Telco Tug-of-War

Doesn't matter if you cheer for the Canucks or the Habs, there's one thing we can all agree on: Canadian telcos (telecommunication providers) are awful. And it might get worse...

Rogers and Altice USA are continuing their efforts to acquire Quebec-based provider Cogeco. Despite resistance from the controlling shareholder, the Audet family, Rogers and Altice are doubling their efforts to purchase the firm.

Why does it matter? One of the main reasons our phone/cable/internet bills are so expensive is because of a lack of competition.

Regulations make it really hard to compete against the Big 3 Canadian telcos – Rogers, Bell and Telus.

Cogeco is one of the few minority players left and any takeover of them by the Big 3 will only strengthen their power and, likely, result in higher prices for consumers.

But will it happen... The Audet family has said publicly that their shares are not up for sale which effectively blocks any acquisition of Cogeco. That being said, everyone does have a price... and if anyone can match the Audet family's, it's Rogers.

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Desire2Learn and Dialogue, two prominent Canadian tech companies that have thrived during the pandemic, are considering going public.

Who are they? Desire2Learn is a Kitchener-based online learning platform. They build e-learning products that help students succeed in online courses and teachers manage their classrooms. With COVID-19 forcing schools to go online, demand for their products has never been greater.

Dialogue is a Montreal-based digital health care platform that provides 'doctors-on-demand' services to patients. Similarly to D2L, the 'new normal' has seen a huge spike of interest in their platform and now both companies are keen to make the most of their recent fortunes.

Why now? D2L and Dialogue are watching their Canadian cousin Shopify's share price spike in response to COVID-19 and they want in on the action. Also, the markets are generally pretty good and investors seem pretty keen about companies who can add value in a COVID world.

The CEO of D2L recently said that any money raised in a public offering would give them the horsepower they need to grow even faster than planned.

So what's next? Going public isn't a simple process and it normally involves a combination of underwriters and investment bankers to prepare the company for an offering.

But it seems like both Dialogue and D2L have started this process and conventional wisdom would point to an offering later this year or early next.

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Peak Picks

Aliens Among Us: If aliens were here, would we even notice? Some scientists think not. They say our conceptions of "life" is too limited and could prevent us from recognizing aliens if we found them.

Football In A Pandemic: College sports are on the ropes this year thanks to COVID. But back in 1918, they carried on through an even deadlier virus. This is the fascinating story of why.

Strong Passwords: How long would it take a hacker to guess your password? Now you can see exactly how quickly someone can crack your old Hotmail account where you used your first name and birthday as your login.
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American Stimulus: Hopes for a new round of stimulus are fading in the U.S, as Republicans are increasingly convinced no additional funding is needed.

See You At The Movies: Christopher Nolan's new blockbuster Tenet earned $20m at the box office in its debut weekend. Analysts pegged that on the lower end of expectations, potentially threatening future releases this year.

Draft King: Michael Jordan, basketball great and owner of the Charlotte Hornets, has taken a major stake in the sports betting company DraftKings and joined the company's board as a special adviser. It's certainly a nice fit for MJ, who is known to enjoy a bit of gambling here and there.
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SoftBank's Big Bet

You may have noticed that the NASDAQ, heavily weighted towards tech stocks, has been on a tear for the past few weeks.

Well, here's one of the reasons why: Japanese conglomerate SoftBank has been buying up billions of dollars of US equity derivatives, many linked to hot tech stocks.

What happened: SoftBank spent around $4bn on options premiums focused on tech stocks during August, stoking a red hot market.

Why it's risky: SoftBank has taken on notional exposure to individual tech stocks of $30bn using call options.

Wait — definitions, please! 
  • SoftBank: A massive Japanese conglomerate which runs Vision Fund, the world's largest tech VC fund with over $100bn. 
  • Call options: Contracts that provide the owner with the right to buy a stock at a preset price at a future date. If you buy a call option, you're betting that stocks will rise past the preset price the option allows you to buy the stock at. 

Okay, so has it worked? So far SoftBank apparently has $4bn in unrealized gains from the trades. So... yes! But tech stocks took a dive at the end of last week, and if that continues they could lose big. 

This volume of options trading is unprecedented, and is increasing market volatility in unpredictable ways. If you own tech stocks in particular strap in, because we could be in for a wild ride.
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Disney's China Gambit

Mulan premiered on Disney+ this weekend, and for an extra fee of $30 you can watch it before it becomes available for free on the platform in December.

In North America, Mulan is skipping the theatre altogether. It's a major test of an entirely new video-on-demand format for Disney: can they sell early access to their audience of some 60m Disney+ subscribers? It remains to be seen.

But there's one place Disney isn't rolling the dice, and that's in China. Movie-goers have returned to theatres in China, and Disney has gone to great lengths to ensure they enjoy Mulan.

What Disney did:

The company invested heavily in getting Mulan exactly right for Chinese audiences, including: 

  • Reviewing more than 1,000 potential women for the lead role from six continents, settling on Chinese-American star Liu Yifei, a major icon in China. 
  • Pushed back the release of the movie by two years to accommodate Liu's schedule.
  • Hired an all-Chinese cast stacked with stars like Jet Li and Donnie Yen.
  • Spent months working with Chinese historians, local authorities, and test audiences to emphasize themes and narratives that would appeal to audiences in China.
Why it matters:

China is now the largest movie market in the world, and creators are increasingly looking to appeal to Chinese audiences.

And with a system of state censorship in place, accessing the Chinese market means getting permission from official authorities.

The impact of these factors on how movies are made remains to be seen, but one thing is for certain: production companies like Disney aren't ignoring China anymore.
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The Jobs Picture

New job numbers came out on Friday and they show that while jobs are coming back, the pace of recovery is slowing.

Key numbers: 

  • Canada added 245,800 jobs in August
  • Unemployment fell from 10.9% to 10.2%
  • 64% of the jobs lost between February and April have now returned 
Key takeaways:
  • While jobs are coming back, August's job growth was significantly less than seen in June (953,000 new jobs) and July (419,000 new jobs).
  • This suggests that the recovery is entering a new phase where job growth will be harder to come by.
  • The labour market is still very weak and the current jobless rate is still above the peak of the 2008-09 recession.
  • Job growth has been very uneven: for low-wage workers, employment is at 87.4% of pre-COVID levels vs. 99.1% for other workers.

Why is job recovery slowing down?

The jobs that came back in June and July were the lowest hanging fruit: positions that had been temporarily eliminating during the lockdown and were immediately regained when businesses were allowed to open.

But COVID has permanently affected many businesses and sectors of the economy. Some have shut down since February. Demand is also lower in certain sectors. Recovering jobs lost because of these factors will be harder and slower.

What's next?

The fall will be a big test for the jobs recovery. Some of the biggest factors that will determine whether job growth continues are: 
  • Whether schools and daycares can stay open permanently, freeing people up to get back to work. 
  • Whether there is a significant second wave of COVID that leads to another lockdown. 
  • To what extent government relief measures and stimulus programs are extended or expanded.
  • What sort of progress happens on a vaccine and treatments for COVID.

The bottom line: the final quarter of this year is shaping up to be a key period for our economic recovery.
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Biggest Bang Yet

Scientists have discovered the largest space collision ever, the combination of one black hole, the size of 85 suns and another black hole the size of 66 suns formed a new giant black hole the size of 142 suns. The collision was 5.3 billion lights years away but big enough to be picked up by sensors here on earth.

Remind me, what's a black hole? According to NASA, a black hole "is a place in space where gravity pulls so much that even light can not get out. The gravity is so strong because matter has been squeezed into a tiny space. This can happen when a star is dying."

What's the big deal with this big hole?

  • The collision is the largest and most distant emitter of gravitational waves ever detected.
  • It verifies the the existence of "intermediate mass black holes" which are not too big or not too small and had never been detected until now.
  • Large black holes are created by collapsing starts, while small black holes are the result of a central concentration of mass in a galaxy. The discovery of the intermediary opens new questions to how these black holes, and the galaxies themselves, are formed.
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The Long Wait For Surgery

As the pandemic hit, hospitals cancelled elective surgeries and braced for the wave of patients they expected to flood their halls. Thankfully, caseloads in Canadian hospitals never surged but elective surgeries have only slowly resumed.

A new study estimates Ontario has a backlog of 148,346 surgeries that were cancelled between March 15th and June 13th. Clearing the backlog will take 84 weeks, it involves adding 717 surgeries on top of the 11,000 already performed weekly in Ontario hospitals.

The surgeries are elective, so what? They're only 'elective' in the sense that an operation was not needed immediately to save the patient's life. The delay's included:

  • 38% fewer cancer surgeries
  • 42% fewer cardiac surgeries
  • 94% fewer pediatric surgeries
  • 96% fewer of all other adult surgeries, including knee and hip replacements. Won't someone think of grandma!

How do we get out of the hole?
It might be tough, the study suggest increasing surgical capacity by 10% , meaning adding an extra day of of operations each week to 50% of Ontario's operating rooms. Our health systems front line workers have already had to work long hours in hospitals and filling in the gaps at long term care homes. Catching up will be another push.

The months ahead...We may have a second wave of covid hitting us shortly, experts suggest hospitals need to find a way to accommodate elective surgeries through a second wave or risk falling even further behind.

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Rogers, Altice Plan Cogeco Takeover

Telecom behemoths on both sides of the border have submitted an unsolicited joint offer to buy out Cogeco Inc and Cogeco Communications Inc. (TSE: CGO, CCA), a Montreal based rival for $10.3 billion. The deal would see Altice USA Inc. (NYSE: ATUS) take on Cogeco's US assets and Rogers Communications Inc. (TSE: RCI) would absorb the Canadian business at a price tag of $3.4 billion. Rogers already owns 41% of Cogeco Inc. and 33% of Cogeco communications.

Broken Telephone
A big hurdle in getting this deal done is, of course, shareholder approval. Gestion Audem Inc. a company controlled by the Audet family, the founders of Cogeco, control the vast majority of voting rights in CGO and CCA. Gestion Audem has indicated they will not support the proposal.

What Does It Mean
The Audet Family's resistance may be posturing to gain leverage for a better deal. So, what does it mean if the deal goes through? According to Rogers "consolidated assets will lead to better earnings," but with a lack of competition and sky high broadband and telecom pricing in Canada, it could be bad news for consumers.

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