merger

DIAGEO PLC ADRs $63 (New York symbol DEO; Conservative Growth Portfolio, Consumer sector; ADRs outstanding: 624.9 million; Market cap: $39.4 billion; Price-to-sales ratio: 2.6; WSSF Rating: Above Average) is the world’s largest premium alcoholic-beverage company. (Each American Depositary Receipt represents four Diageo common shares.) London-based Diageo has 28% of the global market. Spirits account for 73% of its sales, followed by beer (22%) and wine (5%). It gets 35% of its sales from North America, 30% from Europe, 10% from Asia, and 25% from the rest of the world. Diageo was formed in 1997 through the merger of GrandMet and Guinness.

High-quality brands cut Diageo’s risk

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ENCANA CORP., $63.52, Toronto symbol ECA, rose 7% on Friday after the company announced that it will split itself into two separate companies. One will keep the EnCana name, and will focus on unconventional natural gas. The other will operate as Cenovus Energy Inc., and will specialize in oil-sands projects, oil refineries and conventional natural gas. The new EnCana will account for about two-thirds of the company’s current production and reserves. Cenovus will account for the remaining third. EnCana had hoped to complete the split in early 2009, but the stock-market decline and tight credit markets would have made it difficult for the two new, smaller companies to raise capital to fund new projects. Now that conditions have improved, EnCana has decided to go ahead with the split....

SUNCOR ENERGY INC. $35 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.6 billion; Market cap: $56 billion; Price-to-sales ratio: 1.0; SI Rating: Average) replaces Petro-Canada on our Conservative Growth Portfolio. On August 1, 2009, Petro-Canada shareholders received 1.28 shares of Suncor for each share they owned, while Suncor investors got one share of the new company for each Suncor share they held. The new company is now Canada’s largest oil company by market cap, and the fifth largest in North America. It has 7.5 billion barrels of proven and probable reserves. Oil sands account for about 80% of these. It also has 19 billion barrels in contingent reserves. Its daily production of 710,000 barrels of oil equivalent consists of roughly 80% oil and 20% natural gas....

WELLS FARGO & CO. $24 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 4.7 billion; Market cap: $112.8 billion; Price-to-sales ratio: 1.8; WSSF Rating: Average) earned a record $3.2 billion in the second quarter of 2009. That’s up 80.9% from $1.8 billion a year earlier. Last January’s purchase of rival banking firm Wachovia Corp. was the main reason for the gain. Wells Fargo issued shares to help pay for Wachovia. It also sold shares to the public in May so it could better absorb higher loan losses during the recession. These moves increased the number of shares outstanding by 41%, so per-share earnings rose just 7.5% in the quarter, to $0.57 from $0.53. Revenue jumped 96.4%, to $22.5 billion from $11.5 billion. Wachovia accounted for 39% of Wells Fargo’s second-quarter revenue. The recession continues to hurt the quality of the company’s loan portfolio. It raised its loan-loss provisions by 68.9% in the latest quarter, to $5.1 billion from $3 billion a year earlier. However, Wells Fargo’s management feels the Wachovia merger will let it cut its annual expenses by $5 billion. This should help offset the higher loan losses. Wells Fargo is a buy....

TRANSALTA CORP., $20.85, Toronto symbol TA, has launched a hostile takeover bid for Canadian Hydro Developers Inc. (Toronto symbol KHD). Canadian Hydro owns and operates 21 power-generating facilities in Alberta, B.C., Ontario and Quebec. These include 12 hydroelectric plants, eight wind farms and one biomass plant, which generates power by burning plant materials and wood waste from lumber mills. TransAlta is offering $4.55 a share in cash for Canadian Hydro, for a total of $654 million. That’s equal to 79% of TransAlta’s 2008 cash flow of $828 million, or $4.16 a share....

The recession is driving down advertising revenue for many newspaper publishers and information providers. As well, more people are turning to the Internet as their main source of information. We feel these three information providers will overcome the current downturn. As market leaders, their well-known brands and strong reputations will continue to attract customers and advertisers. As well, all three are aggressively cutting their costs. THOMSON REUTERS CORP. $32 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 828.6 million; Market cap: $26.5 billion; Price-to-sales ratio: 2.0; SI Rating: Above Average) divides its operations into two divisions: Markets accounts for 60% of the company’s revenue and sells financial-information products to banks and other financial institutions. Professional (40% of revenue) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. Thomson Reuters gets about 60% of its revenue from the Americas, followed by Europe (30%) and Asia (10%)....

THOMSON REUTERS CORP. $32 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 828.6 million; Market cap: $26.5 billion; Price-to-sales ratio: 2.0; SI Rating: Above Average) divides its operations into two divisions: Markets accounts for 60% of the company’s revenue and sells financial-information products to banks and other financial institutions. Professional (40% of revenue) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. Thomson Reuters gets about 60% of its revenue from the Americas, followed by Europe (30%) and Asia (10%). Thomson Reuters took its present form when the Ontario-based Thomson Corp. bought the U.K.-based Reuters news agency in April 2008 for $17 billion in cash and shares (all amounts except share price and market cap in U.S. dollars). In the three months ended March 31, 2009, Thomson Reuters’ revenue soared 70.3%, to $3.1 billion from $1.8 billion. However, if you assume that Thomson bought Reuters at the start of 2007, sales would have declined 3.3%. The drop was due to the negative impact of the higher U.S. dollar, which hurts the value of the company’s overseas sales. If you disregard exchange rates, revenue would have risen 3%....

Pfizer Inc., $14.72, symbol PFE on New York, (Shares outstanding: 6.8 billion; Market cap: $100.1 billion) is one of the world’s largest drug companies. It’s a major maker of pharmaceuticals, hospital and consumer products, and animal-health lines. Pfizer’s products are sold in more than 150 countries; international business accounts for about 58% of Pfizer’s sales. Pfizer’s major brands include Lipitor (cholesterol), Lyrica (back pain), Viagra (impotence), Zyvox (anti-infection), Aricept (Alzheimer’s), Sutent (cancer), Geodon (schizophrenia), Chantix (nicotine addiction), and Celebrex (arthritic pain and inflammation). Pfizer drugs on which U.S. patents have recently expired include Norvasc (high blood pressure), Camptosar (colon cancer) and Zyrtec (allergies). Last January, the company agreed to buy rival drug maker Wyeth (New York symbol WYE) for cash and shares. Based on current prices, the deal will cost Pfizer $63.3 billion. (Pfizer will pay about 70% of the purchase price in cash, and the remaining 30% in stock). Wyeth shareholders will own 16% of the combined company, which will probably keep the Pfizer name and trading symbol....

TECK RESOURCES LTD., $19.99, Toronto symbol TCK.B, will sell 101.3 million class B subordinate-voting shares (one vote per share) at $17.21 each to China Investment Corp., a sovereign wealth fund controlled by the Chinese government. Teck is selling these shares for 13.9% below the current market price. That’s because China Investment agreed to certain conditions, including holding onto these shares for at least a year and not selling them to one of Teck’s main rivals or customers. Despite the discount, Teck’s shares rose 8% on the news. That’s because Teck will put the $1.7 billion proceeds from the sale toward the $9.8-billion U.S. it borrowed to finance its $13.6-billion (Canadian) purchase of Fording Canadian Coal Trust last October....

POTASH CORP. OF SASKATCHEWAN, $107.66, Toronto symbol POT, fell slightly on Friday after it lowered its second-quarter earnings forecast. Potash now expects to report earnings of $0.70 a share (all amounts except share price in U.S. dollars). That’s 46.2% below the midpoint of its earlier range of $1.10 to $1.50. Lower prices for crops, such as corn and wheat, continue to dampen fertilizer demand and prices. Plus, sales have been hurt by unusually dry conditions in the Canadian prairies and cool, wet weather in the U.S. Potash Corp. and other fertilizer makers, such as Agrium (see below), have cut their production in an effort to lower global inventories and push up prices. However, it will probably take several months before demand starts rising again....