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The History and Case for Power Corp.

Power Corporation of Canada has been part of the Canadian lexicon for nearly 100 years. Founded by A.J. Nesbitt and P.A. Thomson (founders of the firm that would become Nesbitt Burns now owned by BMO), it began life as, you guessed it, a power ut…

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The History and Case for Power Corp.

Power Corporation of Canada has been part of the Canadian lexicon for nearly 100 years. Founded by A.J. Nesbitt and P.A. Thomson (founders of the firm that would become Nesbitt Burns now owned by BMO), it began life as, you guessed it, a power utility company. It focused on early hydro plant construction in Ontario and Quebec and then went on to acquire ownership stakes in other like companies. It changed much over the time as power assets were "nationalized" by provinces and it became involved in many different industries from oil and gas to pulp and paper. However, the story really starts for us when the man they would call King Paul took control of the company in 1968.

What can be said of the founder of the modern Power Corp. Paul Desmarais started life in Sudbury. He is of Quebec descent and comes from a family of upper middle class. He inherited a struggling passenger bus line from his family and went to work turning the firm around and expanding it. And what a remarkable job he did. He expanded the business into stakes in insurance through its majority interest in Imperial Life Assurance and a 25% stake in Investors Group, with a smattering of media and real estate assets thrown in. By 1968 he was able to swap his interest in the firm (Trans-Canada Transportation Fund) in to a controlling stake in the venerable Power Corp. This was a classic reverse takeover and would be a common practice of Desmarais' for years to come.

The collection of assets under the umbrella of Power Corp at the time were truly staggering.

https://preview.redd.it/ja5mfg5i79mb1.png?width=826&format=png&auto=webp&s=5583e11db22485df927c249690635d196ea59de8

Power Corp. Org Chart in 1968 (Courtesy of Power Corp. History Website)

Impressive, but unwieldy. Desmarais would go on to simplify the company over the next decade or so, raising stakes in some some, merging together others, and exiting others completely. This was a long process, and I am sure that none of you want me to go to in to length on all of them, so I will just give some highlights to get us to the modern incarnation of Power Corp.

  • Provincial Transport was merged with Canadian Steamship Lines to give Power Corp. effective control (another classic reverse takeover), which was then in-turn sold to Paul Martin (yes, that Paul Martin) with the blessing and financial backing of Paul. This exited Power Corp. from the transportation sector completely.
  • It tried unsuccessfully to takeover the venerable Argus Corp. This company would eventually be the building blocks for another maverick of Canadian business and politics: Conrad Black.
  • In this time Power Corp. took majority control of Great-West Life and Investors Group, creating the foundational building blocks for the modern company.
  • Then there was the massive venture in to Europe with partner Albert Frere, that would lead to modern stake in GBL.
  • He would take a run at control of Canadian Pacific (CP) before bowing out.
  • It would finally sell its stake in Consolidated-Bathurst (what was affectionately called Connie B at the time) to Stone Container (owned by Roger Stone, yes, that Roger Stone) for $2.6 billion in 1989, right before the sector dropped off a cliff.
  • He would foray more in to the media sector with stakes in Southam, a newspaper holding company, before having to concede (once again to Conrad Black), and with a stake in Time Warner that almost led to effective control.
  • Then there was the early investments in China with CITIC and eventually, China AMC.

There were many more deals in that time, you could literally write an entire book on the subject, but it shows what Paul Desmarais was really good at: Deals. He was the consummate deal-maker. There was never idea that would not be tried, I think exemplified by the attempts to take over both Argus and CP. His track record during his tenure as top boss of Power Corp was undeniably successful, and it was very profitable for Paul himself and those who went along for the ride.

It seems all good things must come to an end though. That happened when Paul Sr. retired from active management in 1996. The reigns were passed to his two male heirs: Andre and Paul Jr. While both were bright boys, competent and well-connected, they just seemed to lack the special touch that their father seemed to wield so effortlessly. They did a few good deals, like taking over London Life (from the jaws of the declining Brascan) and also Canada Life. These two have worked well and really cemented Great-West Life as a force to be reckoned with in Canada. Then there was the deal to take over Putnam in the US. This deal had its merits at the time, but has since been a thorn in side of Power Corp for a decade and a half (Putnam was recently sold to Templeton for cash and stock). Then there was the diversification strategy away from traditional financial services. In came investments in Lion Electric, Lumenpulse, Performance Sports Group (owner of CCM and Bauer), as well as the creation of Sagard and Power Sustainable (taking them back to their roots as a power producer). None of these have proven terrible, in fact some were quite good investments. Alas, it seems the time of the true investment holding corp. was over. The tricks of the past were no longer exciting the market. Maybe what was needed was not more diversification, maybe what was needed was simplification. This leads us to out current protagonist: Jeffery Orr.

Mr. Orr took over the reigns of Power Corp. in February of 2020 (Jesus, what a time to take over any company), while the simplification of Power Corp. had begun a few months earlier (most likely partly his idea) with Power Financial being taken over by the main company, he increased the speed of its transformation. Paragesa, a holding layer for its European investments, were swapped for direct ownership in GBL. Assets between IGM and what was now referred to as LifeCo were exchanged to where they would fit best in the overall Power umbrella. China AMC was finally, fully tucked in to IGM giving Power Corp. some cash and more shares in Great-West Life. Costs were trimmed at Power Corp. by a not insignificant $50 million a year. While Mr. Orr concedes the work is not over yet, he can rightly be congratulated to simplifying the org.

https://preview.redd.it/rkvju50k79mb1.png?width=1932&format=png&auto=webp&s=0f2c84cc50daafd23b38bc7d56a3e5046b1e2f1e

Power Corp Org in 2022 (Courtesy of Power Corp. Website)

So this leads us to today. What does the modern Power Corp. offer the potential investor? Well, there is the very clean collection of assets, very low parent company debt, a sizable dividend yield, and growing share buybacks. While all that is nice, many might inquire why not just buy the underlying companies? And this is where I think the value proposition lies. Power Corp. has a massive stable of fintech investments that are held principally at the Power Financial level, which is now 100% owned by Power Corp. While the amount invested in to them are small, they could create quite good returns for shareholders over a period of time. Here is the list of fintech investments HERE. They are also the stand alone businesses that Mr. Orr has stated will be monetized over time, these include Lion Electric, Peak Achievement Athletics (co-owned with Fairfax Financial), LMPG, and WealthSimple. This will reduce complexity over time and that capital, once monetized, can be returned to shareholders. I would include GBL in this, as to me, it still seems to be a question mark over the longer term as to where it fits in. Lastly, there is the Sagard and Power funds that are being built up. While small today, they can lead to growing streams of fees over the longer term, as well as value creation for amounts invested as seed capital.

If you want my personal take, what I think Mr. Orr is trying to accomplish is to turn Power Corp. in to a mini Brookfield, simply with a skew towards financial services, instead of power, infrastructure and real estate. Highlighted below, this looks similar to what Brookfield did when it went through its restructuring back in the day.

https://preview.redd.it/5kj24r4l79mb1.png?width=1032&format=png&auto=webp&s=9704f2ae8b29052e37e7eb3bfc28fef19c23154b

Courtesy of Power Corp. Presentation

Now, this is not a recommendation to buy the stock. The stock price has held up well over the past couple of years, and with dividends, it has garnered a decent return. What this is intended to do is highlight the company and the value that still lies hidden within it. The million dollar question is, will that value be brought to the surface? Only the fullness of time will be able to answer that question.

Addendum: I know many will inquire why none of the juicy political connections were not included in this. To be honest, it was getting long, and I didn't see where they fit in exactly. But here is a brief synopsis.

  • Pierre Elliot Trudeau was a Board member of Power Corp. for many years.
  • Jean Chretien was connected to Power Corp, and his daughter, France, is married to Andre Desmarais.
  • Brian Mulroney was a former legal specialist for Power Corp. both before and after his political life.
  • Paul Martin was a lieutenant in the Power Corp. and made his money from his interest in CSL - sold to him and financed by Power Corp.

There are so many other good ones, but I am all out of steam :P.

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…

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To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….

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Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 

 

About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. www.insilico.com 


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Another country is getting ready to launch a visa for digital nomads

Early reports are saying Japan will soon have a digital nomad visa for high-earning foreigners.

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Over the last decade, the explosion of remote work that came as a result of improved technology and the pandemic has allowed an increasing number of people to become digital nomads. 

When looked at more broadly as anyone not required to come into a fixed office but instead moves between different locations such as the home and the coffee shop, the latest estimate shows that there were more than 35 million such workers in the world by the end of 2023 while over half of those come from the United States.

Related: There is a new list of cities that are best for digital nomads

While remote work has also allowed many to move to cheaper places and travel around the world while still bringing in income, working outside of one's home country requires either dual citizenship or work authorization — the global shift toward remote work has pushed many countries to launch specific digital nomad visas to boost their economies and bring in new residents.

Japan is a very popular destination for U.S. tourists. 

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This popular vacation destination will soon have a nomad visa

Spain, Portugal, Indonesia, Malaysia, Costa Rica, Brazil, Latvia and Malta are some of the countries currently offering specific visas for foreigners who want to live there while bringing in income from abroad.

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With the exception of a few, Asian countries generally have stricter immigration laws and were much slower to launch these types of visas that some of the countries with weaker economies had as far back as 2015. As first reported by the Japan Times, the country's Immigration Services Agency ended up making the leap toward a visa for those who can earn more than ¥10 million ($68,300 USD) with income from another country.

The Japanese government has not yet worked out the specifics of how long the visa will be valid for or how much it will cost — public comment on the proposal is being accepted throughout next week. 

That said, early reports say the visa will be shorter than the typical digital nomad option that allows foreigners to live in a country for several years. The visa will reportedly be valid for six months or slightly longer but still no more than a year — along with the ability to work, this allows some to stay beyond the 90-day tourist period typically afforded to those from countries with visa-free agreements.

'Not be given a residence card of residence certificate'

While one will be able to reapply for the visa after the time runs out, this can only be done by exiting the country and being away for six months before coming back again — becoming a permanent resident on the pathway to citizenship is an entirely different process with much more strict requirements.

"Those living in Japan with the digital nomad visa will not be given a residence card or a residence certificate, which provide access to certain government benefits," reports the news outlet. "The visa cannot be renewed and must be reapplied for, with this only possible six months after leaving the countr

The visa will reportedly start in March and also allow holders to bring their spouses and families with them. To start using the visa, holders will also need to purchase private health insurance from their home country while taxes on any money one earns will also need to be paid through one's home country.

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