MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, FEBRUARY 11, 1998 (1)
Thursday, February 12, 1998
Wall Street stocks crept to another record close on news of a multibillion-dollar merger. Bay Street advanced on the back of gains in the financial services and transportation sectors
The Dow Jones industrial average followed Tuesday's record-setting breakthrough with another slight gain to a new high.
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The Dow climbed 18.94 points, or 0.2%, to end at 8314.55 - its first finish above 8300.
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The Standard & Poor's 500 composite index rose one point to a record close of 1020.01.
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The Nasdaq composite index fell 0.49 of a point to 1708.55.
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Volume was relatively light by recent standards, with 601.8 million shares changing hands on the Big Board, down from 648.7 million shares traded Tuesday.
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Computer Associates International Inc. surprised the market with a US$9-billion takeover offer for Computer Sciences Corp. Shares of Computer Sciences (CSC/NYSE) surged US$11 11/16, a rise of 12.7%, to US$1037 1/88. Computer Associates (CA/nyse) fell by about the same percentage, losing US$7 5/16 to end at US$503 1/84.
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The mixed readings were typical of the tech sector's performance in the session. Some stocks, like such as Motorola Inc. succumbed to profit-taking, while others maintained their recent momentum.
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Motorola shares (MOT/nyse), slipped US$3 5/16 to US$615 1/88.
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International Business Machines Corp. (ibm/nyse) moved ahead US$1 13/16 to US$102 11/16.
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Canadian stocks also rose for a second day, led by Canadian National Railway Co., as the Street showed its approval for its US$2.4-billion takeover of Illinois Central Corp. to create North America's fifth-largest railway company.
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The Toronto Stock Exchange 300 composite index rose 63.29 points, or 0.9%, to 6944.78, the first time the benchmark index has surpassed the 6900 level since Nov. 10 last year.
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Still, even with recent gains, the TSE is almost 275 points from its Oct. 7 record high of 7209.93.
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More than 110.1 million shares changed hands on the TSE, down from 102.8 million shares traded Tuesday.
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Canadian National shares (CNR/TSE) jumped $5.85 to $84 to lead transport issues higher.
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The transportation group accounted for 7.9 points of the TSE 300's advance.
Canadian Pacific Ltd. (cp/tse), which owns a majority stake in Canadian Pacific Railway Co., gained 95› to $40.85 on speculation it may make an acquisition to stay competitive.
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Canada's largest banks also rose amid optimism moderate economic growth, unencumbered by accelerating inflation, will raise loan profits.
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Bank of Nova Scotia (bns/tse) rose 90› to $34.95, Canadian Imperial Bank of Commerce (cm/tse) rose $1.85 to $44.80 and Bank of Montreal (bmo/tse) climbed $1.70 to $71.95.
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Forest product stocks were mixed. Abitibi-Consolidated Inc. (a/tse) gained 40› to $20.70 after it agreed to sell its U.S. and Mexican office-products businesses to United Stationers Supply Co. for US$110 million. Abitibi-Consolidated will concentrate on making newsprint.
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MacMillan Bloedel Ltd. (MB/tse) fell 35› to $17.70 after it recorded a 1997 charge of $340 million, resulting in a loss last year of $368 million.
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Euro-Nevada Mining Corp. (en/tse) fell 55› to $23.15, Placer Dome Inc. (pdg/tse) slipped 15› to $18.10 and Battle Mountain Canada Ltd. (bmc/tse) slid 40› to $7.85 as the spot price of gold bullion fell US50› to US$300.70 an ounce on the Comex division of the New York mercantile exchange.
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Other Canadian markets finished the day mixed.
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The Montreal Exchange portfolio rose 30.12 points, or 0.9%, to 3580.94.
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The Vancouver Stock Exchange fell 5.34 points, or 0.9%, to 625.67.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to ;
quote.yahoo.com .
REFERENCE: Canadian Market Summary
canoe2.canoe.ca
Major international markets closed mostly lower.
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London: British stocks closed mixed, echoing a lacklustre showing on Wall Streets. The FT-SE 100 index closed at 5607.9, down 5.4 points.
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Frankfurt: German shares rose but profit-taking trimmed early big gains. The Dax index closed at 4588.43, up 64.68 points or 1.4%.
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Tokyo: Japanese markets were closed for a national holiday. On Tuesday, the 225-share Nikkei average closed at 17,205.09, up 0.09 of a point.
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Hong Kong: Stocks slid to a lower close as investors took profits. The Hang Seng index closed at 10,793.41, down 66.26 points or 0.6%.
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Sydney: The Australian share market ended firmer after a string of healthy company reports, but brokers said the Asian cloud hung over the market and depressed sentiment. The all ordinaries index closed at 2678, up 10 points or 0.4%.
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Few companies complete stock buybacks: study
Monday, February 9, 1998 -- By Janet Mcfarland -- G&M
TORONTO -- Few companies that announce routine share-buyback programs complete them, or even buy a significant portion of the total, a Globe and Mail analysis indicates.
The analysis found that 158 companies listed on the Toronto Stock Exchange announced buybacks, known as normal course issuer bids, that expired during 1997. About 21 per cent bought no shares, and more than one-quarter of the companies bought less than 1 per cent of the total they announced.
Half of the companies in the review bought less than a quarter of the shares they announced. Seventy-one per cent bought less than half.
Just 14 companies, or 9 per cent, bought all the shares they could. Shareholder advocates say the information sends a clear message. "Investors should not react precipitously to the announcement that a company is going to buy back the stock, because very often it doesn't happen," said shareholder rights advocate William Reidl, president of Fairvest Securities Corp.
Stock guru Peter Lynch, the former manager of Fidelity Investments' flagship Magellan Fund, said in his popular investment advice book, One Up on Wall Street , that he favours companies that buy back their own shares. That's because a share buyback reduces the remaining public float and raises the price of the remaining shares.
But John Bart, president of the Canadian Shareowners Association, said shareholders should not base investment decisions on the anticipation of repurchases.
"There may be people who've read that [Lynch] book . . . and just say, 'Oh, good, the company is going to buy its stock back,' when in fact they don't."
Companies announcing normal course issuer bids are expected to make at least some purchases, barring unforeseen changes. But many seem to give only passing attention to that requirement, frequently allowing bids to expire unused.
The Toronto Stock Exchange tries to prevent misuse.
Unlike U.S. exchanges, the TSE only approves applications for normal course issuer bids if the companies say they have a current intention to buy shares. That means companies are not supposed to apply just to have the paperwork in place for future reference, which is allowed by U.S. regulators.
"We take the approach that this is not a shelf document," said Cecilia Williams, director of regulatory and market policy for the TSE. "It's not just that companies can announce it for the purpose of showing that the company thinks the share value is at a particularly low level."
As well, she said, the TSE monitors companies that buy no shares during the year-long repurchase period, and questions them if the apply to renew for a second year.
"If a company has had a bid outstanding and seeks to renew it, but didn't purchase anything under the previous bid, we ask them why that happened, and then we ask them to explain what would be different this year," Ms. Williams said. "There have been occasions when we have not agreed to renew a bid."
Companies are allowed to buy back 5 per cent of their outstanding shares each year, or 10 per cent of their public float, whichever is higher.
Normal course issuer bids have soared in popularity over the past few years because companies have decided they are a more effective way of returning money to shareholders than common dividends. That's because taxes on capital gains are lower than taxes on dividend income.
But often things don't work out as announced.
Among companies that bought back no shares under bids that expired in 1997 are Corel Corp., Schneider Corp., Investors Group Inc., Power Corp., Inco Ltd. , Newbridge Networks Corp., Baton Broadcasting Inc., CT Financial Services Inc. and Quebecor Inc.
Conrad Black's Toronto-based publishing company Hollinger Inc. bought just 6,400 shares, or 0.2 per cent of the 2.8 million it could have bought under the normal course issuer bid it announced for the year ended Jan. 1, 1997.
Toronto-Dominion Bank bought none of the 23.8 million shares it announced for the year ended Oct. 31. But the bank bought 2.9 million shares in another normal course issuer bid that expired last April, which was 15 per cent of the 20 million announced.
In some cases, companies abandon their plans because their share price rises sharply, making a buyback less attractive because the shares are no longer undervalued. Shares of TD Bank, for example, were worth $51.65 on Oct. 31, 1997, a 65-per-cent jump from $31.35 on Oct. 31, 1996, when the issuer bid period began.
In other cases, a company's financial situation worsens, making it imprudent to spend large amounts of cash on an optional matter.
Toronto-based Inco announced a normal course issuer bid in August, 1996, to buy back up to 11.5 million of its outstanding shares. The company said the purchases would reduce some of the massive dilution that was caused when it issued shares to finance the $4.3-billion purchase of the Voisey's Bay nickel deposit.
But the company purchased no shares in the one-year purchase period -- one of the largest untouched issuer bids last year. Inco has since bought one million shares under a new normal course issuer bid renewed in August with a maximum limit of 16 million shares.
Inco spokesman David Allen said the company's situation changed, the price of nickel fell sharply, and there has been no cash for buybacks.
"Right now with Inco's stock low, it would at first blush seem to be a good time to be buying back shares because of the price of them. But you look at the next page and you see we don't have any cash, and we lost money in the fourth quarter, so we aren't in a position to buy back."
If the company had more cash these days, he added, it would likely use it to reduce debt rather than repurchase shares.
Of the 33 companies that bought no shares in bids that expired in 1997, 15 renewed their buybacks for another year. While those subsequent purchase periods are uncompleted -- many began in the first quarter of last year -- the trend in some cases may be continuing.
Four of the companies have purchased no shares yet, another two have bought less than 1 per cent of the approved total, and another four have so far purchased less than 10 per cent.
Ms. Williams at the TSE said it is "highly unlikely" the exchange would renew an issuer bid application again if a company buys no shares two years in a row. More common than purchasing no shares, many companies buy only a small fraction of the total they announce, often because they have applied for the maximum level even if they have no plans of using it.
Mr. Reidl of Fairvest Securities said some companies announce issuer bids to give themselves the option to support illiquid shares if a large shareholder dumps them unexpectedly on the market.
"If it's a very thin market for their stock, they think it's wise to provide a little bit of price support and stability for the small numbers of shares that might come for sale in an aggressive fashion," he said. "It's just sort of an insurance program so the stock doesn't take a wild drop down on very low volume."
But other companies say they only announce an amount they reasonably expect to purchase under current circumstances.
Stelco Inc. of Hamilton announced last week that it will repurchase up to 5.36 million shares, or 5 per cent of the total, over the next year. At current prices, the buyback would cost about $62-million.
Chief executive officer James Alfano said the 5-per-cent target was not chosen as a matter of routine, and would have been set lower if they company didn't think there is a good chance it could buy all the shares if the price remains attractive.
"We're announcing a level we'd be comfortable purchasing under the right conditions," he said.
Nonetheless, Mr. Reidl said few knowledgable shareholders expect companies to complete normal course issuer bids they announce.
"I just know that when I read the announcements, in the majority of cases it doesn't really mean much."
(**With apologies for this chart!)
How much they bought
Who bought the least
...................NUMBER ANNOUNCED.............#BOUGHT..........%BOUGHT
Toronto Dominion Bank*........23,856,930.......0.........0
Inco Ltd......................11,500,000.......0.........0
Power Corp.....................6,000,000.......0.........0
Investors Group Inc............5,284,242.......0.........0
Corel Corp.....................4,168,942.......0.........0
Newbridge Networks Corp........4,000,000.......0.........0
Hollinger Inc..................2,792,659.......6,400.....0.2
AGF Management Ltd...............691,461........0.........0
Quebecor Inc.....................500,000........0.........0
CT Financial Services Inc........309,923........0.........0
Who bought the most
Nova Corp........................25,000,000.....22,438,950.....90
Seagram Co. Ltd.................23,600,000.....18,806,800.....80
Imperial Oil.....................9,222.961.......7,067,475.....77
Imasco Ltd........................5,000,000......3,572,850.....71
George Weston Ltd.................2,356,128......2,356,128....100
Scott's Restaurants Inc...........1,640,617......1,640,617....100
Torstar Corp......................1,000,000.....999,100.......100
Finning International Inc...........41,414.......41,414.......100
-* Under a separate bid, TD bought 2.94 million shares, or 15%.
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BULLS V. BEARS -- Market experts grow wary
Monday, February 9, 1998 -- By Stephen Northfield -- G&M Investment Reporter
After a month or so of steadily improving sentiment, market professionals have turned more bearish on everything from stocks to gold, according to The Globe and Mail's latest Bulls. v. Bears survey.
Fewer than half -- 42 per cent -- of respondents predicted the Toronto Stock Exchange 300-stock composite index will close higher in six months, down from 59 per cent in the previous survey two weeks earlier. The percentage of those expecting Canadian stock prices to fall slipped to 19 from 30 per cent.
This means a significant increase in the number of market experts crowding the fence; the latest survey showed 39 per cent calling for no change in the TSE 300.
Over all, the balance of opinion on Canadian stocks was more bearish.
The trend was more clear for U.S. stocks. Forty-six per cent of respondents forecast a lower Standard & Poor's 500-stock index in six months, up from 37 per cent in the previous survey. The percentage of respondents expecting U.S. stocks to forge gains rose to 35 per cent, up 2 per cent. That means the balance of opinion -- the spread between the bull count and the bear count -- deteriorated over the two weeks between surveys.
The modest souring of sentiment on North American equities comes at a time when both the Canadian and U.S. markets have recovered sharply from a miserable start to the year. The TSE 300 has surged about 10 per cent from early January lows, while the S&P 500 is up about 9 per cent. A sense that the worst of the crisis in Asia may be over has boosted sentiment.
Many market watchers consider sentiment surveys to be contrary indicators. They regard excessive bullishness as a warning sign that a market may be peaking, while extreme bearishness could signal opportunities.
There's been a fairly sharp slide in the bond outlook. Half of respondents said they expect lower bond prices in six months -- and thus higher interest rates -- a rise of 18 per cent from the previous survey. It's the first time since last August that half or more of the correspondents were pessimistic on bonds. Only 38 per cent forecast higher bond prices, down from 44 per cent in the previous survey.
The gold outlook was little changed from the previous survey, with a little less than half of respondents calling for higher gold prices, and about 20 per cent calling for lower prices. Gold has been fairly steady since the previous survey, trading between $295 (U.S.) and $305 an ounce. Gold closed Friday at $298.80.
Bulls v. Bears is a proprietary survey developed by The Globe and Mail as an indicator of the sentiment of Canadian market professionals. There were 26 respondents to the latest survey. Silver prices soar/B6
The investment pros fight it out
Every two weeks we survey money managers, strategists and advisers on where they expect financial markets to be in six months - up, down or unchanged. Here is what they think this week.
TSE 300 Up 42% down 19%
S&P 500 Up 35% Down 46%
Bond prices Up 38% Down 50%
Gold Up 46% Down 21%
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Martin to deliver budget Feb. 24
To usher in era of debt reduction
Wednesday, February 11, 1998 -- By Edward Greenspon
OTTAWA -- Finance Minister Paul Martin intends to bring down his fifth budget on Tuesday, Feb. 24 -- the one that will draw a curtain on more than a quarter-century of federal deficits and usher in a new age of debt reduction, tax cuts and new spending initiatives.
Mr. Martin is expected to tell Canadians that the deficit will be eliminated in the 1998-99 fiscal year. For the current year, he has indicated that the government probably will record a small deficit -- in the range of $2-billion.
The centrepiece of Mr. Martin's budget will be the Millennium Scholarship fund, which government sources have said could go as high as $3-billion. Mr. Martin intends to package it with other educational measures.
It is part of the so-called Learning Initiative, which will include a program to alleviate student debt burdens, changes in Registered Education Savings Plans to encourage parents to save for post-secondary schooling, increases to university research granting agencies and increased funding to connect Canadians to the information highway.
Mr. Martin has been far more coy about his taxation plans. He has made clear that his first moves to reduce taxes will be aimed specifically at low- and moderate-income Canadians, but he hasn't defined precisely what income levels he has in mind. He will copy his approach of last year of targeting tax cuts at specific groups, such as people making donations to charities, Finance Department sources said.
"There is no doubt that the great reward for the cleanup of the country's balance sheet that has been effected by Canadians is certainly going to be that, over the course of time, clearly, the tax burden will be lowered," he said yesterday in the House of Commons.
Government sources said the two measures to watch for are an increase in the basic personal credit and a gradual lifting of the 3-per-cent surtax imposed by the Mulroney government as a means of fighting the deficit.
The basic personal credit is the amount of income that is exempt from personal income tax. The amount is currently set at $6,450, which translates into a tax benefit of $1,098 for low-income earners.
But the value of the credit, which is not fully indexed, has been eroding for a number of years. As a result, about 500,000 low-income Canadians, who would not otherwise have paid any tax, have been dragged into the tax system since the Liberals took power in 1993.
Mr. Martin probably will not re-index the credit, but he can be expected either to raise it or promise to raise it once he balances the budget next year, government sources said. By itself, that would provide a benefit to all taxpayers, so the Finance Department probably will design the system to direct all the savings to those with incomes below a certain cutoff.
Government sources also say Mr. Martin might promise a phase-out of the surtax as a payback for Canadians who have suffered increased tax burdens in fighting the deficit. This may come in the form of a signal of his intentions rather than a concrete formula, one source suggested.
The 5-per-cent surtax on taxes above $12,500 a year would not be touched.
In the immediate term, though, the Liberals can be expected to demonstrate more action on the spending side. In addition to the Learning Initiative, Mr. Martin must account for promises made in the Red Book election platform. They add up to $1.1-billion in 1998-99 and $1.8-billion in 1999-2000.
Cabinet ministers have been promised about $300-million for new initiatives.
Finance Department sources said the end result probably will be a small uptick -- from the current $103.5-billion -- in program spending after several years on a downward track. Federal spending as a proportion of the overall economy will probably not rise, they said.
As for debt reduction, Mr. Martin has made clear he intends to maintain a contingency reserve of about $3-billion in his budget against lower-than-projected economic growth or higher interest rates. He also will stick to his practice of operating under prudent assumptions about growth and interest rates.
This is intended to leave him with a cushion that, at the end of the year, can be directed to making modest payments on the accumulated federal debt of about $580-billion.
The Liberals have refused to set debt reduction targets, as they did deficit reduction targets, other than to promise that the proportion of debt to gross domestic product will be placed on a steady downward track.
The Reform Party continued its attacks on Mr. Martin yesterday as a spender who is paying too little attention to tax cuts and debt reduction.
"Instead of Titanic-sized spending increases, what Canadians want to know is when will the Finance Minister introduce a budget which brings in broad-based tax cuts and, of course, specific targets for debt reduction?" Reform finance critic Monte Solberg asked.
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