Scotiabank, Canada’s third-largest lender by assets, said yesterday it will reduce its holdings of the Toronto-based money manager that it valued at about C$3.8 billion ($3.5 billion).
The Toronto-based bank may not sell to a competing lender such as Royal Bank of Canada and other firms would be reluctant to hold a minority stake in CI which has a so-called poison pill in place to prevent a full takeover.
“It is unclear to us who a logical buyer would be given various restrictions,” Gary Ho, an analyst at Desjardins Securities Inc., said in a note to clients today.
CI’s then Chief Executive Officer Bill Holland established an anti-takeover defense after Scotiabank bought the shares from Sun Life Financial Inc. in 2008. He said at the time he wanted to ensure the bank didn’t turn its holding into a majority stake through a creeping takeover. CI investors extended the so-called poison pill plan in June 2011.
The difficulty “has always been whether another strategic buyer can be found,” Stephen Boland, an analyst at GMP, said in a note to clients today. Power Financial Corp. or U.S. asset managers such as T. Rowe Price Group Inc. (TROW) and Franklin Resources Inc. could be possible investors though CI’s market value of about C$10 billion would make it hard for most public asset managers to swallow, Boland said.
“All we really wish to do is exercise our right to sell our shares like any other shareholder, and that’s essentially what it’s all about,” Sarabjit Marwah, Scotiabank’s chief operating officer, said in a telephone interview yesterday. The capital will be redeployed to other strategic priorities of the bank, the bank said in a statement.
Scotiabank first bought a CI stake in 2008 as part of an expansion in wealth management. The lender also spent $442 million on the Canadian business of E*Trade Financial Corp. that year, and by 2010 agreed to buy shares it didn’t already own in fund manager DundeeWealth Inc.
CI will review its capital structure and dividend policy to make sure it can adequately respond to the bank’s decision, ChairmanHolland said yesterday in a separate statement.
“Scotiabank is entitled to dispose of their shares as they see fit,” Holland said. “CI will work in the interests of all of our shareholders and management will remain focused on the continued success of our business.”
Scotiabank “made a lot of money buying CI,” Paul Holden, an analyst at Canadian Imperial Bank of Commerce, said in a phone interview. CI “is extremely well run, extremely profitable, continues to grow, but banks typically don’t own a minority stake in a business for a long period of time.”
Scotiabank intends “to explore all options,” which may include selling some or all of its investment in a single or a series of transactions, according to the statement.
“We’ve been pleased with our investment in CI to date, but with our strong momentum in our wealth-management platform as well as the continued success of our investment in Dundee, we’re really quite confident that our wealth-management platform is very solid,” Marwah said.