merger

MacDonald, Dettwiler and Associates, $55.01, symbol MDA on Toronto (Shares outstanding: 41.4 million; Market cap: $2.3 billion; www.mdacorporation.com), has sold its Information Products business (excluding Geospatial Services) to TPG Capital for $850 million. The company has also started paying a twice-yearly dividend of $0.50 a share, for a 1.8% yield. MacDonald Dettwiler’s space and defence contracts are heavily dependent on U.S. and Canadian government spending. That adds risk. The stock is up 47.1% over the last year, and now trades at a 23.9 times the $2.30 a share that the company is forecast to earn this year. MacDonald Dettwiler is okay to hold, but only for aggressive investors....

Quadra FNX Mining, $14.77, symbol QUX on Toronto (Shares outstanding: 188.9 million; Market cap: $2.8 billion, www.quadrafnx.com), merged with FNX Mining in May 2010. The combined company now operates five mines in Canada, Chile and the U.S. Quadra FNX also owns the Sierra Gorda copper/molybdenum development project in Chile, and the Malmbjerg molybdenum-development project in Greenland. In the three months ended December 31, 2010, Quadra FNX’s revenue rose 88.6%, to $332.0 million from $176.0 million. Cash flow rose 46.1%, to $0.76 a share from $0.52 a share. Higher copper prices and the merger with FNX Mining pushed up results....

AT&T INC., $28.85, New York symbol T, has agreed to buy T-Mobile from Germany’s Deutsche Telekom AG. T-Mobile is the fourth-largest provider of wireless services in the U.S., with 33.7 million subscribers. Adding T-Mobile would make AT&T the largest wireless carrier in the U.S., with 130 million subscribers. This is huge purchase for AT&T, which will pay $39 billion for T-Mobile. That’s equal to 23% of its $170.5-billion market cap. AT&T will pay $25 billion in cash, and the remaining $14 billion in stock. That would give Deutsche Telekom an 8% stake in AT&T....

These two phone companies have limited growth prospects. But their high dividends seem safe for now. FRONTIER COMMUNICATIONS CORP. $8.03 (New York symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 993.8 million; Market cap: $8.0 billion; Price-to-sales ratio: 2.1; Dividend yield: 9.3%; TSINetwork Rating: Average; www.frontier.com) sells Internet and traditional phone services to 7.4 million customers in 27 states. Its clients are mainly in rural and suburban areas. The company took its current form in July 2010 when it acquired 4 million traditional phone customers from Verizon Communications Inc. (also in this issue). In return, Verizon shareholders received 0.24 shares of Frontier for each Verizon share they held. That gave them 68% of Frontier. If you assume the transaction occurred at the start of 2009, Frontier’s revenue would have fallen 6.9%, to $5.65 billion in 2010 from $6.1 billion in 2009. If you exclude one-time items, such as costs to integrate the Verizon accounts, earnings fell 25.2%, to $324 million, or $0.33 a share, from $433 million, or $0.44....

There’s no limit to the types of investment questions Inner Circle members can ask Pat and his team of investment experts. Members often ask for Pat’s advice on Canadian stock market investments they are thinking of buying that we don’t cover in our newsletters. These companies range from large multinational firms to the most speculative penny mines. Members also frequently ask about specific investment strategies, or how headline-making events could affect their portfolios. For example, the TMX Group, which operates a number of Canadian stock exchanges, recently announced that it had agreed to merge with the London Stock Exchange (LSE). An Inner Circle member recently asked for our recommendation on TMX Group, and what impact such a merger would have on Canadian investors. To give you a sense of how the Inner Circle works, I’d like to share this question, and our answer, with you. I hope you enjoy and profit from it....

INTERNATIONAL BUSINESS MACHINES CORP., $162.43, New York symbol IBM, hit a new all-time high of $167.72 this week after the company confirmed its goal to double its earnings and add $20 billion to its annual sales of $100 billion by 2015. A big part of this growth will come from new technologies like “cloud computing” That’s where data and software are kept on one or more centralized servers. Users connect to these servers over the Internet through a variety of devices. IBM feels that cloud-computing services will generate annual revenue of $7 billion by 2015. The company’s strong reputation and new products will also help it expand in fast-growing markets, such as China, India and Brazil. By 2015, IBM feels these markets will supply 30% of its overall revenue....

YAMANA GOLD, $12.36, symbol YRI on Toronto, has entered into an agreement with Goldcorp Inc. (Toronto symbol G) and Switzerland-based Xstrata plc. Under the deal, Yamana will sell its 100%-owned Agua Rica copper/gold property in Argentina to mining firm Minera Alumbrera. Agua Rica is about 35 kilometres from the producing Alumbrera mine. This mine is owned by Minera Alumbrera, which is currently owned 50% by Xstrata, 37.5% by Goldcorp and 12.5% by Yamana. In exchange for Agua Rica, Yamana (which will still own 12.5% of the project through Minera Alumbrera) will get payments totalling $110 million over three years, plus a further $150 million when construction begins on a mine, and an additional $50 million when the mine goes into production. Yamana will also get a revenue stream equal to 65% of the gold produced as a by-product of the mainly copper deposit, to a maximum of 2.3 million ounces at spot prices minus $450 U.S. an ounce....

These three companies all have large overseas operations. That exposes them to a wide variety of risks, including volatile currency-exchange rates and political unrest. However, all three are focusing on fast-growing markets. That enhances their long-term prospects. THOMSON REUTERS CORP. $38 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 833.7 million; Market cap: $31.7 billion; Price-to-sales ratio: 2.4; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.thomsonreuters.com) has two main divisions: Markets (which supplied 58% of its 2010 revenue and 49% of its earnings) sells financial-information products to banks and other financial institutions. Professional (42%, 51%) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. Thomson Reuters took its present form when the Ontario-based Thomson Corp. bought the U.K.-based Reuters news agency for $17 billion U.S. in cash and shares (all amounts except share price and market cap in U.S. dollars) in April 2008....

TMX Group Inc., $39.68, symbol X on Toronto (Shares outstanding: 74.3 million; Market cap: $3.0 billion), owns and operates Canada’s two national stock exchanges. The Toronto Stock Exchange lists senior equities and the TMX Venture Exchange lists junior equities. The company also owns the Montreal Exchange, which specializes in derivatives, and the NGX, an exchange for trading and clearing natural-gas and electricity contracts. As well, TMX Group owns Shorcan Brokers, a fixed-income inter-dealer broker, and The Equicom Group, an investor-relations company. In 2000, the Toronto Stock Exchange became the first exchange in North America to become a for-profit corporation (known as TSX Inc.). In 2001, TSX bought the Vancouver Stock Exchange. The TSX Group first sold shares to the public at $9 (adjusted for a two-for-one split), and began trading on Toronto in November 2002....

Expanding through acquisitions is riskier than internal growth. However, some companies have a strong history of buying and integrating new businesses, and making them more profitable. A top example is Stanley, which has spent over $3.0 billion on acquisitions since 2002, not including last year’s $4.7-billion, all-stock purchase of rival toolmaker Black & Decker....