For Immediate Release
Chicago, IL – February 29, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Encana Corporation ( (ECA - Analyst Report), Enbridge Inc. ( (ENB - Snapshot Report), BankAtlantic Bancorp Inc. ( , BB&T Corporation ( (BBT - Analyst Report) and Biogen Idec (BIIB - Analyst Report).
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Here are highlights from Tuesday’s Analyst Blog:
Encana, Mitsubishi Make a Deal
Encana Corporation ( (ECA - Analyst Report) and Japanese major Mitsubishi Corporation joined in the Cutbank Ridge Partnership, which was first announced in February 17.
Upon closure, Mitsubishi took over 40% interest in the Cutbank Ridge Partnership for approximately C$1.45 billion. The company will also invest another C$1.45 billion over the next five years for the development of the project. The funding on part of Mitsubishi will trim Encana’s capital spending on the project to 30% of the total estimated expenditure.
Encana will, however, control the remaining 60% stake and continue to act as the operator of the Partnership that spreads over 409,000 net acres of undeveloped Montney natural gas lands in British Columbia, along with additional development potential in the Cadomin and Doig geological formations.
This deal excludes Encana’s current Cutbank Ridge production of about 600 million cubic feet of natural gas per day, processing plants, gathering systems or the Alberta landholdings.
The Cutbank Ridge boasts of being one of the most fertile and low-cost resource rich acreage in North America. With large proved undeveloped natural gas reserve, the region is expected to have the capacity of delivering long-term, affordable energy supplies to domestic and overseas markets.
We remain highly optimistic about this collaboration and expect the Partnership to be successful, based on Encana’s leadership position in the North American natural gas market and Mitsubishi's healthy financial profile.
This alliance is part of Encana’s strategic initiatives targeted toward redesigning the company’s asset and operational structure. In this regard, the company recently divested some of its properties in the Cutbank Ridge area to Calgary-based Veresen Inc. for approximately C$920 million.
Encana also completed the sale of its majority stake at the Cabin Gas Plant in Horn River Basin to Enbridge Inc. ( (ENB - Snapshot Report) for $215 million and dispensed most of its natural gas producing assets in North Texas to EnerVest, Ltd. for $860 million.
We are maintaining our long-term Neutral recommendation on the stock. Encana shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.
BB&T-BankAtlantic Deal Falls Through
On Monday, Judge J. Travis Laster of Delaware Court of Chancery gave his judgement over the lawsuit filed by the investors in the trust-preferred securities (TruPS) debt under the BB&T-BankAtlantic deal. The judge has permanently prohibited the deal under which, BankAtlantic, a wholly owned subsidiary of BankAtlantic Bancorp Inc. ( , was supposed to sell most of its banking assets to BB&T Corporation ( (BBT - Analyst Report).
Earlier on November 1, 2011, BB&T announced its plan to acquire BankAtlantic. Under the terms of the deal, the company was supposed to acquire $2.1 billion in loans and $3.3 billion in deposits (90% core and low-cost funds) for $301 million premium, representing 9.05% of the deposits at BankAtlantic on September 30. However, deposit premium may rise or fall depending on the amount of deposits at BankAtlantic prior to the closing of deal, but it will not exceed $315.9 million.
However, BankAtlantic Bancorp’s strategy was to hold on nonperforming and criticized loans worth $623 million and sell off $2.1 billion in assets to BB&T. Moreover, the company has no plans to pay off $289 million in principal TruPS debt owed by the holding company.
Therefore, in November 2011, a group of corporate debt investors of BankAtlantic filed a lawsuit against the firm to stop it from selling its loans, deposits and branches to BB&T. These investors believed that this sale infringes the terms of their creditors’ agreement. Finally, the investors have won the ruling as the judge has permanently forbidden the deal.
Charges Against the Deal
In the first opposition to the deal, the plaintiffs accused both BB&T and BankAtlantic of structuring the transaction in such a way that the acquirer could evade TruPS obligations. They charged the parent company, BankAtlantic Bancorp, of breaching an agreement, stating that the transfer or sale of majority of its assets will not happen without ensuring that the acquirer will also assume TruPS.
However, BB&T’s deal would transfer nearly 83% of BankAtlantic assets, without assuming the TruPS. Hence, the plaintiffs want either TruPS to be included in the agreement or the deal to be blocked.
The plaintiffs also stated that following the closure of the transaction, BankAtlantic Bancorp would become a holding company with no branches and will own large amounts of nonperforming loans and foreclosed real estate assets. Therefore, the company will no longer resemble its present operations.
The lawsuit against BB&T-BankAtlantic transaction was filed in Delaware Chancery Court by Hildene Capital Management and Alesco Preferred Funding. Both Hildene and Alesco are indirect beneficiaries to BankAtlantic’s TruPS.
Similar Opposition Before
Earlier in 2010, BankAtlantic faced similar opposition related to its TruPS. At that time, the company had tried to repurchase nearly $230 million of these securities at a discount to boost its capital levels. However, the offer was withdrawn following strong oppositions from certain section of investors.
The judge claimed that the sale of all BankAtlantic’s branches and deposits, along with most of its assets to BB&T would breach the terms of TruPS corporate debt. According to the ruling, the debt should either be repaid or acquire by BB&T.
Therefore, the ruling put forward by the judge warns all bank holding companies not to evade repayment of TruPS debt while selling their banks. However, ruling in favor of BankAtlantic Bancorp would have dissuaded the investors from helping the banks to raise capital with TruPS.
The BB&T-BankAtlantic deal was expected to be highly advantageous to both the companies. For BankAtlantic, the agreement was expected to resolve some of its balance sheet and higher operating expense related problems.
For BB&T, the transaction was expected to enable it to speed up its expansion strategy in Florida region. Also, the deal would have added 78 branches to BB&T’s 64-branch network in Florida region. Besides substantially increasing BB&T’s market share and footprints, the acquisition would have improved the company’s top line over the medium term.
However, the judge should consider investors’ interest and come up with proper solutions to maximize the profits of all the concerned parties.
BB&T currently retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. However, considering the fundamentals, we are maintaining our long-term “Neutral” recommendation on the shares.
Biogen-Samsung Set Up JV
Biogen Idec (BIIB - Analyst Report) and Samsung Biologics recently announced the setting up of their biosimilars joint venture (JV). The joint venture, Samsung Bioepis Co., Ltd., will focus on the development, manufacture and marketing of biosimilars. Biosimilars are generic versions of biologics.
The companies had initially announced their intention to set up a joint venture in December 2011. The joint venture, based in Korea, will not be involved in the development of biosimilars of Biogen’s branded products. The joint venture brings together Biogen’s expertise in biologics and Samsung’s acumen and experience in new business development.
While we usually associate Samsung with electronic products, the company has been working on making a name for itself in the biopharmaceutical world as well. In May 2010, the company had declared the biopharmaceutical sector as one of five new strategic businesses that would lead the group’s future growth.
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