March 29, 2016

On Tuesday, the S&P 500 rose 0.9% and Toronto rose 0.3%.

Notable gainers included Toll Brothers up 3.2%,  Melcor up 2.7% (although on thin volume as usual). Constellation Software up 2.8% and Dollarama up 2.3%.

TransForce announced that it managed to buy back $59 million worth or about 2.8% of its shares for $22 in its “Dutch auction” process. Given that the stock price rose to and above $22 after the auction was announced and given the strength of the markets in the past month or so, this is a reasonably good outcome though its only about 28% of the shares that TransForce hoped to repurchase. I believe this buy-back will be beneficial to the continuing shareholders. I do not however view share buybacks as being in any way equivalent to dividends from the perspective of shareholders. With dividends, all shareholders receive cash. In this case exiting share holders received cash (inadequate cash in my opinion) and continuing shareholders did not get any cash but get the benefit of an increased ownership level but now own a company with less cash.

After the close, Stantec announced a massive acquisition that will make Stantec a global engineering firm. (Previously, its international operations were tiny).

The acquisition for U.S. $795 million adds about 31% to Stantec’s enterprise value. To pay for the acquisition, Stantec is issuing shares (subscription receipts) at $30.25. This is a small discount to the existing price which is disappointing but is understandable. The share count will be increased by about 21% (debt leverage is being increased which explains why the share count will not increase by 31%). The employee count will increase by about 45%. The number of office locations will increase by about 75%. This acquisition probably qualifies as “transformative”.

Overall, given Stantec’s very successful history with acquisitions this is probably a very positive development for share owners. I will be adding to my position by participating in the subscription receipts offering.

It’s interesting to observe that while many observers moan about the weak state of the economy, Stantec and others are showing the confidence and the drive to expand. Edmonton is fortunate to retain the head office of this about to be global company.