Private equity cashes in on the oil patch
Private equity funds are cashing in their chips in the oil patch, with the latest payday coming in the form of the $503-million sale of CanEra Resources to publicly-traded Legacy Oil + Gas.
This takeover should be viewed as part of a larger trend that is seeing the likes of Warburg Pincus back an IPO at MEG Energy, and Alberta pension fund AIMCo creating a public company called Chinook Energy out of its private oil and gas holdings. There is now an enormous amount of private capital chasing oil and gas investments, and those investors eventually need to exit their holdings.
CanEra was founded in 2008, and quickly built a substantial holding of oil and gas properties in southwestern Alberta. The company is run by veterans of Canetic Resources Trust, which was itself taken out by Penn West. (Welcome to the circle of life, Calgary-style.) While CanEra is private, filings show the company raised $387-million in 2008 by tapping two energy-focused U.S. private equity funds: Natural Gas Partners, a $7.3-billion (U.S.) fund based in Texas, and Riverstone Holdings, a $16-billion fund run out of New York.
On Wednesday, CanEra management and those funds cashed in by selling the company for $241-million (Canadian) in cash and 20.5 million Legacy common shares. Back-of-an-envelope calculations show that's a 30-per-cent return, over 18 months. This kind of performance explains why the private equity crowd is trolling these waters.
To finance the takeover, Legacy did a $236-million equity financing, led by GMP Securities and Macquarie Capital Markets. In making this deal, Legacy looked to Macquarie and GMP Securities as financial advisers, plus National Bank Financial as a "strategic adviser." Across the table, CanEra tapped a trio of advisers, with TD Securities, FirstEnergy Capital and BMO Nesbitt Burns all getting credit for their assistance. There's an oil patch tradition of sharing the love after a deal by giving credit to all the investment banks that have backed the company over the years.
Torstar on the hunt?
Torstar lost out in the bidding for CanWest Global Communications' newspapers, but the media company hasn't given up on acquisitions.
Torstar hosted the analyst community on Tuesday, the first public showing for its executive team since CanWest's collection of dailies and weeklies were sold to unsecured creditors in the Winnipeg-based company for $1.1-billion. (Torstar's bid was in the $800-million range.) Analysts from RBC Dominion took in the presentation, and said in a note on Wednesday: "Priority uses of free cash flow are debt repayment, followed by a tactical redeployment of capital into select strategic acquisitions."
What might Torstar buy?
One option is increasing its stake in CTVglobemedia, owner of television and radio networks and The Globe and Mail. An ownership structure that is unlikely to stand the test of time also includes the Thomson family's Woodbridge Co., the Ontario Teachers' Pension Plan and BCE. Looking ahead, RBC Dominion said: "No additional information was provided regarding Torstar's intent once the CTVglobemedia 'standstill' agreement expires September, 2011."
The other obvious targets are CanWest dailies in Montreal, Ottawa and Windsor, Ont. Of course, those publications are no longer for sale. Incoming CanWest newspaper CEO Paul Godfrey has made it clear the firm wants to keep all of its properties. However, this CanWest restructuring has already featured more than its share of drama. It's entirely possible there are more surprises coming. Unsecured creditors could back away. Mr. Godfrey could change his mind on sticking to the status quo. Torstar, clearly, is content to pay down debt and wait for its opportunity.
'No Limits' for kids
Normally tough-as-nails Bill Holland had a tear in his eye early Wednesday as the CI Financial CEO cut a $20-million cheque to an Ontario hospital that treats children with disabilities. Bloorview Kids Rehab and Bloorview Kids Foundation received the largest gift ever given to a Canadian children's hospital: Mr. Holland and his wife Susanne have now donated a total of $26.2-million to the Toronto facility.
The latest donation kick-starts an $80-million campaign that the hospital will use to recruit research and clinical talent, train professionals, improve the facility and commercialize proven breakthrough treatments. Bloorview is the country's largest children's rehabilitation teaching hospital, serving about 7,000 kids each year.
The new campaign, called No Limits, has plenty of Bay Street content, and Mr. Holland will have all sorts of opportunities to twist arms for the cause. The Bloorview foundation board is headed up by Morgan Stanley Canada president Dougal Macdonald, the parent hospital's board features Bank of Montreal executive Tom Flynn as its chairman and the fundraising campaign will be led by Royal Bank of Canada's George Lewis.
See Andrew Willis's Streetwise Blog at ReportonBusiness.com
