Equity – Page 2

General Fusion – How to make money appear from nowhere

I really have to give credit to these guys. Through a SPAC (Spring Valley Acquisition Corp. III, ticker SVAC), General Fusion is effectively going public. The SPAC traded up from US$10 to about US$11.50, give or take, on the announcement. The SPAC shareholders will own about 22% of the remaining entity after all is said and done – 23 million SPAC units are outstanding so the entity is already worth about US$1.2 billion off the get-go.

However, this is not the point of the post. I am writing about them internally cashing in before doing this. It isn’t like one day where you pick up the phone and order that your company get SPAC’ed – there is some lead time involved.

On August 20, 2025 they filed with SEDAR a report of exempt distribution, where from August 6 to 12, 2025 they sold $25.3 million in preferred shares, which will undoubtedly be converted into common shares. I am not sure what the conversion ratio of this transaction is, so let’s just leave it.

On November 28, 2025, less than two months before the announcement, $51.5 million in “Simple Agreements for Future Equity” and warrants with a strike price of $2.8035/share were issued. Unfortunately I do not know what the common share price subscription was effectively at, but one can infer from the warrant strike price that it was likely around CAD$2.50-ish.

So in two months, this is now worth about CAD$16/share, a cool transformation (or should I say creation?) of about $250 million from nothing in two months!

Well done! As much as this thing is going to get hyped up, I will be a spectator. And if their technology actually manages to produce sustainable and cheap fusion, they will be worth trillions in addition to decimating the natural gas market but as a physics major, I remember the in-house joke about fusion power, “Fusion is the energy of the future, and always will be”.

Velan – When getting bought out doesn’t mean going private

Velan (TSX: VLN) had an interesting transaction reported last Wednesday:

Velan Inc. (TSX: VLN) (“Velan” or the “Company”) today announced that its controlling shareholder, Velan Holding Co. Ltd. (“Velan Holding”), the sole holder of the Company’s multiple voting shares, has agreed to sell its 15,566,567 multiple voting shares and one subordinate voting share (representing approximately 72.1% of the Company’s outstanding shares and 92.8% of its aggregate voting rights) to funds managed by Birch Hill Equity Partners Management Inc. (“Birch Hill”), at a price of C$13.10 per share, for aggregate gross proceeds of C$203,922,040.80 to Velan Holding and two other entities associated with shareholders of Velan Holding (the “VH Transaction”). Birch Hill is a leading Canadian investment partner with a 30-year track record of deploying patient capital and operational expertise to scale market leaders for long-term global growth.

Velan, for those that are unfamiliar with the company, are a producer of industrial parts. It has been selling valves for roughly 20-25% gross margins (aside from the Covid times) for time immemorial and is relatively unremarkable other than when the founding family wanted to get out.

The voting shares were privately held by the family and the public (lesser-voting ‘subordinate’ shares) are traded on the TSX.

Subordinate shareholders were clearly anticipating that such a sellout would include the entire company.

Upon the announcement, the stock traded from around $19/share to under $15, likely because any speculation that they would be taken out at a premium faded away, and the final negotiated price was well under what the market was trading at.

Financially the company has had better days – like a decade ago. It is understandable how a $19-20/share valuation would be lofty.

But the overall lesson here is that when it is well known a controlled company is going to go private, the minority shareholders might not necessarily get a good deal, or in this case, any deal at all.

Is Dye and Durham going to… die?

Dye and Durham (TSX: DND) has an interesting story but sadly it may be coming to a close simply because they couldn’t produce financial statements and creditors tend to not like it when the entities they lend money to aren’t in any position to pay back, let alone knowing how much money they are making! As there is a possibility it may be delisted in the near future, I will post its 5-year chart:

During the Covid era the company made many software acquisitions and paid for it with debt financing – amassing about $1.6 billion net from their last reported date, albeit generating $150 million in free cash flow in the past 12 months they have reported. Other than the software they have acquired (amounting to $1.8 billion in goodwill and intangibles) and the material amount of debt, there is nothing else of note on the balance sheet – tangible book value is about negative $1.5 billion.

However, reporting is one of the issues going on – their last financial statement available is from March 31, 2025 (their Q3-2025 as they have a June 30 fiscal year end!).

After they produce the audited financial statements (if they do!), it would not surprise me if there was a massive writedown in the goodwill.

The other issue is that they have been perpetually at war with their shareholders. The drama is simply too much to repeat here, but just giving a scan of the press releases over the past couple years should give a good indication of what is going on.

Notably, despite any lack of financial reporting, one significant shareholder (Plantro) reportedly was going to offer CAD$5.72/share for the entity.

However, just yesterday the TSX finally halted trading on the stock for prolonged non-reporting. Pretty much whichever shareholders are in the stock are locked in until the company either produces audited financial results, or their creditors lower the boom on them.

One interesting data point is that despite the stock not being tradable, their corporate debt is – their 8.625% issue maturing April 2029 (senior secured!) is currently trading at a yield to maturity of just over 12%, about 90.5 cents on the dollar. Given the seniority status of the debt, if DND does go into CCAA, there will likely be some form of recovery by the debtholders (they share the status with the bank creditors, for a total of about USD$905 million plus whatever is on the revolving loan facility).

There is no point for a small fish like myself to get involved with this, but it is interesting to watch. It is also a cautionary tale of companies that expand themselves with debt financing too rapidly.

Thankfully, no positions.

Teck / Anglo American – it’s almost done

Teck announced today that Industry Canada approved the merger between Teck and Anglo American. This cleared one of the most significant regulatory hurdles to the merger and basically clears the way for the merger to proceed sometime in 2026.

The last trading price of Anglo American and Teck was at a -17.7% merger arbitrage spread at the 1.3301 share conversion factor. This will most likely converge to a single digit number and close to zero as the hurdles clear.

It pretty much will be a matter of valuation at this point. The 437 page management information circular gives some hints on how to approach this, but given how both companies have various write-downs on income, the net income pro-forma is not useful for analytical purposes.

The combined entity will have approximately 1.94 billion shares outstanding, diluted.

The balance sheet, after Anglo shareholders receive their one-shot dividend to strip Teck’s cash, will have a negative net cash position of about US$18 billion.

At US$38.14 per Anglo share, this gives them a market cap of US$74 billion or an EV of about US$92 billion.

Looking at Anglo, we have an entity with US$6.4 billion in operating cash flow in the trailing 12 months. If you include Capex, the free cash flow is about US$1.4 billion. The commodity environment going forward should be a bit more favourable than those numbers.

We have Teck, with LTM operating cash flow of US$1.1 billion and Capex of US$1.3 billion as they try to figure out how to run QB2 efficiently.

It doesn’t take a CFA to figure out that the promise of this combined entity will rely on increased commodity prices, an element of balance sheet value (i.e. the reserves they are dredging out of the ground) and moderating capital expenditures (yeah right!).

These mega-mergers always take a ton of time to figure out as there will inevitably be huge cultural clashes, not to mention figuring out how to fix QB2 and realize “synergies” in that mining operation.

Teck was one of my Covid trades and they have gone through a lot since then – selling Fort Hills (an oil sands project that Suncor is now taking great advantage of), selling their metallurgical coal operations in Elk Valley (to Glencore), and now selling the the rest of it. They are going out at nearly all-time highs and so will I with the rest of this trade. I have zero interest owning the merged entity.

More consolidation

This has been quite a year for mergers.

Teck (TSX: TECK.b) is on the way (although definitely not confirmed) to being acquired by Anglo American (possibly to be Anglo Teck). There is a 16% merger arbitrage spread still going on, reflecting the regulatory uncertainty – but I do think this will be passed.

I have written ad nauesum (for years) about MEG being taken over, and Cenovus (TSX: CVE) was finally the suitor. Husky Energy (which itself was taken over by Cenovus) originally took a shot at MEG more than half a decade back. There were other oil patch consolidations I will not write about here which went through consolidation mergers.

Telus International (TSX: TIXT) was majority owned by Telus and Telus was able to re-absorb it into the main entity.

I recently wrote about Laurentian Bank effectively selling itself off to a couple institutions, one of which was National Bank (NA).

On the heels of this, a couple days ago Equitable Group (TSX: EQB) announced that they were acquiring Loblaws’ (TSX: L) PC Bank business and Loblaws is taking a minority stake in Equitable.

Finally, Canfor (TSX: CFP) announced it is proposing to take over the 45% interest in Canfor Pulp (TSX: CFX) that they did not own, for a 20% premium to market, and an option to take cash or shares of Canfor – looking at the balance sheet and the state of the pulp market (which is seemingly deader than 8-track audio), their minority shareholders are quite likely to proceed with this consolidation. Canfor itself tried to take itself private in 2020 and failed by a few percentage points on the shareholder vote – is this far behind?

What is causing all of this? Natural economic forces, but also that credit is cheap and plentiful if you have it – Canadian Natural Resources, for example, just issued $1.65 billion in 3, 5 and 10 year debt at a spread of about 85bps, 100bps and 130bps to GoC equivalents, respectively – dirt cheap!

I see the preferred share market is quite low-yielding – the spreads between yields to corporate debt has narrowed significantly over the past couple years and many of the issuers have their shares trading well above par value (e.g. most of the PPL.PR.x complex, FFH, BIP, etc.) – they are being called out at their 5-year rate resets.

High prices means low yields, and in order to get higher returns, one has to venture further up the risk spectrum. It’s getting quite competitive out there.