He often goes against the trends, and last week was no exception for Montreal pension fund manager Stephen Jarislowsky. While rival fund managers and investment strategists for insurance companies, mutual funds and other large institutions rushed to buy shares in Vancouver-based forestry giant MacMillan Bloedel Ltd. and brewer John Labatt Ltd. of Toronto, Jarislowsky said that he would pass on the deals. With more than $12 billion of assets, Jarislowsky’s Montrealbased Jarislowsky, Fraser & Co. is an institution high on the list of any broker eager to sell a large block of stock. But the outspoken 58year-old executive is a longtime critic of the Edper empire, which was selling its control blocks in both companies. “Why would I buy it just because a lot of other stupid institutions are buying?” he asked. Neither Labatt nor MacMillan Bloedel has looked like a good buy in recent months, he added, “and I don’t see anything about either company that has changed.”
Jarislowsky was clearly in the minority last week. Within four days, the troubled business empire controlled by Peter and Edward Bronfman raised almost $2 billion in two huge stock deals. On Tuesday, Edper-controlled Noranda Forest sold its 49-per-cent stake in MacMillan Bloedel for $971 million—a transaction that took less than two hours to complete. On Friday, in a similar three-hour sales blitz, Brascan Ltd., one of many Edper holding companies, sold its 37.3-per-cent stake in Labatt, the Toronto-based company that owns Labatt Breweries of Canada and the Toronto Blue Jays American League baseball team.
After five years of lacklustre performance by Canadian stock markets, the sheer magnitude and the speed of the two transactions were also a welcome boon to the investment community. Last year, brokerage commissions rose by 17 per cent to $1.3 billion—the highest levels since the bull market of 1987. The Bay Street brokerage firms that handled last week’s offerings will divide a four-per-cent commission fee of $78.6 million from just the two deals. Said Brent Fullard, director of syndication at Burns Fry Ltd.: “It’s been a good payday for the week.”
Both the Labatt and MacMillan BloedeJ transactions were bought deals. In that, an investment dealer buys stock directly from a corporation with its own capital, then resells it. Because last week’s deals were so large, a consortium of investment dealers bought the stocks from Noranda Forest Ltd. and Brascan, respectively. Both deals proceeded remarkably swiftly. In the case of MacMillan Bloedel, Fullard said that Bums Fry executives approached Hees-Edper officials about selling their stake in the forestry giant on Feb. 4. During the following five days, Bums Fry organized the consortium of 10 other brokers
and worked out a strategy for marketing the deal.
But before agreeing to buy almost $2 billion worth of stock, the brokers convinced Hees-Edper executives to agree to a unique payment structure designed to enhance market appeal. “It could have been a flop if it hadn’t been priced and structured right,” said Fullard. Under the plan, investors will pay for their purchases in three instalments over the next three years. Meanwhile, investors will be entitled to vote their shares and to receive annual dividends. Investors may also sell the shares at any time on the open market, allowing them to realize profits from any inu crease in share prices even before they have to pay off the balance of the purchase price.
For the Hees-Edper group, the arrangements mean that it
will receive $333 million on Feb. 25, and $422 million on March 8, the scheduled closing dates for the MacMillan Bloedel and Labatt deals, respectively. But based on commitments for the balance of the money, it will make it easier for group companies to borrow from banks. “The banks were telling them that if they couldn’t raise money in the market, they would not lend them any more either,” said Jarislowsky.
When the Hees-Edper executives and the brokers agreed on the structure of the MacMillan Bloedel deal, securing orders for 55.5 million shares took just a few hours. The board of directors of Noranda Forest approved the terms of the sale on Monday night. The following morning at about 7:30, the 10 brokerage firms began calling clients about the shares. One-third were slated for sale to individual investors, and two-thirds to large institutions: pension funds, mutual funds and insurance companies. Fullard said that a team of about 30 salesmen at three brokerage firms sold out the institutional portion—some in blocks of thousands or millions of shares—in about 90 minutes. “They can make up their mind in five minutes if they want it,” said Fullard.
Indeed, that was how long Milton Wong, a money manager with Vancouver-based M. K. Wong & Associates, said that he spent mulling a broker’s pitch for the Labatt shares. Wong said that he agreed immediately to buy a large block of shares at the asking price of $28.25 each. “It was a very simple decision,” he added. “We like Labatt, we hold it already and we wanted to buy more.” To Fullard and other brokers, the two rapid sellouts were proof that “You can raise $1 billion in one fell swoop from Canadian capital markets.” And as Edper managers review their remaining corporate assets, it is a fact that they are certain to remember.
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