Oxstones Investment Club™By Pav Jordan
TORONTO (Reuters) – It’s the year of the mega-merger, says the head of Canada’s top M&A advisory group, predicting that 2011 could bring the country’s first C$10 billion deal since the recession ended.
Chief executives, their confidence restored after the financial crisis, and financing more readily available, are again chasing growth in booming commodity markets, said Dan Barclay, who leads Bank of Montreal’s Canada mergers and acquisition team.
The next jumbo deal, which could occur in resources or any other sector, can’t be too far away, he said in an interview from his downtown Toronto office.
In fact, Barclay said several mega-deals — worth at least C$10 billion ($10 billion) — are possible this year.
“Our expectation is that the jumbo deals are coming back,” Barclay said. “When we look forward we expect a couple of those this year, and that could be in the mining sector, in the energy sector, or in the consumer sector.”
Barclay said most activity would occur at prices from C$250 million to C$1 billion, with some as high as C$2 billion.
“In general we believe that 2011 is going to be extraordinarily busy from an M&A point of view,” he said. “We think it’s going to be across the country and in all sectors.”
OUT OF THE DOLDRUMS
Takeover activity started to come out of the doldrums last year, jumping nearly 40 percent in dollar terms, driven in large part by energy, financials and mining.
Barclay’s team at Bank of Montreal led the industry last year in terms of the value of deals on which it advised.
The largest deal of 2010 – the acquisition of Red Back Mining Inc by Kinross Gold Corp (K.TO) – weighed in at some $7 billion, followed by the $6.3 billion acquisition of Chrysler Financial Corp by Toronto Dominion Bank (TD.TO).
Both were a fraction the size of the C$18 billion takeover by Suncor Energy Inc’s (SU.TO) PetroCanada in early 2009. That deal transformed the Canadian oil industry, creating its largest producer and one of the heaviest-weighted issues on the Toronto Stock Exchange.
Barclay sees the booming market for commodities, from copper to canola, leading a return to deals of that magnitude.
The Reuters-Jefferies CRB index .CRB, a global commodities benchmark, is at over two-year highs, while the value of U.S. commodity markets grew more than $255 billion in 2010, or nearly 50 percent. That exceeds market capitalization during the height of the 2008 commodity boom.
“Asian consumption of natural resources that fuel their growing economies has given a very strong underpinning to the commodity markets in almost every commodity you can think of,” said Barclay.
CEOs in that business will chase growth or different market positioning by trying to get bigger and stronger faster.”
CLOSE CALL
BHP Billiton’s (BLT.L) $39 billion hostile bid for fertilizer maker Potash Corp (POT.TO) last year may have provided a taste of things to come. The government blocked the deal, which would have ranked as Canada’s largest, on grounds that it would carry no net benefit to the country.
Even though the failed bid brought new uncertainty to the approval process, Barclay said most Canadian companies remained fair game for foreign takeovers.
“The regulatory uncertainty only applies to our biggest and most important companies and those that are most sensitive,” he said. “It’s really about the big, sensitive, national champion-type assets.”
In fact, 2011 has already brought a string of major deals, including three last week. Two, with a combined value of some C$15 billion, involved foreign bidders.
Ohio-based Cliffs Natural Resources (CLF.N) offered C$4.07 billion for Consolidated Thompson Iron Mines (CLM.TO) and Minnesota-based retailer Target Corp will pay C$1.83 billion to take over leases of Zellers stores owned by Hudson’s Bay Co.
Barclay said raising financing is easier than it has been in years. Even the high-yield debt market, which had been nearly dormant, has opened its doors to many companies.
“The markets could not be more constructive today,” he said. “Take a look at the strength of the bank market, the strength of the bond market … you can get jumbo-sized done, you can get deep bank participation.
(Reporting by Pav Jordan)
Tags: Asia, canada, commodities, emerging markets, M&A, megamergers, mining stocks, natural resources, SU