With expectations for a slowdown in the global economy, companies may turn to corporate restructuring and other activity in an attempt to boost profits and extend the earnings cycle.
Since companies have recently exhibited their desire to dispose of non-core holdings and strategic stakes, UBS thought it would be useful to look at cross-shareholding and strategic stakes held by corporations, banks, governments and families, since the buying and selling of these stakes typically signals upcoming change and can foretell takeover bids.
“The purchase of a strategic stake can be an investment signal in its own right,” UBS said in a research note, pointing to the importance of insider activity. “The stock price performance of strategic-stake companies is, on average, and generally, good.”
The firm asked its analysts if they expect a holding to be disposed of in the short to medium term.
Among the active stakes UBS highlighted was Goldcorp’s (NYSE:GG) 49% stake in Silver Wheaton Corp. (SLW). The firm noted that Goldcorp recently reduced its stake and may continue to do so in the future.
Onex Corp. has a 22% stake in Cineplex Galaxy Income Fund and has the right to appoint three of seven directors of the General Partner of Cineplex Entertainment, UBS said. Given Onex’s medium-term investment horizon, these fund and exchangeable units are a potential candidate for disposal, UBS said.
Some of the unlisted active stakes the firm highlights for possible sale include Bell Canada Inc.’s (NYSE:BCE) 15% stake in CTV Globemedia, IAMGOLD Corp.’s (NYSE:IAG) Niobec Mine, Barrick Gold’s Kabanga nickel asset, and ACE Aviation Holdings’ 30% interest in ACTS Technical Services Inc.
UBS also expects the level of minority hold-out and buy-in activity will correspond with the amount of private equity and corporate M&A activity. Imperial Oil (NYSEMKT:IMO) and Gerdau Ameristeel (GNA) are two of the potential buy-ins it thinks investors should keep an eye on.
Finally, the firm expects companies like Vermillion Energy Trust and Cameco Corp. (NYSE:CCJ), which have non-strategic stakes in Verenex Energy and Centerra Gold respectively, to monetize their remaining stakes when they have a use for the proceeds.