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So what's ahead for Seamark if it loses Clarington account?

Proposed takeover of key customer throws 30% of money manager's business in doubt

MUTUAL FUNDS REPORTER

Seamark Asset Management Ltd., Atlantic Canada's best-known money manager, is the collateral damage victim of a consolidating mutual fund industry.

On Monday, the fate of about 30 per cent of the Halifax-based company's investment management business was thrown in doubt by news of the proposed takeover of key customer Clarington Corp., a Toronto mutual fund company. The uncertainty comes less than a week after Seamark's senior management told investors that profits are shrinking as more and more customers leave the firm.

Over the past five trading sessions, Seamark shares have plunged 39 per cent in value on the Toronto Stock Exchange. The stock fell 30 cents to $9.85 yesterday. In February last year, the shares hit a record high of $25.74.

Seamark "has been such a great story. People like the fact that we have this operation in Halifax," said Dale Noseworthy of Beacon Securities Ltd.

She, along with a handful of equity analysts that follow Seamark, reduced her 12-month stock price target for Seamark to $10 yesterday from a previous target of $12.30. She is maintaining her "market underperform" rating. "The question is what's next?," Ms. Noseworthy said. "There is so much uncertainty as to what is going to happen."

Indeed, the six analysts that follow the company are considering a host of scenarios and outcomes for Seamark -- and for most, the investment risk outweighs the potential reward. Four analysts have "underperform" or "reduce" ratings on Seamark stock.

Seamark's relationship with client Clarington is "jeopardized" by CI Fund Management Inc.'s proposed $254-million takeover offer for the Toronto firm, said John Reucassel of BMO Nesbitt Burns Inc. in a report yesterday.

There's an 80-per-cent probability that Seamark will lose the Clarington account, and Toronto-based CI will manage Clarington funds internally, a turn of events that will slash Seamark's future profits by about 35 per cent, he said. Mr. Reucassel is maintaining his "underperform" rating on shares but cut his 12-month price target to $9.50 from $12.

In contrast, John Aiken of National Bank Financial Inc. said in a report Monday that the market "is factoring in more bad news than can reasonably be anticipated." He said that while Seamark's outlook is unfavourable, the current price of its stock is "very intriguing." He upgraded his "underperform" rating on Seamark to "outperform," and lowered his 12-month share price target to $12 from $14.50.

Seamark was founded in 1982 by Peter Marshall. The firm's talent for running conservative income funds won many converts, including Clarington. Today, Seamark manages about 70 per cent of Clarington's $4.5-billion in assets under management.

But Seamark's fund management performance has suffered in recent years, especially funds with a strong weighting in out-of-favour U.S. blue chips. Assets under management are down to about $10.2-billion from $10.7-billion a year ago.

Meanwhile, there are leadership concerns. In May, Seamark president and chief executive officer Robert McKim left the firm. Mr. Marshall, company chairman, is acting as chairman and interim CEO until a new boss is found.

There's some speculation Seamark may benefit if a rival bidder for Clarington steps forward. Toronto-based Manulife Financial Corp., owner of 35 per cent of Seamark and a $1.5-billion Seamark institutional customer, would seem the most likely candidate. In addition, Toronto-based AGF Management Ltd. and Bank of Nova Scotia have recently discussed growth through acquisitions. The three firms yesterday declined to comment.

But the emergence of a white knight to protect Seamark's interests is uncertain. Seamark is keeping a low profile, and senior management is declining interviews until Clarington's fate is known.

"I think they are all a little shocked at how badly the stock has been beaten up. I can't imagine it's very good morale there right now," one analyst said.

***

Scuppered

Over the past five trading sessions; Seamark shares have plunged 39 per cent in value on the Toronto Stock Exchange to $9.85 yesterday. In February last year, the shares of the Halifax-based money manager hit a record

Company information

Headquarters: Halifax

Chief executive: Peter Marshall, chairman, and founder

Employees: 33

Financials

Yesterday's close: $9.85

Change from previous: down 30¢

52-week intraday high: $23.45

52-week intraday low: $9.00

P/E ration, trailing: 9.12

Dividend yield: 10.56%

Market cap: $105.6-million

Price/book ratio: 5.81

1-year total return: -50.65%

YTD percentage change: -56.01%

Revenue, fiscal 2004: $29-million

Profit, fiscal 2004: $13.2-million

SOURCES: THOMSON DATASTREAM; BLOOMBERG FINANCIAL SERVICES

© 2007 The Globe and Mail. All rights reserved.

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