September 8, 2020-Altice Announces Unsolicited Offer for Cogeco. Will they Go Hostile?

EV Battery Maker QuantumScape to Go Public Through SPAC Kensington Capital. What Does the Market Think? 

Nord Gold Boosts Hostile Offer for Cardinal Resources by 36% as Bidding War Heats Up. What’s the End Game?

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Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at

Julian Klymochko: Welcome podcast listeners to episode 85 of The Absolute Return Podcast. I’m Julian Klymochko.

Michael Kesslering: And I’m Mike Kesslering.

Julian Klymochko: Today is Friday, September 4th, just heading into a long weekend here. Market’s closed on Monday in the, U.S. and Canada, where here to summarize key events that happened this week and provide some insights on those and we really wanted to highlight three specific events in the M&A and SPAC space.

    • First really interesting news in the hostile M&A sector this time up in Canada. Well, involving U.S. Altice. They announced the unsolicited takeover offer for a cable company Cogeco. Are they going to go hostile on this deal? We chat about specifics here and some potential scenarios in which this deal could go.
    • Big news in the SPAC space with EV battery maker, Quantumscape to go public through the special purpose acquisition company, Kensington Capital. What does the market think of this deal?
    • And lastly, some more bidding war news with Cardinal Resources as the Russian from Nord Gold boosted their hostile takeover for Cardinal by 36% as they’re going toe to toe against Chinese white Knight Shangdon Gold. What is the end game on this deal?


Julian Klymochko: But first Mike, let’s start off on this Altice slash Rogers potential hostile take over for a Cogeco, which equates to it potentially $10.3 billion dollar takeover at the current price, which would be the largest M&A trade in Canada since the 2016 merger of Potash and Agrium so certainly tremendous size here. Now what happened specifically was cable consolidator, Altice. This is run by, French cable billionaire Patrick Drahi. Who was once a protégé of the legendary John Malone; he announced an unsolicited $10.3 billion takeover for Canadian cable operator Cogeco through a publicly disclosed bear hug letter, and a bear hug letter is effectively just when you put together a hostile proposal and a letter and send it to the board of directors of the target company. And in this scenario, they made that bear hug letter public and such that they could get a reaction out of the stock and out of the media and ultimately a reaction out of the target shareholders.

Michael Kesslering: Typically after pursuing the company privately through their board and management team and directors, and then going public with it.

Julian Klymochko: Yeah, perhaps there is some frustration on lack of progress, so it’s kind of stepping things up to the next level, putting it out there to generate some sort of forced response from the target board of directors. Now this unsolicited proposal, which came with a 35% premium for Cogeco shares, it’s just massive in size. I mean, north of $10 billion dollars, so it should be a story that everyone is paying attention to, and the way that it works is Altice isn’t actually going to buy the whole company for $10.3 billion. It’s unique, such that Roger’s Communications. A giant Canadian telecom operator is involved as well. They are basically tagged teaming with Altice to split Cogeco and half in which Rogers would acquire the Canadian assets for $5.5 billion because Altice really only wants Atlantic broadband, which are the U.S. assets that Cogeco owns that Atlantic is the ninth largest cable company in the U.S. with nearly half a million residential and business customers. This acquisition would expand the operations of Altice across 11 States on the East coast of the U.S. really the play here is Drahi, wants to position Altice such that it can better compete with Charter and Comcast. Basically the two U.S. cable giants of which he’s battling up against obviously his former mentor controls the chart.

So super interested in dynamics with respect to Altice strategy. Should also know that it’s, I’m not sure if unprecedented is the right word, but very unique to involve sort of a joint bidder. We see that quite a bit on private equity deals refer to those as club deals, but not often on a strategic basis. What is additionally interesting is that Rogers has wanted to acquire Cogeco for over a decade now back when Ted Rogers, the founder, was alive, he was actively buying Cogeco shares in the market, such that they now are the largest shareholders of the company on an economic basis. However, the major hurdle here for this deal is the Audet family, which controls Cogeco through multiple voting shares, thus far not feeling it. They have rebuffed all Altice advances here very quickly, and that is somewhat troubling from, so you are looking at this from an arbitrageur’s perspective. If they come back within hours and publicly shoot it down, quoting the family here. They said they have already indicated that the family does not intend to sell its shares and will not support the proposal this morning. Cogeco board of directors rejecting the deal outright, not really giving any reason aside from lack of support from the Audet family. Real head scratcher is the family really hasn’t indicated why. They just flat out said, we’re not going to sell our shares. I am not sure if it is a price thing. Certainly, everyone has their price and with respect to a bear hug letter in the context of an unsolicited proposal, we say this time and time again. We saw it on the Tiffany LVMH deal; you never start at your highest price, so clearly there is higher to go from Altice and Rogers with respect to this unsolicited proposal, which at this point stands at a 35% premium.

Who knows if the Audet family is basically engaging in this back and forth sort of negotiation with respect to A, you know, we don’t spark this translation being give us more. And so that’s ultimately something that we can see because ultimately the family holds 69% of all voting rights of Cogeco, which in turn controls 82.9% of all voting rights of the subsidiary company, Cogeco communications, which is pretty strange because both are actually publicly traded. So there is a somewhat complex corporate structure here behind multiple voting shares, a two publicly traded corporations, in which one owns a stake in the other, so there’s some sort of hold code discount dynamics happening here, but nonetheless, Altice has offered the Audet family $800 million to win their support for the deal. Cogeco shares up nearly 20% on the news and I mean, $800 million bucks, pretty hard to turn that down, but nonetheless, who knows, maybe they’re out for a billion.

Michael Kesslering: We have spoken about this a lot, with dual class voting shares, is the Audet family in this situation is really not aligned with minority shareholders in the sense of looking out for what’s best.

Julian Klymochko: Or perhaps they are in a somewhat secretive manner because maybe their messages, hey, give us more money.

Michael Kesslering: Yeah and I guess that is the difficulty with the very short response is it really doesn’t give insight into what their thought process is. And you had mentioned it from the arbitrageur’s perspective but as well, even just for regular long only investors that have been invested in the name for the long-term. This does act as a potential catalyst for them to be able to realize their value from where it has been trading and where they likely believe it should be trading.

Julian Klymochko: Yeah speaking of which for disclosure purposes, we are and have been long, of Cogeco, both Securities Corporation and the communications stock. We are long in The Accelerate Enhance Canadian Benchmark Alternative Fund; ATSX, have been a long-term shareholder. I mean, just because the stock has been so undervalued, our quad screens pick that up, but obviously happy with that, but from an arbitrageur’s perspective, we don’t have a position. And there are many ways in which this could go. Typically, we like to participate in Canadian hostile takeovers because there is a key difference between them and the U.S. because in the U.S. the board can implement a poison pill and effectively stop the bid or in its tracks. In Canada, the regulators strike down poison pills after a limited amount of time, they give the target time to shop the company. However, they don’t allow the poison pill to remain in place, opening them up for a hostile takeover of which are typically successful in Canada. However, here, as we discussed a major hurdle being the Audet family, controlling stake, not from an economic standpoint, but from a multiple voting share standpoint and that’s why this situation could go a number of ways. Clearly, it is not going to be sold at the current price. Either it is a stalemate, will get no deal or Audet family is on-board at a higher price. Will get a deal at a higher price, so interesting potential dynamics on the scenario analysis on this M&A trade.


Julian Klymochko: But now on to some SPAC news in the blank check space, we had EV battery maker Quantumscape announced a deal with Kensington Capital, which is a special purpose acquisition company. That is fairly new to the market, I mean they just IPO a few months ago. Now Quantumscape, it was basically VC backed. They manufactured electrical vehicle batteries. In fact, Bill Gates is one of the investors in the company, and it is a highly speculative entity. They are working on this new technology that could power electric vehicles per basically double what they can do right now. It was spun out of; I believe Stanford University in terms of the research team backing this technology and the market has absolutely loved this one. The stock has more than doubled over the past two days on this news and just the trading behind it is absolutely mind blowing. Quantumscape did a $230 million dollar IPO at $10 a share, so the total shares outstanding $23 million shares just yesterday, the down of announcement. They traded 88 million shares in units. That is nearly fourfold, the entire company trading in one single day, so clearly you got a lot of day trading activities sort of back and forth bidding it up and huge trading today. The thing about Quantumscape and where we’ve seen the most well received SPAC deals lately are the ones with the most speculative and furthest out revenues.

For example, Quantumscape, they won’t see any revenue from their lithium metal solid state batteries for at least seven more years, that is right. We won’t see material revenue according to their forecasts until 2027 and typically forecasts are, you know, the best case scenario. Those are generally delayed, I would say more often than not, and I did go through their investor presentation and they showed some valuation metrics based off, of 2028 EBITDA multiples, which frankly I have never seen before. So clearly it relies on some you know, some imagination from investors, but clearly at this point, given where the stock’s been trading over a hundred percent in one day, clearly investors have stars in their eyes, don’t they?

Michael Kesslering: Yeah, they certainly do it. It is just a crazy amount of speculation. Like a lot of execution risk in terms of, you can be a believer in the thesis, but the execution risk as a company is pretty substantial and it’s really just like you had mentioned a continuation of the EV trend within specs, which those just are absolutely popping off when they announced something within that space.

Julian Klymochko: They go hand in hand.

Michael Kesslering: Absolutely and so within that looking at these very far out projections, actually this week in, other SPAC news, actually Chamath Palihapitiya, he put out a tweet storm which was really around the pushback that he got, I believe it was on the 3D printing deal where he showed his little deal sheet.

Julian Klymochko: He is a pipe investor in that one, right?

Michael Kesslering: Yes, his estimates on their business, four-five years out, and his rationale was that a low interest rate environment explains why this makes sense. And I would encourage our listeners to go look at his tweetstorm. It is quite interesting, but I think it kind of misses the point on the pushback around that, where the problem isn’t necessarily the valuation multiple that slapped on there. It is just very difficult to estimate that far out operationally. When you are looking at some, a company that is not going to generate revenue until 2027, I believe they are starting to produce with Volkswagen in this situation in 2024. But you know, you’re looking so far into the future that just building your own estimates and conviction around that is incredibly difficult. I think personally that is where my pushback would be, it is just the difficulty in the estimate.

Julian Klymochko: Oh, for sure. Because you certainly need to risk a cash flow stream that’s eight years out and that is highly speculative because they’re not even close to being able to attain that at this point. It requires so many things to go, right and so many things, quite frankly, to go wrong for their competitors, assuming that someone else isn’t going to come up with something better.

Michael Kesslering: And also that could be on the upside as well, where your estimate state could be wildly, wildly undervalued in terms of that. That is where I don’t have a problem with the discount rate. That is less of an issue from my side. It is more so just coming up with the actual cash flows as well, just very quickly and other SPAC news. It did come out yesterday that a Bill Ackman SPAC, which we’ve talked about quite a bit on the podcast is that it’s actually had been in talks with Airbnb, but obviously Airbnb is working to go the traditional IPO route or the direct listing route. And as well that they had been talking yesterday with Stripe for their IPO. For those unfamiliar, with Stripe, the payment company that has been founded by the Collison brothers that are very revered in the start-up world. Which would be very interesting if they brought that company through a SPAC. I think that would be a big stamp of approval on the space.

Julian Klymochko: Oh, certainly it wasn’t, it valued north of $20 billion dollars in their last financing.

Michael Kesslering: It certainly was and just very well revered within the start-up world.

Julian Klymochko: Yeah, so some big news in the blank check space, it is as crazy as ever. You are seeing this so-called SPAC bop, which I refer to, it somewhat analogous to the IPO pop, but the SPAC will announce a deal and the stock will rally significantly, which is really what we try to monetize being SPAC arbitrageurs, you get in pre-deal. They announced a transaction, a business combination with a private company; hopefully it is well received by public market investors. And what we’ve seen this year more than ever is this playbook that SPAC and management teams need to go through to obtain that SPAC bob, clearly the market is looking for something particular, anything with electric vehicles and absolutely like grand slam. Anything in the online gaming space, very well received and so that is really where these speculators who get in after the deal gets announced, that’s really what they want to see, and from an arbitrageurs standpoint that allows you to exit the investment at a large premium.

Michael Kesslering: And actually one last statistic on the topic of SPACs before we move on, is I believe it was CIBC came out today and said that this year SPAC issuance is on pace to be more than the last 10 years combined, which is an absolutely crazy statistic to put things into perspective.

Julian Klymochko: Oh, certainly because in July we had an all-time record north of 10 billion in SAPC IPOs, and it was almost beaten by August tally of about 9.4 billion, which is effectively greater than what we did in the biggest year ever, which was last year up until this year, which is obviously crushing it. But this market continues to be enamoured with anything EV related. As I discussed in our alpha ranks SPAC monitor, which I released last month on our website, where you can check it out. I stated that the market is just so hungry for these EV deals. They want electric vehicle deals. They want more of them and they want them now. Market remains in love with these stories, stocks. So are we going to see more? Most certainly, like you can’t bet against that, and these SPACs will continue to pop and that is why we own about 60 of them.


Julian Klymochko: Onto some other M&A news. This is really an under-followed situation and what we’ve seen over the past six months has been an incredibly lucrative M&A trade-up in Canada with respect to bidding wars. We discussed a number of times Guyana Goldfields, which from start to finish, back and forth between friendly white knight acquire and hostile bidder, that stock was built up 185%, which is a home run as an arbitrageur if you’re long and participating in that situation. Now, Cardinal could be something different after Guyana Goldfields. We did see a bidding war on Torstar, which we were involved with, we did see a bidding war come out on a that gaming stock 5 Aches, more of the same up in Canada. It is dual listed in Australia as well. Cardinal Resources, a back and forth between Russia Nord Gold, who in this situation is the hostile interloper who currently has the highest bid for a Cardinal Resources. This week they boosted their offer by 36%, from 66 cents per share to 90 cents per share.

Now being a penny stock, many people assume that it’s tiny, but this deal is nearly $500 million dollars. That is just the dynamic you see with Australian-listed stocks of which Cardinal is dual listed Australia and Canada, as surprisingly in Australia, nearly everything is a penny stock but they will just have billions of shares outstanding for some odd reason. But that just seems to be how certain markets develop. So the Russian interloper’s bid here, Nord Gold is currently higher than Chinese-friendly acquired Shandong Gold, $0.70 per share deal that the board currently supports because that is like a definitive agreement that they entered into. Shandong does have matching rights, which we should note do expire on Monday, September 7th. So by the time this podcast comes out on Tuesday, perhaps we’ll know the conclusion, but right now it is unknown. Nonetheless, the target’s prized asset is that Namdini Gold project in Ghana, West Africa, which contains over 5 million ounces of the precious metals.

That is what both these acquirers are looking for and we have seen a lot of consolidation from Shandong Gold. They have just been absolutely snapping up a ton of junior gold miners. They are trying to buy some other ones currently. So clearly these are both reputable buyers, very large, have a ton of cash to spend, and they are looking to go on a shopping spree. I just wanted for listener’s point of view to talk about how this whole bidding war developed, so in mid-March Nord Gold bought a 16.4% toehold in Cardinal at 46 cents per share, which costs them $37 million dollars. So clearly, they are committed to this deal, Pot committed perhaps with nearly a $40 million initial investment. They bought more shares to take their state to 20% submitted a nonbinding unsolicited proposal for Cardinal at 46 cents per share. Cardinal board did what any board should do. Put the company up for sale, run a sale process.

They got a friendly deal with White Knight and white Knight is someone who just comes along and comes with a bid that is friendly to the board above, and beyond what a hostile interloper, but the hostile bidder is offering. So Shandong Gold serving as white knights striking a friendly deal at 60 cents per share. Nord Gold wasn’t done, they came back, topping it with a 10% premium at 66 cents per share. Shandong Gold wasn’t having it. They top that, striking a friendly deal increasing from 60 to 70 cents per share, which is where we were earlier in the week. And now we saw Nord Gold two days ago, increasing their offer to 90 cents. So if we look at the magnitude of this bid bump from 66 to 90, which is a 36% bump significantly higher than what they did before. You got to ask, is this a knockout bid? Was it meant to scare off Shandon? Such that Nord Gold can win the prized asset here of Cardinal Resources? What are your thoughts?

Michael Kesslering: It certainly seems that way in terms of the dynamic there, and in terms of, you know, what these companies are going after is, as you had mentioned, gold project in Ghana where it is certainly viewed as one of the most promising and underdeveloped gold deposits in Africa. And so the rationale for both of these companies would be that they would be able to with their access to capital, they would be able to provide the operations enough capital to truly fully develop this resource, which in their opinion is underdeveloped at this point. But as well, you know, this is very interesting in the sense of it is a cash bidding war versus a bidding war that has share consideration where as an arbitrageur, you’re able to capture 100% of the upside with multiple bidders where you don’t have to choose what your hedge is going to be. In some instances, even in a merger bidding more, you would just go unhedged until you got more insight into where things were going to shake out. But Julian, how does your probability tree look like for Shandon coming in with a higher takeout versus just matching, versus walking away and the company going with a Nord Gold?

Julian Klymochko: You, know what? This one is real tough to say whether or not they’ll match,  whether or not they’ll try with their own knockout bid to really get Nord Gold, to go and pound sand. So it’s tough to say, but nonetheless, I mean, you look at where the current share price is trading, and it’s not really pricing in any upside optionality. So still produces really interesting potential investment for investors, but you really laid out the potential scenarios there, either Shandon can just say, look, we’re out. It got too expensive, but typically, buyers do that when they can’t afford it, clearly they can’t afford it. Just depends on how badly they want it and the NPV on this asset, as you mentioned, it could be fairly attractive for the acquiror, is they really want 5 million ounces of gold reserves in terms of being able to develop those gold reserves, so certainly they could come back and match. They could come back and increase it. I mean, a dollar would be great for arbitrageurs on this one, or they could just drop out and allow Nord Gold to have it. What is important is to see what the market’s pricing in and clearly the market’s not really pricing in any upside optionality, which is interesting to note, as I indicated, this is a very under-followed situation. It has been inefficiently traded, we are able to buy with really no upside optionality priced in and it’s been incredibly lucrative because Cardinal is a core holding for disclosure purposes of the Accelerate Arbitrage Fund. Stock up nearly 30% this week on the news, which is great for us. Will this bidding war continue? Only time will tell. Key dates Monday, September 7, Shandon matching right expires, so we will certainly see something happening next week and hopefully the back and forth can continue on this one. Super interesting situation and really an M&A 101, learning experience on hostile takeovers, bidding wars and things of that nature which we continue to see in Canadian M&A. And so for arbitrage, if you’re not participating in these, then you’re really missing out. Something to take stock of and definitely consider participating in if that’s your thing.

But other than that, that pretty much wraps things up for us on this episode of The Absolute Return Podcast. If you enjoyed it, please leave us a review. Tell your friends and co-workers. You can always check out more episodes on and definitely follow us on Twitter. Mike, what is your handle?

Michael Kesslering: It is @M_Kesslering.

Julian Klymochko: And you can follow me @JulianKlymochko, K-L-Y-M-O-C-H-K-O. You have a great long weekend pens down for Monday as New York, NASDAQ, Toronto, all closed for trading. Go take some time off, do something fun. Get your mind off the volatile tech stocks this week. Clearly, in my opinion, the growth bubble may have been pricked. It was just announced by or unveiled by financial times that the tremendous amount of upside call options on these story stock technology names were being snapped up in unprecedented size by none other than SoftBank, which is absolutely perfect in my opinion.

Michael Kesslering: Can’t blame Robinhood traders anymore.

Julian Klymochko: Yeah, I see it. A nice, interesting combination of Robinhood and Masayoshi Son coming in for that upside gorging on tech stocks, but until next week, which you all the best in your investing and we’ll chat with you soon. Cheers.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.

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