October 11, 2017

On Wednesday, the S&P 500 was up yet another 0.2% and Toronto was also up 0.2%.

Bombardier was up 4.4% to $2.35 after Delta Airlines said it would not be paying a 300% duty. Why is this news? Of course no one is ever going to buy a plane that comes with a 300% duty. Delta hopes the duty will never be imposed. And of course Delta hopes to take delivery of those jets at the agreed upon price. After all Bombardier sold those planes at a huge discount WAY below cost. The point is Delta is an AMerican company and will fight against the duties and so that is positive.

Also today  “A Russian employee (of Bombardier) in the Swedish branch of Canadian plane and train maker Bombardier was acquitted Wednesday of aggravated bribery in one of Sweden’s biggest corruption cases to date.”

One thing I am wondering: Porter Airlines has a contract to buy C Series planes but has been barred from using them as planed at the Toronto Island Airport. If the market price of Bombardier’s planes improves could Porter sell those delivery slots at a a big gain? I understand the C Series to be a great plane. But any airline that wants to order one today is looking at least three years out for delivery…and presumably less of a discount unless they went and bought the delivery slots from Porter (assuming that is allowed).

There was some interesting news about Alimentation Couche-Tard after  the close of trading. The stock had closed today at $58.94.

Due to Metro selling its Couche-Tard shares to buy Jean Coutu, the following is occuring:

Alimentation will buy back 4.37 shares from Metro at $57.17 per Class A share which represents a discount of 3% for subordinate shares on the Toronto Stock Exchange (“TSX”). In addition, Metro will pay a 1% commission fee. This represents a reduction in the share count of about 0.8%.

In a separate transaction, 11,369,599 Class A shares held by Metro will be acquired by Caisse de dépôt et placement du Québec.

Finally, 11,369,599 Class A shares held by Metro will also be converted to subordinate shares and sold through a syndicate of brokers. The price has been set at $57.17. The shares are available through TD Direct and presumably other discount and full service brokers as well.

So the bad news (for those who own it) is I would expect Couche-Tard to fall down close to $57.17 tomorrow since no one should pay more than that when they can buy in this offering at $57.17.

The share repurchase should be positive for earnings per share but only by a very small amount. The repurchase is also a strong indication that Couche-Tard believes its shares are under valued. Well, the management at most companies constantly think that but the Couche-Tard management is a lot smarter than most.

Overall, I see the share sales to the Caisse and to the public as just a switch of owners that will have probably no lasting impact on the share price after a few weeks. It certainly has zero impact on the true value of these shares. Some might even argue that this takes away an “over hang” since it has been known that Metro would sell and once it is done then there is no major owning looking to sell. Personally, I pay no attention to “over hangs” and instead simply try to understand if shares are under valued.

I had last rated Couche-Tard a Buy at $60.25 just last month. I will likely put in an order for a small amount of these shares to add to my position.

P.S. Whoops too late, the offering has already closed. In that case perhaps the price will not fall as low as $57.17. Apparently, I should have been buying instead of typing. As always with new offerings, one has to act quickly. I did not think 11 million shares would sell out so fast.

P.P.S Checking RBC Direct, (at 8:15 pm eastern) the issue was still open and I was able to place an order there for a family member. Interesting.