March 2, 2008

CHC Buyout

I just want to write a quick update on my buyout investment. So far the stock is inching up slowly to the buyout price as we approached the closing date. This is very typical of a buyout stock. As soon as they announce regulatory approval from EU, which should be routine, CHC will move higher by a point or so closer to the transaction price.

There were more deals announced by private equity into the energy infrastructure space like this one. First reserve was busy buying storage terminals and pipelines all over the world. More private equity firms have joined the race to deploy their capital as well.

Energy infrastructure and service investment should earn better returns over the years than pure energy plays. Their services are needed more and more as oil gets harder to produce.

An interesting observation on CHC stock behaviour due to its listing on NYSE and the TSX. The NYSE listing has outperformed the TSX performance since the deal was announced by a small margin, adjusting for the exchange rate.

CHC on NYSE appreciated 4.41% while CHC on the TSX rose only 1.48%, while the Canadian Dollar appreciated by 2.89% since Feb 25. That leaves .04% of probably liquidity performance on the table. I guess the TSX is less liquid than the NYSE to explain the difference which should be identical in this situation.


Anonymous said...

Might I suggest an analysis of Freddie and Fannie. They have attributes that cannot be replicated and, accordingly, deserve premium valuations. If they can survive the mark to market losses and subsequent regulatory capital reinforcements, i.e., additional perpetual preferred issues at 8%, they should be an easy double or triple. They are trading below book value, although book is falling in line with the mark downs, and should benefit somewhat from the collapse of the mortgage conduit industry. Without these GSE's the mortgage market would implode. Once home prices and the econmomy stabilize, it's off to the races. The interest rate risk is tactically hedged. Would love to know what you think.

Sami said...

Thanks for the comment.

I do not know enough detail about the specifics of Freddie and Fannie, but there are few things that I like:

1. unique competitive advantage granted by the government
2. they are in distress by the current upheaval in the credit markets and I agree once this passes it is off to the races.

It is an area I wanted to look into for sure. It will be one my to do list from now on and hopefully i will post something on it soon.