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Amvescap's U.S. unit seen as bid-killer

CI doesn't discount another offer in future


Uncertainty surrounding Amvescap PLC's U.S. fund operations was the bid killer for CI Fund Management Inc. as it shied away from a hostile run at the British fund giant, sources said yesterday.

Late Wednesday, CI surprised the investment community when it said it would not make a formal takeover offer for Amvescap without the company's co-operation. Under British takeover rules, CI must now wait at least six months before making further overtures to buy the company.

Amvescap's share price collapsed in trading on the London Stock Exchange, slipping 11 per cent to £3.69 or $7.97. Shares hit a peak of £4.32 last month following news that CI had made an unsolicited $7-billion cash offer for Amvescap, best known in Canada for the AIM and Trimark brands.

Meanwhile on the Toronto Stock Exchange, CI's shares were off 85 cents at $20.05.

"I am disappointed that the bid that we made, which we felt was clearly in the best interests of their shareholders, was rejected without so much as a conversation," said Bill Holland, CI's president and chief executive officer. He did not rule out a future bid for Amvescap or disclose if CI will sell the estimated 15 million Amvescap shares it owns, about 2 per cent of the company's equity.

"We are always looking at acquisitions and will continue to keep an eye on developments at Amvescap," he said.

CI's preferred route was a friendly transaction with the support of Amvescap's management and board. The aggressive Toronto fund company wanted to keep AIM Funds Management Inc., Amvescap's coveted Canadian arm, and sell off the company's U.S. and British operations to the highest bidder.

But Amvescap refused to talk, adding significant risk to a takeover bid, said industry sources. While Amvescap's British operations are well-regarded, the firm's U.S. brands AIM and Invesco are in trouble. U.S. operations, with a princely two-thirds of Amvescap's fund assets under management, continue to lose investment business. As of June 30, Amvescap managed $245.5-billion (U.S.) in the United States, down about 9 per cent from $269.6-billion less than two years ago. CI's potential partners, including the company's minority shareholder Sun Life Financial Inc., balked at cutting a deal for the U.S. operations without further disclosure, sources said.

For CI, it was a takeover Catch 22. A hostile bid for Amvescap would grant key disclosure from the company, but under British law, CI could not reduce its bid if it had to account for money-losing U.S. operations.

"If he [Bill Holland] had any opening of the kimono he might have been more comfortable proceeding with a bid," said a source close to CI. "He would have to understand a lot more about the business to take on that risk."

Analysts agreed a rival offer for Amvescap is unlikely. Attention will now shift to Martin Flanagan, the company's newly-appointed CEO. If he fails to produce results quickly, investors may soon push for a takeover deal or break-up of the company, analysts said.

Mr. Flanagan has "got six months to make some moves . . . he must be reasonably proactive and convincing," said Martin Cross of London brokerage Teather and Greenwood.

© 2007 The Globe and Mail. All rights reserved.

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