Weaker C$ may trigger takeovers on TSX, hollowing out investor choice

Thu Feb 11, 2016 3:59pm EST
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By Fergal Smith

TORONTO Feb 11 (Reuters) - Corporate Canada is on sale for foreign buyers after the Canadian dollar plunged, potentially triggering takeovers that hollow out investor choice in an already concentrated stock market, portfolio managers warned.

A narrower pool of investment choices would reduce the opportunity to diversify, exposing Canadian investors to greater risk amid a highly volatile period for stock markets.

U.S. home improvement retailer Lowe's Cos Inc agreed this month to buy Canada's Rona Inc for C$3.2 billion, paying a premium of more than 100 percent after the Canadian dollar fell from parity when a much lower bid was rejected in 2012.

If the deal goes through it will eliminate a consumer discretionary name from a bank- and resource-dominated local stock market.

"This is one of the first companies that is now going to be taken over by U.S. companies because our dollar is so low," said Norman Levine, managing director, Portfolio Management Corporation.

"It's bad long term for the Canadian investor," he added.

Easy to understand, easy to value real estate investment trusts (REITs) could also be on the radar for large U.S. players, according to Lorne Steinberg, president of Lorne Steinberg Wealth Management.

"There are a number of big REITs that own good juicy portfolios of properties that throw off cash flows," said Steinberg. "There is also enough scale there that you could see potentially a large deal"   Continued...