National Post (National Edition)
Beyond Trump
FIVE MARKET EVENTS NOT CAUSED BY THE DONALD.
Well, my wish for a quiet summer in the markets has, once again, certainly not come true, with Mr. Trump messing up my relaxation plans with a series of market-moving tweets. So, no sitting on the dock for me this summer. However, at least the markets remain interesting, with plenty of strange stuff to report on. Here are five recent items that have raised eyebrows amid the bigger-picture market gyrations.
1. Transat board members still wiping the egg off their faces
The board of directors of Transat A.T. (TRZ) must be pretty embarrassed right now. First, the board rejected a $14 per share offer in favour of Air Canada’s $13 per share offer, saying the $13 offer was in the best interest of the company. Shareholders collectively said, ‘What the what!?’ Then, on Monday Air Canada raised its offer to $18 per share, after a large shareholder said (rightfully) that there was no way they would accept the prior deal. Kudos to Letko, Brosseau and Associates for standing up to the company. The entire board, of course, now look like fools.
2. A takeover bid premium that looks better than it is
The Jim Pattison Group offered $16 per share for Canfor Corp. (CFP) this week, touting an 82 per cent premium to the market price. Sure, that premium looks good, until one looks at the chart and realized that $16 is less than half of where shares traded a year ago. Pattison already owns 51 per cent of the company, though, and is clearly in control here. But maybe it just wants to put the company ‘in play’. The forestry sector has been decimated, so it is opportunistic. But Pattison is 90 years old. Should he really be buying into the cyclical forestry sector at his age? We jest, of course, but long-term shareholders might want to consider this offer closely as it may not be as good as they think, if they were to put on their long-term investment hats.
3. Maybe the stock market is smarter than the bond market this time
Markets have been gyrating wildly recently because (gosh!) the yield curve has inverted. Sure, this can often forecast a recession, but markets can still rise for a long time following an inversion, and do not necessarily get crushed even if a recession plays out. Investors always think the bond market is ‘smarter’ than the stock market. But even with a ton of new volatility, the S&P 500 is still up 14 per cent this year. Clearly, stock market investors do not seem that stressed overall about the looming, devastating recession that investors seem to want with a passion. Who’s really to say who is right — bonds or stocks — this time? Why do we have to have a recession? And, is it already getting priced in now anyway?
4. Lightspeed gets punished after insiders act rationally
Lightspeed (LSPD) is a recent high-flying IPO, whose shares had tripled from their March IPO price. Then, some large shareholders decided to sell shares in the company. (The company also contemplated selling shares, before deciding against it.) Shares fell nearly $10 in three days, despite strong growth. But rather than punish the company and yell at the insiders, put yourself in their shoes. You have tripled your money in six months? Would it not be prudent — if you were to really think about it — to take some profits off the table? You could even sell quite a lot of shares and still have more actual money at risk than you did before, due to the big rise in the share price. And of course, the fact that the insiders are selling has no impact at all on the fundamentals of the company. Maybe the share plunge was a little too reactionary here?
5.
Where is David Baazov when you need him?
Stars Group (TSGI) had a tough week this week after lowering guidance again, and the stock is off 21 per cent this year. Baazov was the CEO of the company for years, leading it to many acquisitions and good growth before leaving, embroiled in an insider-trading case (since stayed, with him suing Quebec regulators). Baazov and his management group offered to buy the entire company in December 2016, for $24 per share.
Today’s price: $17.60. But TSGI is bigger than it was before: The revenue base of the company is now twice what it was in 2016, and pershare earnings this year are expected to be nearly double what they were at the time of the earlier takeover bid. Maybe Stars Group should try and give Baazov a call today. Shareholders would likely salivate over a $24 offer after losing more than half their money over the past 52 weeks.