Friday News Finds – April 13, 2018

Hello and welcome back to Top Five Friday Finds – the weekly series in which we share five of the business news stories that dominated the papers (and our conversations) this week.

Double double toil and trouble? It’s been another week of headline-making news for Tim Hortons. Last week we commented on the iconic coffee chain’s fall from grace in the annual NATIONAL Public Relations and Leger’s Corporate Reputation Study (to recap the company fell from 4th place overall to 50th in a ranking of the 100 companies Canadians most admire). This week the company hit the news for an entirely different reason. On Thursday a spokesman for Innovation Minister Navdeep Bains announced that the federal government is looking into allegations that Tims’ Brazilian owner Restaurant Brands International (RBI) has failed to live up to the promises made to the federal government under the Investment Canada Act in 2014 – violating the terms of the takeover deal. The investigation was triggered by a list of grievances filed by the Great White North Franchise Association – a group that represents approximately half of Canadians Tims franchisees. The franchisees allege that 3G Capital (RBI’s parent company) has failed to maintain franchisee relationships, altered the company’s rent and royalty structure (which were to be maintained for 5 years post-acquisition), and caused a drop in employment levels.

Let’s talk about another Canadian coffee chain. This Thursday The Second Cup announced its intent to open a network of recreational cannabis dispensaries. The company will be partnering with National Access Cannabis Corp., to develop and operate a chain of ‘NAC’ dispensaries, starting in Western Canada and eventually spreading across the country. As it stands NAC operates as a health-care company – consulting with patients, and improving access to prescription medical marijuana. The decision to partner with Second Cup is a smart one for NAC. Second Cup has a substantial retail network that extends across the country. NAC will be able to leverage this footprint when rolling out the new cannabis stores following legalization. Likewise, the move will be exceptionally beneficial for Second Cup, as the partnership not only creates a new business line for the company, but will add an additional value proposition to existing stores. Both companies have already profited from the partnership – shares in both companies jumped following the announcement with Second-Largest Cup up 30%, and NAC up 10%.

It’s been an exciting week for Japan’s geologists and tech producers alike! Scientific Reports published this week set out the discovery of a seemingly indefinite deposit of yttrium, europium, terbium and dysprosium that exists off the coast of Japan. While the finding of a massive mineral deposits is almost always exciting, the content of the deposit is especially significant given its location. Rare earth elements (which yttrium, europium, terbium and dysprosium are all considered) are used extensively in technology such as smart phones, electric and hybrid cars, rechargeable batteries, and screen display panels. For Japan – a leading producer of these kinds of technology – the discovery could be a game changer. When it comes to minerals Japan has been at the mercy of China, who has leveraged their privileged position by imposing quotas in the past. The minerals are by no means easy to access (almost 6,000 meters below sea level and 1,800 km SE of Tokyo), but the discovery could trigger the start of a new era of tech development.

Keeping our conversation entered on Asia – this week Scotiabank called off a deal that would sell its Malaysian unit to the Taiwanese financial-services firm Cathay Financial Holding Co Ltd. The deal was first proposed last spring, with the parties reaching an agreement that would see the sale of Scotiabank’s entire stake in Bank of Nova Scotia Berhad for US$255-million. The bank has continued to focus on expanding beyond Canada’s boarders in recent years. While that initially meant growing business in North America and key Latin American markets (notable examples being Mexico, Peru, Chile and Colombia), the bank has gradually been shifting its approach to target Asia. When the transaction was first announced, chief financial officer Sean McGuckin stated that Malaysia had been deemed ‘non-essential’. The Bank of Nova Scotia has yet to comment on why the decision to sell the Malaysian business was abandoned, and while the asset sale was “not financially material to Scotiabank”, the decision to retain the business is intriguing.

And finally, an update on the status of beloved toystore chain Toys ‘R’ Us. On Friday Isaac Larian – the billionaire CEO of MGA Entertainment Inc. (known for it’s Little Tikes and Bratz brands) – announced an almost US$900 million bid for Toys ‘R’ Us stores in the U.S. and Canada. The bid is comprised on Larian’s own funds, in addition to funding from banks and additional investors. Larian first made his interest in the company known last month, when he launched a $1.0Bn Kickstarter campaign to save the failing business. The crowdfunding initiative ultimately raised $200 million and, while this is well below the stated goal, it ultimately served Larian’s true purpose – raising awareness and, hopefully, spurring renewed investment in the company.