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The All Canadian Four Play

October 10, 2012

“The All Canadian Four Play” is about four companies – Astral Media Inc, Progress Energy Resources Corp, Viterra Inc, and Nexen Inc – that have been saved by significant share price boosts this year (of the order of +50%) not because of something that they did or didn’t do in their business, or that they were different from last year or the year before, but because somebody wanted to buy not just a few thousand or few million shares of their stock but all of them. Had we been more prescient and foreseen the future, we would have reaped a +145% portfolio gain (please see Exhibit 1 and 2 below) this year – thank you very much – plus dividends. And what was worth $18 billion in January cannot be had now for less than $27 billion.

We want to emphasize, however, that we have no ability to predict the future and no ability to see which companies might be next on the chopping block even if it were to happen tomorrow. All that we can do is try to learn from the past and formulate a strategy to deal with it in the future based on what we know now. We also have to play if we’re going to win. Please see our recent Post, Free Trade in the S&P TSX, October 2012. The following charts are also in our standard notation which is more thoroughly described in our earlier Posts.

The Cash Flow Summary (Exhibit 1) shows that our $13,000 investment in 1,000 shares of PRQ Progress Energy Resources Corp, which was the only one of the four eligible for inclusion in our portfolio managed by our usual (B)(N) technologies, is now a portfolio of four stocks worth $112,000 or net $33,000 excluding the margin account or debt of $79,000 used to buy stock. The use of debt is optional but low-cost debt leverage is helpful if we can assure 100% Capital Safety and 100% Liquidity – which we can – and, of course, once the petition to buy is announced and the stock price pops, there’s scant reason not to sell our holdings at the new market price (please see Exhibit 3 Stock Prices to see the effect of an acquisition price) which can’t go much higher but could be a lot lower. As investors, we don’t need “regulatory or legislative approval” to sell our stock into a willing market, and the “best news” has likely already happened.

The portfolio return is, then, +145% plus earned dividends and the Exhibits 2 and 3 below show exactly how that was done. Moreover, rather than wait idly with our out-of-work capital awaiting regulatory approvals (please see the company notes in Exhibit 4 through 7 below), we’ve sold our interest in these stocks  at the current market prices, retired our debt, and moved on to new opportunities – of which there are many and far more than the typical common “stock touts” of the day.

In contrast, the company TLM Talisman Energy Inc (please see Exhibit 8 below) was not one of those that we acquired this year. Nor is it in our portfolio now (because it’s an (N) and has been for some time since late 2011) but, as speculators might speculate, so to speak, how is it different from Viterra (wheat) or Nexen and Progress Energy if all they’re talking about is Canadian oil & gas reserves and production, and the dozens of other companies that also do that very well?

The current Stock Price (SP) for Talisman is $12 (and the stock is currently trading at $13) and the Risk Price (SF) is $20 (please see Exhibit 1, 2, or 3). If there is an acquisition price it will likely exceed the Risk Price (SF) (and there’s a reason for that – please see The Price of Risk, August 2012 – and the January call at $18 can be had today for US$0.25 or $250 per thousand shares. Of course, that’s just a gamble but one thinks that Talisman was $20 a year ago and seems to be primping itself to do well on its own, or for Act V.

Exhibit 1: The All Canadian Four In Play – Cash Flow Summary

The All Canadian Four Play - Cash Flow Summary

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Exhibit 2: (B)(N) The All Canadian Four In Play – Portfolio

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Exhibit 3: (B)(N) The All Canadian Four In Play – Stock Prices

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Exhibit 4: ACM Astral Media Inc – petitioned by BCE Inc

Astral Media Inc is a media company engaged in the business of specialty, pay, and pay-per-view television broadcasting, radio broadcasting, and outdoor advertising in Canada.

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MONTREAL, May 25, 2012 – Astral Media Inc announced today that the Québec Superior Court has approved the acquisition of all of the issued and outstanding shares of Astral by BCE Inc. (“BCE”) pursuant to a plan of arrangement under section 192 of the Canada Business Corporations Act (the “Arrangement”). The Québec Superior Court declared that the Arrangement is fair to shareholders of Astral. It is anticipated that the Arrangement will be completed in the second half of 2012, subject to, without limitation, required regulatory approvals. Once there is more certainty as to when the Arrangement is expected to be completed, the shareholders of Astral will receive a letter of transmittal and election form explaining how they may deposit and obtain payment for their shares of Astral once the Arrangement is completed.

Exhibit 5: PRQ Progress Energy Resources Corp – petitioned by Petronas Canada

Progress Energy Resources Corp is engaged in the acquisition, exploration, development, and production of oil and natural gas properties in Canada.

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CALGARY, October 5, 2012 – Progress Energy Resources Corp. (“Progress” or the “Company”) provided an update today regarding the status of the arrangement involving the acquisition of Progress by PETRONAS Carigali Canada Ltd. (“PETRONAS Canada”) (the “Arrangement”). The completion of the Arrangement remains subject to the satisfaction or waiver of applicable conditions with the sole remaining regulatory approval condition being receipt of a notice from the Minister of Industry (the “Minister”) under the Investment Canada Act that the acquisition is likely to be of net benefit to Canada. PETRONAS Canada and the Minister have agreed that the review period for the acquisition will be extended until October 19, 2012. The Arrangement is expected to be completed on or about three business days after receipt of approval from the Minister.

Exhibit 6: VT Viterra Inc – petitioned by Glencore International PLC

Viterra Inc. is Canada’s leading agri-business, with extensive operations and distribution capabilities across Western Canada, with operations in the United States, Japan and Singapore.

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CALGARY, September 26, 2012 – Viterra Inc. (Viterra) provided an update today regarding the status of regulatory approvals of Glencore International PLC (Glencore)’s proposed acquisition of Viterra. While the closing of the transaction remains subject to the satisfaction or waiver of all applicable conditions, the sole remaining regulatory approval is the approval of the Ministry of Commerce of the People’s Republic of China (MOFCOM) under the Chinese Anti-Monopoly Law. Glencore and Viterra continue to engage with MOFCOM to ensure approval as soon as possible. In order to accommodate MOFCOM’s review process, Viterra and Glencore have extended the outside date for completion of the acquisition by one month to November 15, 2012. MOFCOM is expected to provide its approval within this timeframe. Viterra and Glencore will advise the market once MOFCOM approval has been received of the subsequent closing date on which the acquisition will occur.

Exhibit 7: NXY Nexen Inc – petitioned by CNOOC Limited

Nexen, Inc. is an independent global energy company. Its conventional oil and gas assets are comprised of large acreage positions in select basins including the UK North Sea, deep-water Gulf of Mexico and offshore West Africa.

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CALGARY, September 20, 2012 –Nexen Inc. announced today that the holders of its common shares and the holders of the cumulative redeemable class A rate reset preferred shares, series 2 (the “preferred shareholders”) have approved the Plan of Arrangement, pursuant to the Arrangement Agreement entered into on July 23, 2012 (the “arrangement”), in connection with the proposed acquisition of Nexen Inc. by CNOOC Limited through CNOOC Canada Holding Ltd. The arrangement was approved by approximately 99% of the votes cast by Nexen common shareholders and approximately 87% of the votes cast by Nexen preferred shareholders at the special meeting held on September 20, 2012. The closing of the arrangement remains subject to the granting of the final order by the Court of Queen’s Bench of Alberta, the receipt of required regulatory approvals and the satisfaction or waiver of the other customary closing conditions.

Exhibit 8: TLM Talisman Energy Inc – fighting for growth and “shareholder value”

Talisman Energy Inc. is a global, upstream oil and gas Company in the exploration, development, production, transportation and marketing of crude oil, natural gas and natural gas liquids.

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CALGARY, July 23, 2012 – Talisman Energy Inc. (Talisman) announced that it has reached an agreement with Sinopec International Petroleum Exploration and Production Corporation (Sinopec), whereby Sinopec will acquire a 49% equity interest in Talisman’s UK North Sea business for $1.5 billion. The effective date of the sale is January 1, 2012, and the transaction is expected to close by the end of this year, subject to government and regulatory approval. Talisman plans to implement a normal course issuer bid to repurchase approximately $500 million of its common shares on both the TSX and NYSE, subject to regulatory approval.

LIMA (Reuters, September 13, 2012) – Canada’s Talisman Energy Inc is giving up its eight-year-long effort to produce oil in Peru as it continues to shed assets in a bid to boost its share price. The energy producer replaced its CEO on Monday after an eight-month review of strategy and operations and said it could not afford to chase expensive long-term prospects in Peru. The company has been discussed as the next big takeover target in the Canadian oil patch. Talisman’s withdrawal from Peru will open its concessions in the Maranon Basin in the north of the country to new operators and Talisman said it will work with the government regulator Perupetro on the transition of its holdings as it wraps up commercial transactions.

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used.  Related data may be obtained from us (for free) in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”.

Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability.

We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now.

The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”,  ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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