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Acquisitive CI pursues rival Clarington

Renews speculation fund sector ripe for more consolidation

MUTUAL FUNDS REPORTER

Takeover-hungry CI Fund Management Inc. offered yesterday to buy smaller rival Clarington Corp. for $254-million, renewing speculation that the mutual fund sector is ripe for further consolidation.

"There is a ridiculous amount of capacity in the mutual fund industry in Canada and we've got to have fewer companies and bigger companies to compete with the banks," Bill Holland, chief executive officer of Toronto-based CI, said in an interview.

CI, manager of about $49.7-billion in retail funds, intends to offer $13 for each Clarington share, CI said in a statement. Shareholders will have the option of taking either cash, stock or a combination thereof. The purchase price represents a 62.5-per-cent premium above the $8 closing price of Clarington shares on the Toronto Stock Exchange Friday.

Clarington shares jumped $4.61, or 58 per cent, to close at $12.61 yesterday. CI's investors approved of the offer too, boosting its shares by 24 cents to $21.56.

John Aiken, an analyst at National Bank Financial Inc., said CI's valuation of Clarington -- close to 6 per cent of assets under management -- is "fair" and "decent."

Clarington, manager of about $45.3-billion in funds said yesterday in a statement it has formed a special committee to review its strategic options. The Toronto company is in the less-lucrative fund distribution and marketing business and hires third-party firms to manages its funds.

In December, 2003, Clarington postponed its $68-million initial public offering, eventually going public in March this year at $13 a share. The fund company has failed to capture the imagination of Bay Street and shares reached a record low of $7 in September.

Last week, Clarington was approached by CI and the two companies had friendly, informal discussions, Mr. Holland said.

"There is no animosity or anything. No one is throwing buns," he said.

It would be CI's first deal since withdrawing its $7-billion cash offer for British fund giant Amvescap PLC in August. Since 1999, the acquisitive company has completed eight deals worth more than $2-billion in cash and stock.

"In a country the size of Canada, maybe we've got room for three or four independents. But when you've got three or four gorillas -- the banks -- that are doing a fabulous job, there's not much more room than that," Mr. Holland said, adding that the company continues to search for potential transactions.

"We have a lot of ideas that we think would be good business combinations for CI. . . . We are constantly working on them, and we try them when the opportunities avail themselves," he said.

CI is not alone. Last week, Rick Waugh, chief executive officer of Bank of Nova Scotia, said the bank will "spend whatever is needed" to increase the size of its wealth management business.

Earlier this month, Toronto-Dominion Bank shuffled the senior ranks of its fund business, appointing mergers and acquisition specialist Tim Pinnington to head the fast-growing unit.

A handful of companies control a growing portion of fund investment dollars. Five years ago, the top 10 fund companies oversaw about 71 per cent of assets under management. Today, the 10 biggest fund companies oversee about 77 per cent of Canada's $554.2-billion in fund assets.

"For the large fund players, because it is so difficult to grow organically, acquisitions are a strategy they almost have to employ," said Ray Steele, chief financial officer of Mavrix Fund Management Inc. in Toronto.

If CI's pursuit of Clarington is successful, "it's one less publicly traded company for people to go after. It quickens up the period that whoever is going to be bought is bought," said Peter Loach, fund analyst at BMO Nesbitt Burns Inc.

Buying spree

Acquisition-hungry CI Fund Management Inc. has had a number of takeovers in the past two years.

$230-million

BPI Financial Corp.

July, 1999

$860-million

Clarica Diversico Ltd.

Spectrum Investment

Management Ltd.

July, 2002

$116-million

Synergy Asset

Management Inc.

October, 2003

$32.7-million

Skylon Capital Corp.

November, 2003

$829-million

Assante Corp.

November, 2003

$38.5-million

IQON Financial

Management Inc.

Synera Financial Services Inc.

June, 2004

© 2007 The Globe and Mail. All rights reserved.

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