A few years back, Ed Clark did a town hall meeting with the investment bankers at TD Securities.
The deal makers knew Toronto-Dominion Bank's CEO was a big fan of the predictable profits that pour out of the retail branches, and less enamoured with the hit-and-miss earnings (and losses) spit out by a brokerage house. There were concerns Mr. Clark would want to simply exit investment banking. So someone asked the big boss what kind of deals he wanted to see TD Securities generating.
Well, it just happened that TD Securities had just led a large stock sale for a blue-chip client - Rogers Communications. That gave Mr. Clark an opening to describe exactly the kind of deal he liked - a bought-deal equity financing for an iconic wireless and cable company. The TD CEO wants to do transactions with clearly defined risks, deals that see TD well rewarded for deploying brainpower, capital and its huge distribution system.
Fast forward to this week: Viterra, VT the former farmer's co-op, was bidding to become a global player in grain handling by taking a $1.4-billion run at Australia's ABB Grains. The cross-ocean deal leaked and the Calgary-based buyer was suddenly scrambling to nail down the necessary cash.
TD Securities and Genuity Capital Markets, an employee-owned dealer, stepped up with a $450-million bought-deal financing for Viterra, which used to be known as Saskatchewan Wheat Pool. In other words, the two dealers shouldered the financing risk, leaving Viterra CEO Mayo Schmidt and his team free to negotiate the merger. The bankers' fee on this financing likely runs to $18-million.
This is a great piece of business for all involved. The happy corporate client got a whole lot of money in a hurry, and can now move on a transformative acquisition. Mr. Schmidt said yesterday in a release: "We feel it is important to put ourselves in a position to act quickly should due diligence and negotiations result in a strategic transaction."
The deal is a safe bet for the investment banks that committed to buying a whack of Viterra equity yesterday. The financing played out at $8 a share, or 15 per cent below where the stock was on Monday, before news of the ABB Grains deal leaked out. Institutions will jump on a chance to buy a chunk of a blue-chip company at a discount.
And investors got what's known as "optionality" on the ABB Grain purchase - that's a word Mr. Clark likes to use. TD Securities and Genuity structured this financing with what's known as subscription receipts: If the ABB Grain deal doesn't happen, investors get their money back.
In addition to getting an out if the anticipated Aussie purchase falls apart, those who backed Viterra got a tidy little win yesterday, as the stock closed at $8.75 on the Toronto Stock Exchange. This subscription receipt concept isn't new; in fact, the Saskatchewan Wheat Pool used it back in 2007 to buy Agricore, with Genuity as its adviser.
Bought deals are a made-in-Canada innovation, and they prove Mr. Clark's point on the value of an investment bank's services. Corporate clients are able to use these financings to raise cash with confidence, no small feat in volatile markets.
And dealers that understand investors, that know they can move large amounts of stock quickly, and that are clever with their capital can command lucrative fees for their services. Which is why Mr. Clark and his colleagues at the helms of the other big banks are happy to remain owners of investment dealers, in good markets and bad.
© The Globe and Mail
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