Top of the Morning
By now, you’ve probably heard about Postmedia’s move to acquire 175 English-language assets – including the entire portfolio of ‘Sun’ daily newspapers – from Quebecor. Here’s Jason Kirby of Maclean’s on why Godfrey & Co. made this big buy:
Beyond the adage that misery loves company, the Postmedia merger with Sun Media is a transaction built on equal parts financial engineering and equal parts hopeful—or, perhaps, that should be wishful—thinking.
The optimistic argument in favour of the deal is that, in spending $316 million to buy Quebecor’s media division—which includes the Sun chain, the London Free Press, as well as scores of dailies and weekly community papers from across the country—Postmedia will extend its national and local reach with advertisers, while furthering its efforts to bring its legacy print business into the digital era…
Yet it’s still not abundantly clear what buying even more struggling newspapers will do for Postmedia’s long-term financial viability, beyond some short-term shuffling of deck chairs…
Then there’s the debt. In its most recent quarter, Postmedia owed a total of $472 million. Last year, Moody’s, the debt-rating agency, lowered its outlook for the company to negative. But while the Sun Media acquisition will add about $140 million in new debt to Postmedia’s balance sheet—financing that, along with an equity investment of up to $186 million, will come from existing investors, including its largest shareholder, U.S. hedge fund Golden Tree Asset Management—the added operating income that will flow from the Sun Media properties will lower the relative size of Postmedia’s debt burden. As such, Moody’s reset its outlook for Postmedia’s debt to stable.
On the Homefront
TSX 60 futures are moving lower ahead of the open after the composite index finished in the red to start the week.
The loonie’s Monday gains are beginning to fade this morning, with the Canadian dollar trading at 0.896 against the greenback.
The yield on the five-year Government of Canada bond is holding steady around 1.58 percent.
Will the housing sector’s strength continue to surprise? At 8:30am (EDT), Statistics Canada will release the latest figures on building permits. The consensus estimate is for building permits to tumble by 6.5 percent month-over-month in August after rising at a double-digit clip in each of their past three readings. In July, permits were also expected to take a step back but spiked instead, with notable strength in intentions for multi-family homes in Toronto and Vancouver. Bank of Canada Governor Stephen Poloz indicated that the sector’s bounce-back from a chilly winter “was a little more vigorous than our models suggested,” which is why monetary policymakers removed their usual nod to the “constructive evolution of household imbalances” in the latest policy statement. If construction activity picks up steam and exceeds underlying demographic demand by a considerable margin, we might see the central bank’s stance evolve to the point that the Governing Council warns of “developing imbalances due to construction.”
UPDATE: Building permits cratered in August, with residential intentions falling for the first time since February and non-residential permits plummeting by 40 percent.
Canadian oil won’t get tarred with dirty label. The Wall Street Journal reports that the European Union no longer plans to label oil from Alberta’s oil sands as dirtier than crude from other sources as a result of “unrelenting lobbying by Canada.” Since Alberta crude won’t have this negative designation, refiners in the EU will be allowed to import more than they would have otherwise. The overwhelming majority of Canadian crude oil exports go to our neighbours to the south. However, producers have long been seeking to diversify to other destinations, including Europe and fast-growing emerging markets in Asia.
Allergan’s latest attempt to avoid being acquired. Botox maker Allergan has filed a request in U.S. federal court asking a judge to deny Bill Ackman’s Pershing Square from voting its near 10-percent stake in the company at the upcoming shareholder meeting, scheduled for December 18. At that meeting, Pershing Square hopes that a majority of shareholders will vote to oust members of the board who do not favour Valeant Pharmaceuticals’ (VRX) proposal to purchase the company. Allergan, for their part, claims that Ackman engaged in insider trading when buying the shares because he knew that Valeant would take its hostile takeover bid directly to shareholders. A hearing on this matter will be held later this month, according to Bloomberg.
Lundin Mining buys stake in massive Chilean mine. The rumours finally came true, as Lundin Mining (LUN) announced that it will acquire an 80-percent stake in Freeport-McMoRan’s Candelaria mine for $1.8 billion (U.S.), which will be financed by debt and equity. The Canadian-based miner, which has a market cap of about $3.1 billion, will see its copper production double as a result of this deal. “The acquisition of Candelaria is a unique opportunity to acquire a large scale, high quality copper operation with strong cash flows in an excellent mining jurisdiction,” said Lundin President and CEO Paul Conibear. “Candelaria is a well run, renowned asset with superb infrastructure and an experienced operating team.” Franco-Nevada is assisting in the financing of this transaction in return for a claim on gold and silver production from the site.
The Reserve Bank of Australia left its policy rate unchanged, but there were some tweaks to its language. “Perhaps the biggest change was around the AUD, where the RBA acknowledged the recent decline, and then went on to add it is offering less assistance than what would normally be expected in achieving balanced growth,” writes IG market strategist Stan Shamu. “Overall, though, the key line of a ‘period of stability in rates’ was maintained. That’s the most significant with regards to rates.”
Industrial output in Germany suffered its largest one-month decline since the start of 2009, falling 4 percent in August. Economists were calling for a decrease of just 1.5 percent. This comes on the heels of a report on Monday that showed factory orders also tumbled. A potential silver lining, at least for European equities: a deteriorating Germany economy might cause policymakers to drop their opposition to more aggressive stimulus from the European Central Bank.
“In July, both the hiring and quit rates held steady at cycle highs,” writes Bank of Montreal senior economist Robert Kavcic. “Any improvement in these metrics would add some icing on top of Friday’s very strong September employment report.”