Our Deal of the Year short list

Three deals came close before falling just short in our Deal of the Year judging. Here’s why they were worthy, but ultimately not chosen

FIRST RUNNER-UP Alimentation Couche-Tard Inc.
If Enbridge’s Spectra purchase wasn’t such a monster deal in a difficult sector, Alimentation Couche-Tard’s (TSX:ATD.B) $5.5-billion outlay for CST Brands Inc., a Texas-based gas station chain, had a good shot at being our pick for Deal of the Year. That purchase, Couche-Tard’s largest ever, was one of four big deals the company pulled off in 2016, including a $1.7-billion purchase of Imperial Oil Esso stations in central Canada. Clearly, American-born CEO Brian Hannasch, who took over from company founder and former CEO Alain Bouchard in 2014, is every bit Bouchard’s equal in the dealmaking department. Which brings to mind the second reason Couche-Tard didn’t top our Deal of the Year voting: it already won the award in 2012, when Bouchard led it to its then-biggest-ever deal, paying $2.9-billion for Statoil Fuel and Retail operations in Europe.

SECOND RUNNER-UP PotashCorp/Agrium Inc.
Another deal that might have been an automatic top pick in any other year is the merger between Potash Corp. of Saskatchewan (TSX:POT) and Calgary-based Agrium Inc. (TSX:AGU). Once approved, the massive deal—worth about $24 billion—will create a fertilizer and agricultural supplies conglomerate with an enterprise value of more than $40 billion. When the deal was announced in September, Agrium CEO Chuck Magro, who is to become CEO of the new firm, touted potential cost savings of $500 million a year through reduced expenses and other efficiencies. But it hasn’t been hard to find critics, or at least skeptics, of this merger of near-equals. The potash market is, of course, in a deep slump, hurting valuations and the companies don’t have a lot of obvious synergies, analysts say. The fact that a much more valuable, $40-billion deal for Potash, from Australian mining giant BHP Billiton, was blocked in 2010 also makes this deal harder to assess going in, and a little tougher for some shareholders to swallow. So we’ll stay tuned.

For a second consecutive year, an East Coast utility owner has made our DOTY shortlist with a massive, transformational purchase in the United States. And once again, it lacked just enough pizzazz to get over the top. Last year it was Emera Inc. (TSX:EMA) of Halifax, which spent $8.1 billion for a Florida-based electric power provider. This year, St. John’s-based Fortis Inc. (TSX:FTS), already Canada’s largest utility owner, spent twice as much—$15.8 billion—to buy ITC Holdings Inc., a Michigan-based electrical transmission company with operations in eight U.S. states. When combined with assets acquired in earlier American deals, Fortis now gets more than 60% of its revenue from the U.S. The ITC deal also gave Fortis an enterprise value of US$42 billion and makes it the 13th-largest North American utility. Fortis needed a US$2-billion bond issue to help finance the purchase. That doubled its debt and led to a dip in its share price when the deal was announced in February. The stock rebounded strongly during the year, then took another hit in November when Fortis announced costs from the deal, which closed in October, hurt third-quarter revenue. However, in a statement, CEO Barry Perry said “we remain confident that this transaction will be accretive to earnings per common share in 2017.”

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