The Big Three: Musk’s Tesla plan; tariffs weigh on Magna; Canadian earnings
Still tons of ground to cover on Elon Musk’s strategy to shut out the shorts by potentially taking Tesla private. Potentially being operative word. Nothing is guaranteed and yesterday’s market reaction shows there’s plenty of skepticism about whether the US$420/share buyout will ever happen. But for now, tons of fascinating angles to consider. Among them:
-Investor skepticism. At yesterday’s peak, Tesla shares hit US$387.46, well below the potential offer price, and the stock is drifting lower in pre-market trading. This looks like a question of whether Tesla’s balance sheet could withstand the debt that would be necessary to execute a deal.
-“Funding secured”. That’s according to Musk. But from whom and for how much?
-Disclosure. Best evidence of how everyone was caught by surprise: the stock was halted “pending news” an hour and twenty minutes after Musk’s initial tweet. Have to explore whether regulators will look askance at how this played out and if they have the necessary tools to keep up.
-The shorts. Musk didn’t hide his disdain for short sellers in the blog that followed his tweet, saying “We are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.”
-Elon. Public markets will lose one of their most fascinating personalities if Musk gets his way and privatizes Tesla. Need to consider whether Musk’s operating style is better suited outside the spotlight of quarterly reporting cycles.
SAUDI REPORTEDLY SELLING OFF CANADIAN ASSETS
The Saudi-Canada diplomatic dispute is intensifying. The Financial Times is reporting Saudi Arabia's asset managers have been instructed to dump their Canadian assets "no matter the cost." It's the latest fallout in an escalating battle that was sparked when Chrystia Freeland spoke out about human rights in the Kingdon. We're chasing reaction.
STATE OF THE AUTOMAKERS
-Magna International cut its full-year forecasts this morning, citing tariffs among other factors. Second-quarter profit and sales came in shy of estimates even as both surged by double-digits to quarterly records.
-Linamar, meanwhile, proved once again it’s much more than just a parts maker. Operating profit from the company’s industrial division pulled almost even with its transportation unit ($133.5M vs $138.8M). No direct reference to tariff fears in the earnings release, though CEO Linda Hasenfratz did say Linamar’s “future has never looked brighter despite political uncertainty.”
CANNABIS GRAB BAG
Andy is going to round up a grab bag of cannabis industry announcements from this morning: Alcanna going with Aurora branding for pot shops, says it’s ready to do business anywhere private sales allowed; Canopy getting go-ahead for clinical trials of cannabis to treat animal anxiety; CannTrust update on its partnership with Apotex on medical marijuana products
TRADE WAR LATEST
The U.S. is going ahead with the additional 25 per cent tariffs on US$16 billion of Chinese goods, with 279 products subject to the additional levies as of Aug. 23. Full list can be found here. China says it will retaliate in kind. Investors appear to be taking it in stride with global stocks little changed. Should point out the latest Chinese trade data show exports and imports rose more than expected in July.
OTHER NOTABLE STORIES
-Yamana Gold has promoted its COO Daniel Racine to become CEO. Peter Marrone will become executive chairman.
-Air Canada could be at risk of losing its second-in-command. Le Monde first reported Air France-KLM is eyeing Benjamin Smith to fill the void left behind by Jean-Marc Janaillac, who resigned in May. Air France confirmed with BNN Bloomberg the appointment process for the new Air France-KLM governance is underway and is continuing. But that no decision has been made yet. See the report here.
-Murad Al-Katib is playing hard ball with AGT Foods. The pulse maker disclosed late yesterday that Al-Katib and his buyout partners are “not prepared to support any alternative transactions.” A special committee has been established and will cooperate with Al-Katib for two months without soliciting alternative deals. AGT disclosed on July 26 it received a non-binding $18/share buyout proposal from Al-Katib, with Fairfax Financial in his corner.
-More trouble at DavidsTea. Porchlight Capital is demanding answers after two of the company’s recently-elected directors resigned in rapid succession last month, just a few weeks after taking their posts in a proxy fight. Porchlight’s Senior Managing Director said in a release he’s worried the resignations “indicate a dysfunctional relationship” in the boardroom.
-Notable earnings: Magna International, Manulife Financial, Sun Life Financial, Thomson Reuters, TMX Group, RioCan REIT, Franco-Nevada, Finning International, Stantec, Concordia International, Iamgold, Glencore
-Notable data: Canadian building permits, China trade balance
-2:00 p.m. ET: Prime Minister Justin Trudeau makes announcement at CAE headquarters in Montreal, plus media avail
Every morning BNN Bloomberg's Managing Editor Noah Zivitz writes a ‘chase note’ to BNN Bloomberg's editorial staff listing the stories and events that will be in the spotlight that day. Have it delivered to your inbox before the trading day begins by heading to www.bnnbloomberg.ca/subscribe.