Dutch auctions -- a phrase seldom heard in finance circles prior to the Google
initial public offering -- are all the rage in the Canadian market this week,
as companies use the technique to set the price of massive stock sales and purchases.
As Google demonstrated, a Dutch auction helps the financial types gauge just
how much investor demand there is for a stock. As practised on the Street,
these auctions see the auctioneers start at a high price, which drops until
it hits a level that sells everything that's up for grabs.
The auction block over at RBC Dominion Securities early yesterday featured
shares in Rogers Communications, which the investment dealer first tried to
flog in June at $26.20 each, with 9.5 million shares up for grabs. RBC Dominion
couldn't find buyers at that price, and ended up owning a big chunk of the
With Rogers expected to sell more stock in the wake of planned wireless acquisitions,
RBC Dominion opted to move its holding early yesterday. Institutions have been
hearing a whole lot of positive commentary reviews on Rogers' recent moves,
and threw in their bids. Before the market opened, they set a price of $25.10
each on the remaining 6.8 million shares.
Those involved say the Dutch auction seemed the best way to pin down the price,
as it rewarded those investors who were willing to put a higher value on remaining
shares. From RBC Dominion's point of view, this share sale was pretty much
done for free, as the discount from the price of the original underwriting
would have eaten up the dealer's fee. Considering the brokerage house was down
$20-million on the position at some points in recent weeks, that's a fabulous
There was no short-term gain for Rogers, as shares closed down 27 cents at
$25.13 on the Toronto Stock Exchange, but down the road, the company stands
to gain from clearing the path to the equity market.
Late in the day, the action shifted to CIBC World Markets, which is holding
a Dutch auction to set the price at which Manitoba Telecom
Services will buy
back up to $800-million worth of stock.
Here, investors faced a deadline last night on the opportunity to tender shares
to the buyback at a price that would be in a range between $43 and $48 each
-- MTS closed down 30 cents at $42.70 on the TSX.
Here, the big question that's about to be answered centres on just how much
of its 21.7-per-cent position in the Winnipeg-based company BCE wants to sell
back, and the price at which it's willing to part with those shares, which
were worth $710-million at yesterday's levels. Any stock held by BCE that isn't
sopped up by the share buyback is expected to be sold in a block trade in the
Once the price and amount of stock being bought back are made public, investors
will have a far better sense of just how much more stock overhangs MTS.
While the process doesn't normally attract much attention, Dutch auctions
were also used to set the price of a share buyback at Descartes Systems in
July and the shares left over from a poorly received bought deal for Northbridge
Financial in June. In a highly competitive market, where bought deals occasionally
get stuck, these auctions can prove the tonic needed to get investors stepping
A mid-sized firm's struggle
The classic struggle facing Canadian mid-capitalization companies was summed
up by what happened at Trojan Technologies in London, Ont., yesterday.
The company manufactures water purification equipment, and the promise of
this field made it a market darling in the late 1990s, when this was a $20
stock. But Trojan never recovered from growing pains in 1999, when weak results
took the stock to the $5 range. After several years of management turnover
and a sideways move in the stock price, the board elected to stop trying to
fix the problems, and instead put the company up for grabs.
Yesterday, deep-pocketed U.S. environmental firm Danaher
Corp. lobbed in a
$10.65-a-share-bid for Trojan, and the Canadian company's advisers from RBC
Dominion Securities and the Nassau Group endorsed the $247-million offer. With
this sale, a mid-sized Canadian city can say goodbye to one of its few head
offices, and the domestic market loses a mid-sized growth stock.
More tech financing
The banks hate lending to startup tech companies. Intellectual capital is
often the only asset, and it's real hard to take possession of someone's brain
if they can't pay back a line of credit.
However, debt financing is often a necessary step for tech and life sciences
companies that are too large for angel investors, but not yet ready for public
markets. Orion Securities recognized this opening by creating a bridge financing
fund known as Wellington Financial, and funded by Clairvest and Skylon Capital.
Now there's competition in this space. MMV Financial in Toronto yesterday
announced a $300-million commitment to debt financing in emerging and mid-market
tech and biotech plays.
MMV, founded by veterans of Quorum Funding, enjoys the support of the Caisse
de dépôt et placement du Québec, Wells Fargo and U.S. private
equity fund Conning Capital.