of US$400-million.

"Mergers and acquisitions remain a key part of the Saputo strategy," said a team of four CIBC World Markets analysts in a recent report. "We expect ongoing activity and management highlighted that several of the deals it is looking at today are material."

The CIBC team went on to say: "While challenging macro dairy conditions could lead to opportunistic deals, it also limits the near-term upside from a transaction.... The [U.S.] market remains challenged by oversupply, while other cost and regulatory issues only add to the pressures."

For acquisition-focused companies such as Saputo, the timing of a takeover is rarely ideal. More often than not, a market leader such as Dean Foods only comes up for sale during a downturn, or when it faces financial distress.

For the chief executive, it's time to decide if owning a dominant milk producer is worth the risk that comes with increased exposure to a U.S. dairy industry that's in disarray.

Associated Graphic

Saputo CEO Lino Saputo Jr. and his father have created one of the biggest dairy companies in the world with more than 30 successful acquisitions. In presentations to analysts, Mr. Saputo said the company could handle an acquisition valued at up to $3-billion.

RYAN REMIORZ/THE CANADIAN PRESS


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Maple Leaf invests in plant-based products as tastes change
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Tuesday, April 9, 2019 – Page B1

Maple Leaf Foods Inc. announced plans on Monday to spend US$336-million on factories to produce plant-based protein products as part of a strategy to ensure shoppers buy the company's burgers, whether they are made from beef or tofu.

Mississauga-based Maple Leaf is investing US$310-million into a newly constructed factory in Indiana that will turn soy beans, peas and other protein-rich vegetables into hot dogs, burgers, sausages and deli products.

Maple Leaf also announced plans on Monday to spend US$26-million on upgrades to two existing U.S. facilities. The plants will serve a market segment expanding at a 40-per-cent clip, far outstripping the low-single-digit growth in sales of prepared meats.

"We want to serve a consumer we call the 'flexitarian,' who wants both meat and plant-based protein," Maple Leaf chief executive Michael McCain said.

"These consumers want more protein in their diet, and they want more choices in the proteins they purchase."

Maple Leaf's research shows just 6 per cent of U.S.

households currently eat plant-based protein products, while 98 per cent of consumers buy animalbased meats.

Maple Leaf is targeting the market for refrigerated meals made from plant-based proteins that will complement its existing lines of packaged chicken, pork and beef sold under the Schneiders, Swift and Maple Leaf brands.

The company expects the refrigerated segment will account for approximately 25 per cent of all plant-based protein sales and said sales in this category increased by 40 per cent in 2018. In comparison, U.S. sales of animalbased meat increased by just 2 per cent last year, according to a Nielsen Co. survey commissioned by the Plant Based Food Association (PBFA). "The plant-based foods industry has gone from being a relatively niche market to fully mainstream," said Michele Simon, executive director of the PBFA. "Plant-based meat and dairy alternatives are not just for vegetarians or vegans anymore."

Maple Leaf, which can trace its roots to Kitchener, Ont., sausage makers in the 1880s, currently sells U.S. consumers plant-based products made at facilities in Massachusetts and Washington State, and sold under the brands Lightlife Foods and Field Roast Grain Meat Co. These two brands rank first and second for market share in the refrigerated sector, according to Maple Leaf. Mr.McCain said the two sites will be at full capacity by 2020 and "our supply chain is stressed."

"We're investing in production, in people, in brands and in innovation," Mr. McCain said. Last November, Maple Leaf began construction on a $660-million poultry-processing facility in London, which will eventually replace three older Ontario facilities.

The largest U.S. food producers, including Archer Daniels Midland Co. and Cargill Inc., compete with Maple Leaf in the plantbased protein sector and analysts say the Canadian company is likely to continue acquiring brands to build its product portfolio. Analyst Irene Nattel at RBC Dominion Securities Inc. said in a recent report: "It is clear that Maple Leaf is determined to extend its positioning as the leading supplier of sustainable meats in North America through a combination of greenfield expansion and M&A."

Maple Leaf decided to enter the plant-based protein market five years ago, Mr. McCain said. The company spent US$140-million in 2017 to buy Lightlife from a private equity fund, then committed US$120-million to acquiring Field Roast later the same year. The new factory in Indiana is expected to open late in 2020, hit full production in 2021 and employ 460 people. Maple Leaf obtained US$50-million on government grants and incentives to build the plant, and will fund its construction from cash flow and credit lines.

Maple Leaf forecasts its US$336-million investment in plant-based protein facilities will post 13-per-cent to 16-per-cent returns for shareholders over the long term. The company said the Indiana factory is designed to be expanded if demand warrants.

Maple Leaf said it expects the plant-based division to make 14per-cent to 16-per-cent margins on earnings before interest, taxes, depreciation and amortization (EBITDA), in line with what Maple Leaf generates from traditional meat products.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Canada's first-mover advantage in the cannabis sector is going up in smoke
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Saturday, April 6, 2019 – Page B8

One short year ago, Canada could proudly claim to be a world leader in cannabis. The federal Liberal government's decision to legalize recreational marijuana sparked a new industry and a string of public market debuts. The 10 largest cannabis companies in the world called this country home.

Today, Canada's first-mover advantage in a multibillion-dollar sector is going up in smoke.

Five of the 10 largest publicly traded cannabis companies are now American. Canopy Growth Corp., the country's largest and most successful player, is effectively controlled by Victor, N.Y.based wine maker Constellation Brands Inc.

Financiers who helped give birth to the boom fear that ill-conceived federal and provincial government policies will doom Canada to second-tier status in cannabis. "The ultimate global winners will be the cannabis companies with the best products, brands and distribution," said Neil Selfe, longtime adviser to Canopy and other cannabis companies and a founding partner at investment bank Infor Financial Group. He said: "On all fronts, the lack of regulatory planning has handicapped Canadian producers."

Anyone who shops for a buzz on the other side of the border can get a first-hand look at the government's most obvious policy misstep. In California, retail chain Dosist welcomes shoppers with pastel colour schemes and shelves stocked with vape pens, offering a clearly curated experience: bliss, passion, calm or arouse. U.S. cannabis outlets take inspiration from Apple stores or Victoria's Secret boutiques.

In Ontario, a prohibition-era urge to make the product look as boring as possible means the government-owned online retailer runs a website featuring indistinguishable photos of marijuana buds, labelled with nothing more than their THC content and price. Communistera Russian bakeries had more charm. And Canadian cannabis producers are largely prevented from expanding south by U.S. federal regulations.

"Currently in Canada, developing recognizable brands is challenging," said a recent report from CIBC World Markets Inc. analysts John Zamparo and Krishna Ruthnum. They said: "Health Canada advertising and labelling restrictions are onerous relative to most legalized states south of the border, and product limitations mean producers are stuck trying to brand more items (i.e. flower) that are considered more commoditized compared to other products."

As the cannabis industry matures, there will be a growing gap between the valuation of companies that simply grow the product and those that innovate, by spinning THC and CBD into medicine, tinctures and wax. Under Canadian laws, many of these products are still illegal, forcing domestic players to focus on lower margin products. We're still hewers of wood and drawers of water, not home builders and Evian bottlers.

Yet the way Bay Street talks about cannabis is changing, to reflect an evolving view on the value-added approach that will distinguish the sector's big winner. When the first public cannabis companies emerged, investment banks valued their shares based on the cost of every gram of "flower" they produced, and the price they could get for the dried plants. By January, CIBC World Markets' analysts shifted their metrics to calculate the price and cost per serving of THC, to reflect the fact that consumers were moving from smoking a joint to tapping products such as oils and edibles.

As a rough guide, a cannabis producer can make in five cents for every milligram of THC they produce from selling flower. Revenue jumps to nine cents a milligram for THC in cannabis oils and 12 cents a milligram of THC in gummies. Margins are expected to be even higher when the industry comes up with cannabis-infused beverages. CIBC analysts said: "The reason that producers and retailers wish to sell products beyond flower is not only much greater ability to develop brands, but to also make better use of cannabis production and extraction."

The initial euphoria around cannabis legalization in Canada dissipated around massive shortages of the product and an uneven retail launch - only nine of 25 licensed stores in Ontario managed to open their doors when legislation permitted on April 1. Cannabis shares are also coming off a high, with valuations on many companies dropping significantly in recent months. Industry consolidation is now a major theme among mid-tier Canadian companies.

Looking ahead, Infor's Mr. Selfe said: "The future global leaders are much more likely to hail from the U.S. and the great Canadian cannabis experiment will be another footnote in a long list of Canadian business firsts that failed to produce sustainable global leaders."


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Knight fight: Goodman fires back in escalating battle for Montreal pharmaceutical company
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Friday, April 5, 2019 – Page B1

Knight Therapeutics Inc. took aim at a dissident shareholder's financial issues and "self-interested" motives on Thursday as the fight for control of the $1-billion Montreal-based drug company grows increasingly bitter.

Knight alleges that shareholder Medison Biotech Ltd. began an activist campaign after the Israeli drug company's profits declined in each of the past four years.

Knight said that Medison, which owns a 7.3-per-cent stake in the Canadian company, put forward its slate of candidates for the board of directors on Monday in an attempt to take over Knight and gain access to its $750-million in cash.

Knight, which made its allegations in a news release, markets drugs that it licenses from large pharmaceutical companies.

It was founded in 2014 by entrepreneur and chief executive Jonathan Goodman, who previously built Paladin Labs Inc. using the same strategy. Mr. Goodman eventually sold that company for US$2.95-billion.

Knight and Medison took ownership stakes in one another in 2015.

As part of that transaction, Medison CEO Meir Jakobsohn joined the Knight board.

Both sides acknowledge the relationship fell apart in 2018, when the two companies tried but failed to negotiate a separation agreement and Medison began an activist campaign.

"Essentially, Mr. Jakobsohn, a 7-per-cent shareholder of Knight, wants to take over the board to remove Jonathan Goodman, our founder and CEO, from the company and to gain access to Knight's cash reserves," Knight said in the release. "Why? Because he needs to prop up Medison, his own private company in Israel, which has made less and less money each year since our 2015 investment."

In response, Mr. Jakobsohn said in an e-mail to The Globe and Mail: "Knight is a failing company, with no strategy and frozen cash. In addition, they are trying to distract shareholders from the issues at hand with ridiculous claims about Medison and its nominees."

Knight shareholders are scheduled to vote on competing slates of directors nominated by the company and Medison at Knight's annual meeting on May 7. In an interview with The Globe, Mr. Goodman said Medison's goal is to either seize control of Knight and its cash or use the activist campaign to negotiate a split between the two companies on the best possible terms.

As part of its proxy campaign for control of Knight, Medison claimed the Canadian company is making poor use of its capital by loaning money to small drug companies. In an interview, Knight president Samira Sakhia said that the lending allows Knight to build relationships with management teams that are unwilling to sell equity in their businesses. She said Knight earned 20-per-cent returns on more than $170million in loans to 15 companies, and used the approach to win the right to sell drugs in markets such as Mexico and Brazil.

Medison also highlighted a decline in Knight's stock price that has seen shares fall from about $10 in 2017 to $7 levels in recent weeks. Mr. Goodman pointed out that Paladin's stock price rose from $1.50 to $152 over 14 years, and the stock price "went sideways for 12 of those years." Mr. Goodman is a passive investor in pharmaceutical company Pharmascience Inc., which is owned by his father and brother, an investment Medison alleged represents a conflict of interest. Mr. Goodman said that while his outside interests are widely known and have never been seen by investors as a conflict of interest in the past, he entered into a blind-trust voting agreement Thursday for his stake in the family business.

Investment banks are siding with Mr. Goodman and his team in this contest. Raymond James Ltd. analyst David Novak said in a recent report: "We believe Jonathan Goodman is unequivocally dedicated to the interests of Knight's shareholders and is unarguably the most disciplined, intelligent and calculated steward of capital in Canadian specialty pharma."

"Knight Therapeutics is still in the early days of amassing and launching its pipeline of novel therapeutics; however, we remain confident in Mr. Goodman's ability to replicate his former success at Paladin Labs," analyst Tania Gonsalves at Cormark Securities Inc. said in a report. She reviewed Medison's plans for Knight and said the proposal lacks clarity "and is riddled with contradictory information."

To assist in its proxy battle, Knight has enlisted law firm Davies Ward Phillips & Vineberg LLP, investment bank RBC Dominion Securities and investor relations firm Kingsdale Advisors.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Israeli drug maker fights for control of board at Knight Therapeutics
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Monday, April 1, 2019 – Page B1

The largest shareholder in Knight Therapeutics Inc.

plans to launch a proxy fight Monday for control of the $1-billion drug company, following a year-long activist campaign against Canadian pharmaceutical entrepreneur Jonathan Goodman.

Medison Biotech Ltd., a pharmaceutical company based in Israel, owns about 7 per cent of Montreal-based Knight. On Monday, Medison is expected to propose six new directors and the reappointment of its own chief executive to the company's board.

Knight has a seven-person board that includes Medison CEO Meir Jakobsohn. The proxy fight comes less than two weeks after Knight launched a lawsuit against Medison and Mr. Jakobsohn aimed at shutting down their activist campaign, which has been playing out for more than a year.

Mr. Goodman is well known in business circles for both running successful drug firms and for bouncing back from a near-fatal cycling accident in 2011. His family owns a number of drug companies and Mr.

Goodman previously ran Paladin Labs Inc., then sold the firm to Endo Health for US$2.95-billion in 2014.

The same year, Mr. Goodman launched Knight, and the company's strategy is to snap up marketing rights on specialty drugs deemed too small to be worth the trouble for multinational drug makers.

Medison alleges Mr. Goodman is being overly cautious in executing on this strategy, and called for a "new day at Knight" that would see the company license more drugs and return approximately $100million to shareholders through a special dividend.

Knight holds more than $750-million in cash and securities. The company's stock price declined by 25 per cent over the past two years, closing Friday at $7.34 on the Toronto Stock Exchange.

"Rather than seizing opportunities and deploying the company's ample capital to build a valuable and dynamic operating business, Knight has allowed shareholders' cash to stagnate," Mr. Jakobsohn said in a press release obtained in advance by The Globe and Mail.

"Knight meekly sits on the sidelines, dabbling in lending and banking or licensing unremarkable products with modest profit potential."

Knight executives could not be reached for comment on Sunday, outside normal business hours.

In the past, Knight executives have defended their strategy by saying the company's business plan has always included lending money to small pharmaceutical firms. In mid-March, the company said in a press release that "Knight continues to be disappointed by Mr. Jakobsohn's ongoing attempts to extort Knight's board of directors into agreeing to a scheme that is not in the best interest of Knight's shareholders and only advances his own self-serving agenda."

Medison is launching a fight for control of Knight at a time when activist shareholders are starting more fights and winning the majority of proxy contests.

Law firm Fasken Martineau DuMoulin LLP recently published a report that shows in 2018, activists won a full or partial victory in 60 per cent of contests, and 13 campaigns played out, up from 10 proxy fights in each of the two previous years. Last year, Fasken's research also showed "fewer contests initiated by current or former management and more contests initiated by outside activists."

Two other major Canadian companies are currently in proxy fights with activist investors, Hudbay Minerals Inc. and Transalta Corp.

Along with Mr. Jakobsohn, the six directors that Medison is putting forward are all experienced pharmaceutical executives. They are Kevin Cameron, CEO of Ionetix Corp.; Elaine Campbell, the former president and CEO of AstraZeneca Canada; Michael Cloutier, the former general manager of PTC Therapeutics Canada; Christophe Jean, the former EVP of Ipsen Group; and Robert Oliver, former CEO of Otsuka North America Pharmaceutical Co.


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
AIG exits Canadian home, auto insurance market amid industry shakeout
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Friday, March 29, 2019 – Page B1

AIG Insurance Co. of Canada is quietly exiting the domestic home and auto insurance business, the latest player to quit the domestic market amid a consolidation trend that's contributing to a rise in insurance rates.

The Toronto-based division of American International Group Inc., one of the world's 20 largest insurers, decided earlier this year to shut down a business that catered to wealthy Canadian clients. Policies will not be renewed as they expire over the next 12 months.

The unit was an offshoot of a successful service that AIG offers ultrahigh net worth customers in the United States and Europe. New Yorkbased AIG published a report on the needs of the wealthiest Americans showing these customers typically own nine homes, 19 automobiles, US$19-million of art and US$1.7-million of jewellery. The annual cost of insuring these possessions runs to US$250,000 or more. In Canada, this would be a small segment of the high net worth market.

"The individual personal insurance line of business represents a small percentage of our portfolio in Canada and based on market conditions, we have decided not to underwrite new policies in this area," AIG Canada spokesperson Lynn Woodburn said. "This decision does not affect the rest of AIG Canada's portfolio."

In Canada, AIG ranks as the country's 13th-largest property and casualty (P&C) insurer, with a 2.2 per cent market share, according to the Insurance Bureau of Canada. The company has 35,000 Canadian clients and 425 employees in the country.

Filings to federal regulators show its Canadian clients paid $54-million for home and car insurance in 2017, the most recent available data.

Property insurance claims from AIG's clients outstripped premiums by $13-million, which would imply the division lost money, while the company took in $8million more in car insurance premiums than it paid out in claims.

AIG is sticking with its core Canadian corporate clients, which paid the company approximately $400-million annually over each of the past three years for products such as liability insurance. Globally, AIG restructured after suffering significant losses during the global financial crisis and is now on secure financial footing: The company posted a US$1.4-billion profit in 2018.

AIG's exit comes amid increased consolidation of the auto and home insurance sector. Intact Financial Corp., the country's largest P&C insurer with 15-percent market share, has acquired a string of rivals over the past decade, including the $2.6-billion acquisition of AXA Canada in 2011.

In 2015, Desjardins Group bought the Canadian P&C arm of State Farm Life Insurance Co. for an estimated $1.3-billion, and is now rebranding the unit.

Privately owned Economical Mutual Insurance Co., the country's eighth-largest P&C company, plans a $1.9-billion initial public offering in large part to access the capital the Waterloo-based company needs to acquire rivals.

Foreign companies are also consolidators in Canada. The country's second-largest P&C insurer is Aviva Canada Inc., which has a British parent, and the company spent $582-million to buy Royal Bank of Canada's P&C insurance operations in 2016. New York-based Travelers Co. Inc. acquired Dominion of Canada General Insurance Co. for $1.1-billion in 2013, vaulting the company into 10th spot in the domestic market.

For the remaining Canadian P&C insurers, consolidation translates into greater scale and pricing power, according to analysts. In a recent report on Intact, CIBC World Markets analyst Paul Holden said, "Industry return on equity has been running well below historical averages (2018 could be around 5%), but rates are firming across many markets (personal auto, personal property and commercial lines)."

Analysts expect the largest insurers to continue snapping up smaller rivals. Mr. Holden said at Intact, "management views the current environment as very favourable for Canada M&A. ... Our impression based on the [fourth quarter] conference call is that Intact expects to do a deal this year."


Huh? How did I get here?
Return to Main Andrew_Willis Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

PRINT EDITION
Hydro One appoints B.C. utility executive Mark Poweska for top job
space
space
By ANDREW WILLIS
  
  

Email this article Print this article
Friday, March 29, 2019 – Page B1

Hydro One Inc. concluded its bruising eight-month search for a new leader on Thursday by announcing B.C. Hydro executive Mark Poweska is the utility's new president and CEO.

Mr. Poweska spent 25 years at B.C. Hydro and is currently executive vice-president of operations for the government-owned company. He replaces Mayo Schmidt, who was forced out of Hydro One last July by Ontario Premier Doug Ford after an election campaign in which the Progressive Conservative Leader railed against compensation at the utility. Hydro One was partly privatized four years ago by Ontario's previous Liberal government, and the province owns 47 per cent of the company.

During last spring's campaign, Mr. Ford repeatedly targeted Mr. Schmidt's $6.2-million compensation package as excessive. Since being elected, the PC government has introduced legislation that caps Hydro One's CEO pay at $1.5-million. At B.C. Hydro, Mr. Poweska made $405,720 last year. In a press release, Mr. Poweska said: "I am committed to Hydro One being a customer-friendly company delivering safe, affordable and reliable power."

The fallout from the Ontario government's meddling in Hydro One's governance included cancellation of a planned $4.4-billion takeover of U.S. utility Avista Corp. The new chief executive is expected to focus on running the province's 153,000-kilometre electrical grid and 8,600 employees, and steer clear of investments outside Ontario.

"Mark's proven record in building a strong safety culture, exceeding customer expectations and improving operational performance will help to ensure that Hydro One is strong now and into the future," said Tom Woods, chair of Hydro One's board.

Mr. Poweska is expected to start in early May.

Colleagues say Mr. Poweska combines a strong engineering background with people skills, such as a track record for a proven ability to work with Indigenous groups. Lesley Cabott, chair of Yukon Energy Corp., brought in Mr. Poweska as an adviser to the territory's electric utility last year and said he helped solve thorny issues, such as where to use limited resources to best build a network that serves cities as well as far-flung rural customers.

"Mark is skilled at anticipating problems and thinking about solutions that work for all our customers, including Indigenous communities and extremely isolated communities," Ms. Cabott said.

She added that Mr. Poweska has a sense of adventure, and would head out before dawn on a "fattire trail bike, wearing a headlamp, to get exercise in the middle of frigid winter."

Hydro One's board of directors has been sparring with the provincial government for months over compensation for the CEO and executive team. The board interviewed more than a dozen CEO candidates when it was offering a compensation package of up to $2.75-million annually.

Many of these executives lost interest in late February, when the Ontario government cut the CEO's paycheck to a maximum of $1.5-million and reduced pay for the rest of the management team.

The contracts of several Hydro One executives expire this spring, and one of Mr. Poweska's first challenges will be retaining senior managers and replacing those who depart.

"We're confident that Mr. Poweska's extensive background in generation, transmission and distribution is the experience Hydro One needs as they continue to move forward as a company," said Greg Rickford, Ontario's Minister of Energy, Northern Development and Mines. In an e-mail, Mr.

Rickford said: "I firmly believe that Hydro One's best days are ahead and the company will be stronger than ever."

Hydro One went public in 2015 by selling shares priced at $20.50 each. The stock subsequently hit highs of $26, but has declined in the past three years, in part due to political uncertainty around the company. Hydro One shares last traded on Thursday at $20.58 on the Toronto Stock Exchange, giving the company a $12.3-billion market capitalization.

With a report from Laura Stone


Huh? How did I get here?