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New kid on block sees opportunity in high-end service

awillis@globeandmail.com

A new money manager was born this week, as Mulvihill Capital Management spun out its wealth management division to employees, who renamed the firm Ridgewood Capital Asset Management.

The amicable split, five months in the making, sees founder John Mulvihill retain a structured product firm that's home to 15 flavours of retail-focused funds.

Ridgewood opens its doors with $1.2-billion of assets from clients who include wealthy individuals, first nations groups and foundations. The 15-employee company is controlled by mutual fund executive John Simpson, who spent the past 13 years at Mulvihill Capital, along with portfolio manager Paul Mayer.

"We see a niche for a wealth management firm that offers high-end client service and consistent performance, and we see recent consolidation in the industry offering Ridgewood an opportunity to expand in this niche," Mr. Simpson said. Ridgewood is being launched as employee-owned money managers such as Phillips Hager & North and Addenda Capital are being bought by large financial institutions.

Helming a fund manager in choppy markets is nothing new to Mr. Simpson. He took the wheel at the Canadian arm of Fidelity Investments in October, 1987, weeks ahead of the market crash. On Mr. Simpson's watch, Fidelity went from an also-ran to No. 6 among domestic fund managers when he left in 1995. Fidelity still holds that No. 6 position in the industry.

Ridgewood, the name of the street where Mr. Simpson grew up in Sarnia, Ont., builds custom designed portfolios for most of its clients. But these clients also occasionally make use of in-house funds, so as part of the spinout, Ridgewood will become primary adviser on four Mulvihill mutual funds.

Mulvihill Capital will hold a minority stake in Ridgewood, continuing a relationship that dates back to 1985, when Mr. Simpson and Mr. Mulvihill were colleagues at the investment counselling arm of Canada Trust. Mr. Mulvihill bought that unit from Canada Trust in 1995 and renamed it.

Rothmans offer slammed

Opposition is building to Philip Morris International's $2-billion bid for Rothmans Inc., with Desjardins Securities sounding off yesterday against the deal.

Desjardins, which punches well above its weight with the hedge fund crowd, told clients that it does not plan to tender to Philip Morris's $30-a-share offer. The deadline for voting on the deal is Sept. 11.

"The Philip Morris offer appears to be an attempt to privatize Rothmans at a price below fair value," said a note to clients from Ron Mayers, Desjardins' vice-chairman and head of alternative strategies. Desjardins ran the numbers for Canada's second largest cigarette maker and - on a tried-and-true discounted cash flow basis - the investment bank ended up with a valuation of $32 to $34 a share.

Rothmans' single largest shareholder, Jarislowsky Fraser, also said this week that it would not sell for $30 a share. The pension fund manager holds a 14-per-cent stake, and has traditionally been an advocate for minority investors in takeovers. Desjardins' Mr. Mayers is also comfortable playing an activist role for clients.

Rothmans' board of directors has endorsed the Philip Morris offer, with input from BMO Nesbitt Burns, but a special committee of directors did push Philip Morris for $32 a share during takeover negotiations.

Philip Morris owns 40 per cent of Rothmans' domestic operating subsidiary, and announced the takeover offer on the same day the Canadian company agreed to pay the federal government $550-million to settle cigarette smuggling charges.

"The timing of the offer appears to have been planned to coincide with the announcement of the settlement of various charges against Rothmans," Mr. Mayers said. "We believe that the uncertainty attached to these charges caused the shares to trade at a discount."

Jarislowsky Fraser president Len Raccioppo said Monday he has expressed his concerns on valuation to Rothmans executives and directors, but has not been contacted by Philip Morris. The U.S. tobacco company needs two-thirds of Rothmans' shareholders to vote for its bid.

"It is highly unlikely that Philip Morris will walk if it comes up short," said Mr. Mayers, who has successfully rallied opposition to a number of takeovers. "At the very least it will extend and recontact shareholders to bring it across the line."

Desjardins analyst Keith Howlett wrote a report on Rothmans in mid-August that pointed out Philip Morris could save $35-million a year by shifting Canadian cigarette production to Mexico - a move that would likely cost 275 employees at Rothmans their jobs.

The Canadian capital market has a long and colourful history of foreign buyers improving their opening bids in order to win full control of domestic subsidiaries.

See Andrew Willis's Streetwise Blog at ReportonBusiness.com

© 2007 The Globe and Mail. All rights reserved.

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