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CI's aggressive bid opened 'Pandora's box' for British giant

Speculation abounds on future of Amvescap, Canadian fund industry, KEITH DAMSELL writes


Amvescap PLC's days are numbered, if hungry would-be buyers get their way.

That's the fund industry's consensus after a tumultuous week that saw aggressive CI Fund Management Inc. unveil its plan to swallow the troubled British financial services giant for a reported $7-billion in cash. There's no shortage of speculation as to how events may play out in the weeks and months to come.

CI has kick-started the international Amvescap auction.

While the good people at Amvescap claim it's business as usual, there's much sentiment that CI's offer will prompt many firms to kick the company's tires. Amvescap has about $461-billion in mutual fund assets, principally in the United States, Britain and Canada.

Expect UBS AG of Switzerland, Franklin Resources Inc. of San Mateo, Calif., AXA SA and BNP Paribas SA, both of France, to be watching events closely. Here in Canada, analysts believe Power Corp.'s IGM Financial Inc. cannot be ruled out. Under British market rules, in the event of an unsolicited bid, the target company may be required to put the bid to a shareholder vote regardless of the opinion of the board of directors.

"Pandora's box is well and truly open," said analyst Martin Cross of London brokerage Teather and Greenwood. "Predators are circling for either a piece of the Amvescap group or indeed possibly the whole thing."

Canada is the prize.

CI has long coveted Toronto rival AIM Funds Management Inc. and expansion-minded CI will do what is required to get it, including taking out AIM parent Amvescap. AIM's investment style has a loyal following within the financial advisory channel. With $44-billion in assets under management, Canadian operations represent less than 10 per cent of Amvescap's total fund assets yet more than 38 per cent of operating profit. As a stand-alone operation, AIM is valued at about $3.5-billion to $4-billion, about half the expected takeover price of Amvescap.

The deal may trigger a broader shakeup across the Canadian industry.

Last month, CI detailed its plan to lock in management expense ratios on its funds, a move that is expected to increase the pressure on rivals to lower fees paid by investors. A combined CI-AIM, controlling about $90-billion in fund assets, could achieve even greater economies of scale. If CI is successful, Gavin Graham, vice-president and director of investments at Guardian Group of Funds Ltd., expects many players, including struggling mid-tier firms like AIC Ltd. and AGF Management Ltd., to review their strategic options.

"It has set the ball rolling," Mr. Graham said. "Consolidation of the Canadian mutual fund industry is being driven further. Go big or go home."

CI's post-deal management challenges will be daunting.

While AIM and CI both boast some top-notch fund managers and aggressive marketing tactics, some aspects of the rival firm's corporate culture clash like chalk and cheese. CI is a bottom-line driven firm with a very lean corporate structure. AIM is known as a very bureaucratic shop; the inside industry joke is the acronym stands for "always in meetings." CI boss Bill Holland is a media gadfly. In contrast, Philip Taylor, AIM's president and chief executive officer, shuns the spotlight.

The entire CI empire, including its distribution network, has about 1,100 employees. AIM, meanwhile, has 900. If a deal is done, there is a huge overlap in staffing and payroll will be thinned dramatically, industry sources predict.

The trick for CI is hanging on to AIM's best and brightest staff, especially chief investment officer Patrick Farmer and his fund management team. It's expected CI may have to dangle some lucrative incentives to keep the crew on side or watch from the sidelines as AIM expats set up a rival fund boutique on Bay Street. And it's not a slam-dunk that the financial advisory community will stick around for the ride, cautioned fund marketing consultant Dan Richards. Currently, many brokers and advisers have a healthy chunk of their client business with both CI and AIM.

"Some advisers might want to look at alternatives," Mr. Richards said. "Do they want to do a large chunk of their business with one large firm?"

Stay tuned. If and when a formal CI offer surfaces, expect Amvescap's management to give it the thumbs down. CI has historically paid as little as possible for acquisitions. Or -- and this strategy cannot be ruled out -- Mr. Holland is playing a shrewd game of M&A poker, waiting for another bidder to step forward and shake the Amvescap tree.

GrowthWorks plans merger

GrowthWorks Capital Ltd., a leading consolidator in the labour-sponsored fund business, wants to merge four funds into one.

"We believe there are too many small funds in Ontario and we are in acquisition mode," said David Levi, president and chief executive officer of Vancouver-based GrowthWorks.

The plan will fold three small funds, Canadian Science and Technology Growth, Capital Alliance Ventures and GrowthWorks Opportunity into the proposed continuing fund GrowthWorks Canadian. Shareholders are expected to vote on the plan this fall and, if approved, the merger will proceed late this year or early in 2006. Mr. Levi expects costs paid by investors to manage the merged $360-million fund will fall to about 1.7 per cent annually, down from 2 per cent, he said.

All four funds involved have become part of the GrowthWorks family via acquisition. In January, GrowthWorks acquired London, Ont.-based Fullarton Capital Corp., manager of the Canadian Science and Capital Alliance funds. GrowthWorks Canadian and GrowthWorks Opportunity are Toronto's former Working Ventures funds, which GrowthWorks agreed to manage in 2002.

© 2007 The Globe and Mail. All rights reserved.

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