CANEXUS CORP 6.5 PCT DEBS T.CUS.DB.D

TD commentary of CHE offer for CUS

[Roxy27]

Chemtrade Expresses Interest In Acquiring Canexus

A Potential Win-Win-Win for CUS, CHE, and SPB

TD Investment Conclusion

Overview

• Chemtrade Logistics Income Fund (CHE.UN-T) announced via press release that it has made a proposal to acquire Canexus Corp. (CUS-T) for $1.45 per share in cash. Canexus rejected the offer without engaging into discussions with Chemtrade.

• Chemtrade noted that it is prepared to complete a transaction expeditiously and may be prepared to increase its offer. However, Chemtrade indicated that it does not want Canexus to proceed with its planned $75mm note offering, which it states would negatively impact shareholder value.

  Transaction Valuation

• The offer represents an 18% premium to yesterday's closing price and 8.3x the midpoint of Canexus' F2016 adjusted EBITDA guidance of $100-$110mm.

• Recall that the previously planned acquisition of Canexus by Superior Plus Corp. (SPB-T) was an all equity deal, which, at the time of the deal announcement, valued Canexus at ~$1.70/share or 8.9x the mid-point of current F2016 adjusted EBITDA guidance. At the time, Canexus shares were trading at $1.34/share.

• Our current target price for Canexus of $1.40/share is based on 7.0x our F2017 adjusted EBITDA estimate.

  Our View for Canexus Shareholders

• We believe that a sale of the company at $1.45/share or higher would be a good outcome for Canexus shareholders as we see limited growth for the company for several years as it redirects its excess cash to paying down its heavy debt-load and given additional risks overhanging the stock, such as the ongoing litigation with Superior Plus.

• Although management's plan to pay down ~$100mm of debt by the end of 2018 could, in our view, result in share appreciation of ~$0.50/share, note that discounting back $1.74 at the end of 2018 (yesterday's closing price of $1.24 + $0.50/share) to today at a discount rate of 10% results in a present value of ~ $1.40/share, below the Chemtrade offer.

  Our View for Chemtrade Shareholders

• We believe that cost synergies for the two companies would be fairly limited, as Chemtrade's one sodium chlorate facility has a dedicated customer and given limited overlap of other products between the two companies, but could approximate $5-10mm with the elimination of duplicate overhead costs.

• Chemtrade's net debt / EBITDA would increase from ~3.7x to ~5.0x, excluding synergies and assuming the transaction is fully debt-financed, and we therefore believe that a concurrent equity financing would be likely.

• In our view, Chemtrade wants Canexus for the stable sodium chlorate and South American assets rather than the more cyclical chlor-alkali business and could sell the North Vancouver chlor-alkali facility to Superior Plus to delever more rapidly. 

[atkitkat]

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[Kherson]

The value is in the assets, not the management. If the right people were running this company, Canexus would not be in this mess!

[mattmckenzies]

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[Calgaryrider]

Hey, Matt, it takes an idiot to know one. Clean yourself up, man. Show some class. Just an iota. Not for me, for you. It's tiring. You're tiring. Anyways, that TD commentary was spot on as was the Chemtrade comment about destroying shareholder value. If there was an award for poorest leadership (governance) it'd go to the CUS board. They are only interested in preserving the jobs of