Good news, there’s a simpler Brookfield emerging
The notoriously complex web of companies has a goal: Make it easier to understand, and invest
Walkers pass Brookfield Place in Toronto's financial district. Brookfield has been on a mission to combine its equities, making them more palatable to more investors.Andrew Lahodynskyj/The Canadian Press
If you’ve ever considered investing in one of the several corporate entities emblazoned with the name Brookfield, you may have emerged from your research a little dazed.
After all, this is a notoriously complex network.
But good news is at hand. Brookfield is in the final stages of a streamlining process that is designed to make things simpler for investors. Full disclosure: I’m one of them, and I crave simplicity.
Granted, this streamlining process is not reducing the number of publicly traded businesses that operate under the parent company, Brookfield Corp. – which, yeah, can still look a bit unwieldy at first glance.
Brookfield Infrastructure will still invest in utilities and energy; Brookfield Renewables will still handle clean energy assets, including wind, solar and nuclear.
Brookfield Business will continue to focus on private equity, or the companies that aren’t publicly traded; and Brookfield Asset Management will continue to generate fees by managing massive investment funds on behalf of institutional and private investors.
What is the part that’s changing?
Previously, many of these operating businesses had more than one tradeable security. Some had units in limited partnerships and shares in corporations, even though they were economically identical. That meant different ticker symbols, tax implications and – most bizarrely – valuations.
These are massive companies, which is why the shift is important.
Brookfield Corp., which has stakes in all the operating units, is valued at over $130-billion, based on the combined value of its shares on Tuesday morning.
That makes it more valuable than Canadian Pacific Kansas City Ltd., Suncor Energy Inc. and Manulife Financial Corp.
The company believes that simplifying the operating units can only help. Over the past year, Brookfield has been on a mission to combine the various equities, making them more palatable to more investors.
“Brookfield has recognized that complexity can carry a valuation discount,” Greg Newman, senior wealth advisor and portfolio manager at Scotia Wealth Management, told me in an e-mail.
He added: “If you make a good business easier for more investors to own, that should ultimately be good for the valuation in my opinion.”
Last week, Brookfield received the go-ahead to combine Brookfield Infrastructure Partners LP and Brookfield Infrastructure Corp. into a single entity called Brookfield Infrastructure Partners Inc.
The new shares will trade under one ticker symbol – BIP in Toronto and New York – later this month. If that’s not exactly simple, it is simpler.
“We’re really excited to have that chapter behind us,” David Krant, chief financial officer of Brookfield Infrastructure, said on a conference call with analysts last week.
According to the Brookfield mantra, the simplified structure will mean that more shares will trade hands each day, attracting bigger investors who need the improved liquidity.
As well, the combined stock will have more visibility on equity indexes, enhancing its appeal to index-tracking funds.
Brookfield Business completed a similar transition in March, converting into a single publicly traded corporation. Shares of Brookfield Wealth Solutions, the insurance division, will trade as Brookfield Corp. after shareholders approved the deal in July.
And Brookfield Renewable is now trying to gain enough shareholder approval for its own transition.
This simplification isn’t solely designed to attract the big money. Smaller investors might be more interested in the shares, too. And if the simplicity drives the share prices higher, who’s going to complain?
Are there other examples of stocks that seem overly complex? Let me know at dberman@globeandmail.com.
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