A roundup of some of the North American equities making moves in both directions today
On the rise
Hudson’s Bay Co. (HBC-T) jumped 42.4 per cent on Monday amid news Richard Baker, its executive chairman, is leading a group that is making a $9.45-a-share cash offer to take the retailer private.
As well, Toronto-based HBC, which owns its namesake and luxury chain Saks Fifth Avenue, has a deal to sell the roughly half of its European operations that it still owns to its partner overseas for about $1.5-billion, a source familiar with the situation said.
Tilray Inc. (TLRY-Q) jumped 11 per cent after announcing it has reached a deal with its majority shareholder, Privateer Holdings Inc., that will extend the lock-up on and provide for the orderly release of the 75 million Tilray shares held by Privateer to Privateer’s equity holders.
Under the terms of a non-binding Letter of Intent, the parties will effect a downstream merger of Privateer with and into a wholly-owned subsidiary of Tilray, with the Tilray subsidiary surviving the merger, and the issuance by Tilray to Privateer stockholders of newly issued and registered shares of Tilray common stock in an aggregate amount equal to the number of Tilray common shares currently held by Privateer.
“We appreciate the long-term confidence that Privateer has in the Tilray business and we look forward to having their investors as part of our stockholder base," said Tilray’s chief financial officer Mark Castaneda. “We believe this transaction will give Tilray greater control and operating flexibility, while allowing us to effectively manage our public float.”
Héroux-Devtek Inc. (HRX-T) rose 1.1 per cent after announcing the acquisition of Montreal-based Alta Precision Inc., a manufacturer of high-precision landing gear components, in a deal valued at $23-million.
“The acquisition of Alta Precision Inc. expands our portfolio of commercial products by providing both access to new programs and additional content on existing platforms. It also comes with the backlog and manufacturing capacity necessary to grow the existing business”, said Martin Brassard, CEO of Héroux-Devtek.
In a research note, Desjardins Securities analyst Benoit Poirier said: "Overall, we are pleased with the acquisition of Alta as we expect management to create shareholder value by leveraging its expertise and reputation to increase the backlog and grow the business, unlock cross-selling opportunities with its existing businesses and implement best practices to reduce costs. On that front, we expect management should be able to bring margins in line with that of its business in the near term (we estimate Alta’s current EBITDA margin at less than 10%).
The transaction should also enable HRX to increase its exposure to growing programs such as the A220 and E-2 (we expect Alta could generate revenue of $25–30-million by FY21). HRX’s current balance sheet (net debt to EBITDA of 3.0 times, or 1.8 times excluding government loans) and strong FCF profile ($42-million expected in FY20) support such opportunistic tuck-in acquisitions and should not prevent management from reducing leverage in the near term. In terms of valuation, assuming $30-million in revenues and a 16-per-cent EBITDA margin, the price paid would represent 4.8 times EV/FY2 EBITDA (vs 8.8 times for HRX)."
Encana Corp. (ECA-T) sat 0.5 per cent higher following the premarket announcement that it has repurchased 10 per cent of its outstanding shares thus far in 2019 and plans to commence an additional buyback in July for up to $213-million to complete its previously announced $1.25-billion share buyback program.
The Calgary-based company also said it has reached an agreement with its partner, the Chinese National Offshore Oil Corporation (CNOOC), to terminate its production sharing contract (PSC) with CNOOC, which covers offshore operations in China.
At the same time, Encana said second-quarter production its benefiting from “strong new well performance.”
“Since closing our Newfield acquisition in mid-February, we have driven a significant reduction in well costs and delivered strong performance from new wells in the STACK. We have pumped our high-intensity completion design on more than two dozen wells with development spacing of six to eight wells per section. Results from these wells have been very strong,” said Encana president and CEO Doug Suttles. “When our industry-leading well costs are combined with our favorable royalty structure (less than 20 per cent) and agreements to access preferred oil and gas markets, we can deliver strong and competitive returns in the STACK. We look forward to sharing our progress with shareholders with our second quarter results.”
Superior Plus Corp. (SPB-T) jumped 3.7 per cent after it announced before the bell it is considering a sale of its specialty chemicals business, which operates under the trade name ERCO Worldwide.
“Superior regularly conducts a review of its portfolio of businesses to assess the strategic fit within the overall direction of the company,” the company said.
“Given the significant growth opportunities in Superior’s US Energy Distribution business, and the potential benefits of Superior becoming a pure play energy business focused on retail propane distribution, Superior has retained Barclays Capital Canada Inc. (”Barclays") to assist with a potential sale of its Specialty Chemicals business."
The company said it expects proceeds from a potential sale to be used primarily to reduce debt and to invest in U.S. propane distribution acquisitions.
“However, depending on a number of factors which will not be determined until closer to the time a transaction, if any, is announced, a portion of such proceeds could also be utilized by Superior to purchase Superior common shares,” it said. “Assuming completion of a sale, Superior expects the remaining Energy Distribution business would support the existing dividend policy.”
Desjardins Securities analyst David Newman said: “We have been advocating the sale of SC for some time as it would improve the company’s balance sheet, thus providing more flexibility to deploy capital toward accretive M&A, especially in the US energy distribution (ED) space. While SC generates strong cash flow, it is generally correlated to the state of the economy, business cycles and industrial production, with an estimated downside risk of 6–8 per cent (or $25–35-million in EBITDA) in a recession scenario. By contrast, SPB’s ED business is a highly ratable and relatively recession-resistant business which garners a higher valuation multiple vs the chemicals business. A sale of the chemicals business should thus serve to re-rate SPB as a pure-play ED business.”
Following Sunday’s announcement of a US$121-billion merger with United Technologies Corp. (UTX-N) on Monday, shares of Raytheon Co. (RTN-N) sat 0.7 per cent higher.
The proposed deal will create the world’s second largest aero-and-defence company by sales behind Boeing Co. (BA-N) and allow Raytheon to expand into commercial aviation while reducing United Technologies’ dependence on aerospace.
Under the agreement, Raytheon shareholders will receive 2.3348 shares in the new company Raytheon Technologies for each Raytheon share and the new company will assume about US$26-billion in net debt.
“The RTN-UTX merger is a surprise but we see real rationales on both sides in scale, diversification in the face of cyclical uncertainty, and financial benefits,” J.P. Morgan analyst Seth Seifman said in a note.
“UTX also gets to de-lever with Raytheon’s balance sheet and Raytheon holders get compensated in return.”
Conversely, United Technologies was down 3.1 per cent.
On the decline
Green Growth Brands Inc. (GGB-CN) fell 2.4 per cent despite announcing an agreement to open over 70 shop locations with potential for more at Brookfield Properties’ shopping centres throughout the United States.
“These exciting plans will further expand GGB’s physical footprint to approximately 280 total locations by the end of 2019,” the company said in a release.
“With a portfolio of over 160 best-in-class retail real estate assets, Brookfield Properties’ retail properties are hubs for communities across the U.S., featuring shopping, dining, entertainment and gathering. Currently, there are seven GGB shops within the Brookfield Properties’ portfolio.”
Salesforce.com Inc. (CRM-N) dropped 5.3 per cent after announcing the US$15.3-billion acquisition of data company Tableau Software Inc. (DATA-N).
Tableau shareholders will get 1.103 Salesforce shares, valuing the offer at US$177.88 per share, which represents a premium of 42 per cent to Tableau’s Friday closing price.
"We are bringing together the world’s #1 CRM with the #1 analytics platform. Tableau helps people see and understand data, and Salesforce helps people engage and understand customers. It’s truly the best of both worlds for our customers - bringing together two critical platforms that every customer needs to understand their world,” said Marc Benioff, Salesforces’ chairman and co-CEO, said in a press release.
Tableau stock jumped 33.7 per cent.
With files from staff and wires
David Leeder