6
With the markets in flux and shares trading for a fraction of where they were at the beginning of the year, talk of consolidation is in the air.
Canaccord Adams, in a report issued Wednesday, took a look at some companies it believes will be the target of takeover attempts in the coming months.
“In periods of great market volatility, it takes strategic investors time to ascertain the true long-term value of assets,” the report says. “However, we believe strategic investors are about to draw a line in the sand on fundamental values.”
______
Suncor Energy
Yamana Gold Inc.
Uranium One
Brookfield Properties
MacDonald Dettwiler & Assoc.
Suncor Energy Inc.
With its market capitalization at levels last seen in 2005, rivals such as Exxon Mobil Corp., Royal Dutch Shell PLC, Total SA and Chevron Corp. are likely considering their options. Suncor is among the highest-profile oil sands producers, with 2009 production expected to hit 350,000 barrels a day.
“Global access to reserves and production is increasingly difficult as national oil companies take a larger role within their local markets,” Canaccord says. “ Each of the potential acquirers listed are already active and have exposure to the Canadian oil sands business.
The potential buyers listed by Canaccord saw their reserves recede by 5 per cent in 2007, and their production slip by 2 per cent. They are sitting on mountains of money that they could use to acquire more capacity – year-to-date free cash flow for the potential buyers is $52-billion (U.S.), and total cash flow was running at an annualized $180-billion.
“We continue to believe the current market environment has increased the likelihood that M&A activity will return to focus over the coming year. Major oil companies have come through the recent period of high energy prices flush with cash, while reinvestment in the core business has lagged.”
______
Yamana Gold Inc.
Toronto miner Yamana Gold is likely receiving a long look from rival producers Barrick Gold Corp., Kinross Gold Corp. and Newmont Gold Co., Canaccord says. It's steadily increasing production, and its flagship El Penon mine in Chile would be a welcome addition to any gold miner's holdings.
Action could heat up later this month, as the company gives analysts tours of its South American developments. The company's shares are down 60 per cent on the year.
“Yamana still trades at a heavily discounted valuation, at only 4.1 times 2009 cash flow versus sector average of 10.5 times,” Canaccord says.
______
Uranium One Inc.
Uranium One could benefit from an expected trend that would see the consolidation of mid-cap companies, Canaccord says, since the major companies have already gone shopping and snapped up many of the best assets over the last few years.
“We believe that a consolidation of the mid-cap companies worldwide is probably inevitable in the search for scale, but we think that cash preservation and depressed share prices could constrain the process in the short term,” Canaccord says.
Both Uranium One and rival Cameco Corp. are active in Kazakhstan, so a merger would provide each with scale and cost advantages.
“While Cameco has been a passive player in the M&A market through this cycle due to the company's relatively conservative long-term view on uranium, we believe that valuations have finally become attractive enough to peek their interest.”
______
Brookfield Properties Corp.
A stable of high-quality assets and a deep discount on the company's shares could lead Brookfield Asset Management to snap up the 49 per cent of Brookfield Properties it doesn't already own. The shares have been beaten down as investors worry about vacant office space in key markets such as Manhattan, brought on by layoffs in the financial industry.
“A rare opportunity exists for Brookfield Asset Management to privatize Brookfield Properties with major institutional investors at a steep discount to NAV within a fund structure,” Canaccord says. “The key here is that these are investors who have the financial capacity (i.e., cash buyers who are not requiring access to credit markets) and the willingness to take a long-term view on the intrinsic value of owning core Class A office buildings.”
______
MacDonald Dettwiler and Associates Ltd.
The Canadian government may have quashed the company's attempt to sell its space division to Alliant Techsystems Inc. for $1.3-billion last year, but that doesn't mean companies such as Boeing Co., Lockheed Martin Corp., EADS NV and Thales Group won't try again.
“The information systems group is a leading space robotics company which we believe most large aerospace companies would be very interested in acquiring and despite the recent block trade sale … we believe MDA's management will continue to seek realization of this value.”
Canaccord suggests a break-up of the company could earn shareholders up to $60 a share.
