Blackcomb Mountain, Whistler BlackcombThe Associated Press
Investors have won two big faceoffs between aggressive IPO marketers and price-conscious buyers.
Ski-resort operator Whistler Blackcomb Holdings Inc. has been forced to slash the price of shares it's planning to sell in a $300-million initial public offering, and TransAxio Highway Concession Inc. to cancel its almost $900-million deal outright.
It's been a tough year for IPOs, with many pulled or downsized. Those that made it to market have often traded poorly. However, markets alone weren't to blame in these latest cases.
TransAxio was seeking to sell shares at $15 to $16 apiece to raise money to purchase a stake in the 407 toll highway in Toronto, despite opinions in some quarters that the price valued the underlying asset too richly.
On top of that, the powerful Canada Pension Plan Investment Board campaigned hard against the deal, a source said.
CPPIB had a lot to gain. First, the pension fund would end up owning the coveted 407 stake if TransAxio couldn't raise the money.
CPPIB had put in a winning bid when the seller, Spain's Ferrovial, put it up for sale. However, CPPIB's agreement to purchase the 10-per-cent stake in the 407 triggered a right of first refusal held by SNC-Lavalin Group, another 407 investor. To round up the money to match CPPIB's offer, SNC created TransAxio and filed for the IPO.
Now, with TransAxio out of the picture, the field is clear for CPPIB.
CPPIB had a second reason to stop TransAxio. The pension plan is also bidding for an Australian company that owns a separate interest in the 407. That deal looked cheap in comparison to the TransAxio offering, which meant that if TransAxio succeeded, CPPIB might have trouble closing the Australian purchase.
In any event, there was a strong case that the valuation on TransAxio was aggressive. Under the terms of the planned IPO, investors in TransAxio could end up paying as much as 30-per-cent more for the highway stake than CPPIB had offered, with much of the extra value going to SNC.
A person familiar with the transaction said investors probably would have been interested at $13 a share, but SNC was adamant it wanted $15 or more.
Similarly, in the case of Whistler and its planned $300-million sale, the owners of the ski company had been "super aggressive" in pricing, said a person familiar with the transaction. For a company with no real growth in recent years and little diversification, there was not enough yield to tempt investors.
The new pricing puts the planned IPO at $12.50 to $13 a share, with an expected yield on the stock of 7.5 per cent to 7.8 per cent. That's down from $14 to $15 with a yield of 6.5 per cent to 7 per cent.
Even at that price, a deal is not certain. Sources said there is rumoured to be about $100-million of institutional demand, but retail demand is weak.
The loss of the TransAxio deal is a big blow to some Bay Street dealers.
As lead firm, CIBC World Markets would have profited the most. With 28 per cent of the deal, the firm misses out on roughly $13-million in revenue, assuming the deal would have come in around $850-million and based on standard IPO fee structures. Next in line were BMO Nesbitt Burns and National Bank Financial, which would have brought in around $7-million each, followed by RBC Dominion Securities and Scotia Capital, which probably lost out on close to $4-million each.
With files from reporter Tim Kiladze