Tech Futures:
June 30, 2000
By Michael
Volker
Shady Dealings, Weekend Reading, IPO
Watch, Capital Pool Corps, Footnotes
Shady Dealings
My head hurts. I was just reading the morning
paper and couldn't help but notice all the "scam" style dealings being
reported on. These ranged from the RT Capital controversy over high closing
practices to slaps on many brokers' wrists in unrelated dealings at many of our
local brokerage firms.
Coincidentally, I also received several email
stories this morning about various individuals' ethical practices. It makes me
think about a survey conducted by one of major accounting firms (it might have
been KPMG) which found that 20% of our population is inherently and consistently
honest. Another 20% is consistently dishonest. That leaves 60% - this group is
sometimes honest and sometimes dishonest - depending on the circumstances.
That's scary! But, it behooves us to remember this when we're thinking about
dabbling in the markets.
I'm always amazed at the tenacity of some of
our local investigative reporters. Fellows like David Baines of the Vancouver
Sun (who was even threatened by unscrupulous touts) and Brent Mudry who writes
for Stockwatch provide a great service for people like you and me, the
"small investor", who just don't have the time to check everything.
Where would we even begin?
On my own email system, I've been keeping a
file which I've labelled "scams" where I put the various emails which
I get from Stockwatch and other information and news services. Then, when
someone's name comes up, I can do a local "find text" search to see if
there's any scuttlebutt on said person. In spite of the proliferation of
information on the web these days, I have yet to find a "scam site"
where I can easily search and check up on various individuals (email me if you
know of any!). As I've mentioned in earlier columns, I'd still like to see the
regulators (either the Securities Commission or the stock exchanges) require
public filing of directors' and officers' personal information forms. Not only
do I want to know about the scam guys, but I also want more info on the good
guys - in fact - all key people (including promoters, advisors, PR firms, etc)
involved with any given corporation.
Stockwatch's "participant" search is
a good start. You can at least find out who is participating in financings such
as private placements (even if they are not directors). This information
augments normally available "insider trading" filings.
As for the high closing practices (i.e. trading
shares back and forth between collaborating parties near the closing bell) to
bolster portfolio values, it serves to demonstrate that these dealings don't
just occur on the junior exchanges (remember Vancouver's image as scam
capital?). Let's not forget that when we see flaky deals on the CDNX (and there
will be some). It can happen anywhere.
Weekend Reading
Well, aren't you glad a long weekend is coming
up? Finally, there'll be some time to catch up on business - readings, that is.
Today's (i.e. July edition) Globe & Mail Report on Business Magazine covers
the TOP 1000 (by profits, no less) ranking of Canadian Corporations. You'll find
some interesting tidbits and revealing numbers. For example, total revenue for
the TOP1000 is $858 Bn while profit is only $38 Bn, i.e. 4.4% on average (gosh,
it's tough to make a buck these days. How can there be so many nouveau
millionaires?) I find it interesting that the entire total profit of $38 Bn
almost equals the market value of our local #1 company - PMC Sierra Inc (NASDAQ:PMCS)
which isn't even on the list.
In case you're wondering why it isn't on the
list, it is because it is not a "reporting issuer" in Canada. In fact,
you won't find the company listed on Sedar (www.sedar.com). This goes back to
its origin as a Silicon Valley company which was eventually consumed by its
Burnaby subsidiary. This, unfortunately, makes it ineligible as a Canadian RRSP
investment.
Speaking of PMC-Sierra, yesterday the Company
announced the acquisition of privately held wireless semiconductor company Datum
Telegraphic (of Burnaby, BC). PMC-Sierra will exchange approximately 681,000
shares of PMC-Sierra common stock for the remaining 92% of Datum Telegraphic
that the company does not already own. Got your calculator handy? That's a cool
C$180 million (based on today's trading around U$181.00). Not bad for a company
of just over 30 employees (PMC-Sierra's team now numbers over 1000 worldwide of
which 600 are located in Burnaby, BC. According to PMC-Sierra's Bob Bailey, CEO,
"Moving into the wireless infrastructure is the next logical step for PMC-Sierra.
The addition of the Datum Telegraphic team will significantly accelerate our 3G
data wireless strategy with highly optimized chip set architectures for
next-generation wireless equipment. Broadband wireless is the next technological
discontinuity to change the Internet infrastructure."
By the way, PMC-Sierra is included in the
Nasdaq-100 Index which contains the largest non-financial companies on the
Nasdaq Stock Market. The Nasdaq-100 Index is the benchmark for the Nasdaq-100
Index Tracking Stock (NASDAQ:QQQ). I mention this because the "QQQ's"
are, in my view, a great way for investors to participate in a mutual fund sort
of way in the growth of the major tech stocks on Nasdaq. The Nasdaq website (www.nasdaq.com)
will tell you which companies are in this index. You can trade the QQQ's just as
you'd trade a stock - no fees other than normal stock commissions. And, it's
easy to get in and out. Besides, you likely won't have to worry about the high
closing practices referred to earlier!
Another item in the TOP 1000 report which
caught my eye was that the top-ranked winner in revenue growth (6135%) was Trian
Equities Ltd. Could this be the same Trian Equities Ltd of Vancouver which
trades on the CDNX under the symbol "TEQ"? Indeed, it is. Trian
reported (FY99) a profit of $10.4 million on revenue of only $4.7 million.
That's because it's an investment company headed by some interesting
personalities - like Jim Miller, who was instrumental in the early development
of QLT PhotoTherapeutics (TSE:QLT).
A quick look at Trian's statements reveals that
the company holds stock mainly in high tech companies - public and private -
large and small. Perhaps this is another way for investors to invest in high
tech companies. Trading at $1.85 with only 11+ milliion shares issued, who
knows??
IPO Watch -CST Coldswitch Technologies Inc.
This past week, CST Coldswitch Technologies
Inc (CST) got the green light to proceed with an IPO. CST's primary product,
The Coldswitch™, is a practical and inexpensive fibre optic switch that uses
light instead of electricity to provide an elegant solution to many electrical
switching problems.
The principal behind CST is John Kidder
who has tenaciously pursued this technology for more than a decade and has
worked hard towards applying it in medical applications.
With respect to people, John has assembled a
strong board to guide the company: James Avis (former Executive
Vice-President of Newbridge Networks), Lauren Blair (Professor of
Environmental Planning at the University of Alberta), Robert Blair (past
Chair of Nova Corporation, Husky Petroleum and Foothills Pipeline), Robert
Breault (Chairman of Breault Research Organization and a director of Edmund
Scientific Corporation), John Swift (a specialist in technology law, and
a director of several technology companies), Donald Rix (founder and
Chair of MDS Metro Inc., and director of a number of medical company boards) and
Hugh Wynne-Edwards (Chairman of B.C. Research Inc., and a director of
Atomic Energy Canada).
CST is offering, through it's agent, Canaccord
Capital Corp, a total of 4 million common shares at $1.00 per share. This
represents just over 22% of the company on a fully diluted basis. A number of
founders and investors hold the balance as a result of prior financings.
You can get the full prospectus on CST from the
Sedar website at www.sedar.com.
I hear that MacDonald Dettwiler's IPO
may take place in July. I mentioned this in my June 2nd column. If you'd like to
get in on the IPO, call one of the underwriters: RBC Dominion, Scotia Capital,
TD Securities, CIBC World markets, or Goepel McDermid.
Capital Pool Corporation (CPC) Update
In the previous column, I mentioned Westport
Innovations Inc. (TSE:WPT) as a good example of a CPC-style transaction. Westport
Innovations was incorporated as a capital pool on the Alberta Stock Exchange in
early 1995 and one year later, it acquired Westport Research Inc, a UBC spin-off
company for 8 million shares at $0.30 each. Today, Westport is trading around
$14 per share.
What I neglected to mention was that this
transaction was a non-arms length Junior Capital Pool (JCP) with a target
company, i.e. Westport Research Inc, identified at the time of the JCP's IPO.
Westport did a 15 cent IPO and then did a 20 cent private placement to raise
$233,500 coincident with the Major Transaction in March'96. Then, in May,
Westport did a 45 cent special warrant deal to raise $1 million. And look where
it is now. See - it works!
When Vancouver started its version of the
capital pool program, having a target company in mind was strictly taboo. The BC
Securities Commission was of the view that, if a target was already identified,
it should go public via a normal IPO offering - not via a capital pool company.
As a result of the merger of the BC and Alberta programs, target deals can now
be contemplated but must, of course, be disclosed in the prospectus offering.
In this column, I keep track of Capital Pool
Corporation ("CPC") companies (see chart below) as defined by the
former CDNX because they may provide funding to, and in the process acquire,
technology companies. CPC's are the continuation of the former VCP and JCP
programs on the Vancouver and Alberta Stock Exchanges.
I like CPCs from an investment perspective.
Although one may regard them as speculative (indeed, they are), they are also an
inexpensive way of getting in early and inexpensively. You can pick up 10,000
shares of a typical CPC for less than $1.00. And when it does what is expected,
you can reap a nice reward. On average, CPC share prices have appreciated over
200% from their IPO pricing. The real money, though, will be made once they
complete their acquisitions of real operating companies.
New additions to the list are Avalon Works
Corp., Balsam Ventures Inc., Celest Medichem Inc., New
Media Capital Inc., and Red Oak Trail Corp.
Avalon Works originates from Quebec, New Media
Capital originates from Alberta, and Red Oak Trail originates from Ontario. But
- even though they are based in Quebec or Ontario they cannot sell their IPO
shares in those provinces (srewy, isn't it?). The shares can only be offered in
Alberta and B.C. Hah!
Since the previous update, the following
companies have come to trade: Emercap Ventures Inc., Microtec Corp.,
and Porpoise Capital Network Inc. West
Park Resources Inc. has been deleted, since it has completed its QT.
Check our
Capital
Pool Corporation chart for a complete updated list of the CDNX's CPC and VCP
companies, thanks to David Ing of Pacific International Securities.
An introductory article explaining CPCs may be
found at: www.bctechnology.com/statics/
Footnotes
The Vancouver Enterprise Forum's annual
dinner event on June 27th feature Jim Yeates, CEO of Burntsand Inc
(TSE:BRT) as the keynote speaker. Burntsand recently received recognition as the
B.C. Tech industry's "New Venture of the Year". Jim's speech was
excellent and served to give everyone there an "actionable" item
towards success. It's because of leadership such as this, that can make
Burntsand a good investment.
It was a fun event, although I must confess I
may have gotten carried away a little. I find that the best way to move high
tech forward is to talk it up and take the "glass is half full"
approach as opposed to being overly negative about what's missing.
Information on these events may be found
on-line at http://www.vef.org. Thanks
to the summer break, the next VEF event isn't until September 26th.
For a convenient, printable version of this
column, click
here.
Michael Volker is the
Director of the University/Industry Liaison Office at Simon Fraser University,
Chairman of the Vancouver Enterprise Forum, and a technology entrepreneur. He
owns shares in many of the companies he writes about. Contact: mike@risktaker.com.
Copyright,
2000.
What Do
You Think? Talk Back To Mike Volker
Tech Futures is a bi-weekly column that
focuses attention on new and emerging BC publicly listed technology companies.
Mike Volker is the Director of the University/Industry Liaison Office at Simon
Fraser University, Chairman of the Vancouver Enterprise Forum, and a technology
entrepreneur. He owns shares in many of the companies he writes about.
Contact: mike@risktaker.com
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