What You Need To Know This Week — September 5th, 2020
What You Need To Know This Week
A weekly recap to keep you informed on the most important events this week impacting markets, business, tech and the global economy.
ALTICE ANNOUNCES UNSOLICITED OFFER FOR COGECO
Cable consolidator Altice, run by French billionaire Patrick Drahi, announced an unsolicited, $10.3 billion takeover for Canadian cable operator Cogeco. The unsolicited proposal, which comes with a 35% premium for Cogeco shares, would represent the largest Canadian M&A deal since Potash’s $23 billion acquisition of Agrium announced in 2016. The proposed Cogeco transaction would include the sale of the company’s Canadian assets to Rogers for $5.5 billion if the deal succeeds. One major hurdle to the deal is the Audet family, who control the business, have thus far rebuffed Altice’s advances. Cogeco’s shares were up nearly 20% on the news.
EV BATTERY MAKER QUANTUMSCAPE TO GO PUBLIC THROUGH SPAC KENSINGTON CAPITAL
QuantumScape, the electric vehicle battery manufacturer backed by Bill Gates, announced that it is going public through a combination with blank check company Kensington Capital in a deal that values the pro forma entity at $3.3 billion. The company is still in early stages and does not expect to generate material revenue until 2027. Nonetheless, the stock market continues to be enamoured with anything EV-related. Kensington’s stock more than doubled on the news.
NORD GOLD BOOSTS HOSTILE OFFER FOR CARDINAL RESOURCES BY 36% AS BIDDING WAR HEATS UP
Russia’s Nord Gold continued its hostile pursuit of Canadian-listed gold miner Cardinal Resources as it boosted its unsolicited offer for the company by 36% from $0.66 per share to $0.90, representing a transaction value of over $400 million. The Russian interloper’s bid is currently higher than Chinese acquiror Shandong Gold’s $0.70 friendly deal to acquire Cardinal. The target’s prized asset is the Namdini gold project in Ghana, West Africa, which contains over 5 million ounces of gold reserves. Cardinal is a core holding of the Accelerate Arbitrage Fund (TSX: ARB). Its stock was up nearly 30% this week on the news. Will the bidding war continue? Only time will tell.
Notable Insights, Articles, Podcasts, and Tweets
David Stein discusses how ETFs, aside from leveraged derivative-based ETNs, passed the stress test that they were put through in the first quarter bear market on the Money For the Rest of Us Podcast.
Large cap tech stocks have been on an unprecedented rally, partially being driven by enormous upside call option buying in stocks such as Tesla and Amazon. Who is the whale driving these massive market moves? None other than Japan’s Softbank.
Bill Ackman’s SPAC, Pershing Square Tontine Holdings, has had deal discussions with both Airbnb and Stripe. He was rebuffed on both transactions.
Now that markets have rallied back to new all-time highs, private equity firms are considering large leveraged buyouts. A group of buyout investors, consisting of Blackstone and Global Infrastructure Partners, have submitted a more than $18 billion bid for railroad operator Kansas City Southern. If the LBO is consummated, it will be the largest deal since Michael Dell and private equity firm Silver Lake took computer maker Dell private in 2013.
The Canadian ETF industry continues its rapid growth with $32 billion of inflows year-to-date. The YTD inflows into Canadian ETFs already exceed the annual inflow record of $28 billion set in 2019.
Ray Dalio’s Bridgewater, a pioneer of the risk parity investment strategy, is moving beyond just stocks and government bonds for their risk parity allocation. “It is pretty obvious that with interest rates near zero and being held stable by central banks, bonds can provide neither returns nor risk reduction.”
You know value investing is genuinely out of style when investors are redeeming from Seth Klarman’s Baupost hedge fund.
In a move, perhaps indicating a lack of attractive opportunities in the U.S. stock market, Warren Buffett’s Berkshire Hathaway invested over $6 billion buying large stakes in Japan’s five leading trading companies.
Prominent venture capitalist Fred Wilson has changed his tune on SPACs given their increasing quality as of late. “My thinking on SPACs has changed in this latest SPAC frenzy. I now see them as part of the continued “assault” on the traditional IPO process and largely a good thing.” With more support from name-brand venture capitalists, blank checks will continue to be the vehicle of choice for many start-ups to access the public markets.
According to market strategist David Rosenberg, the stock market represents “a bubble of historic proportions.” Not only are equity valuations extreme, but equities are levitating at record high valuations during a global recession. “The S&P 500, on a trailing basis, now has a 27.4x price-to-earnings multiple. Only 0.4% of the time in the past 70 years has the multiple been so rich. On a forward 12-month basis, only 0.1% of the time has the market been more extreme than its current 23x. As for the Nasdaq, it, too, is in the top 1% of valuation rankings ever recorded.”
Read the backstory on the Financial Times’ in-depth investigation and ultimately revealing the enormous fraud at German-listed fintech company Wirecard. The scandal represented one of the largest corporate frauds in history, destroying nearly $90 billion in market value at its peak, before spiralling into bankruptcy this year. By the time the massive book-cooking operation unravelled, the company was spending £120 million per year on consultants, spies and lawyers to go after short sellers and bearish media outlets.
The Canadian economy added 245,800 jobs in August, compared with 250,000 expected by economists. The unemployment rate dropped from 10.9% to 10.2%. Two-thirds of the jobs lost during the pandemic have been recouped.
In a maneuver usually reserved for highly distressed micro cap issuers with no access to capital, at-the-market offerings are rarely used by large corporations, let along those with a market value of $400 billion. Nonetheless, Tesla announced a $5 billion at-the-market stock offering, unprecedented for that size of the company.
