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Scotia deal spurs CI rights plan

FUNDS REPORTER

CI Financial Income Fund has adopted a unitholders rights plan in an effort to prevent Bank of Nova Scotia, its largest unitholder, from undertaking a "creeping takeover."

Two weeks ago, in a deal done without CI Financial's knowledge, Scotiabank agreed to buy Sun Life Financial Corp.'s 37-per-cent stake in Canada's third-largest mutual fund company for $2.3-billion.

"Any company in the country which woke up one day and had a [new] 37-per-cent shareholder with no pre-arrangements in place ... would have one in place," CI Financial's chief executive officer Bill Holland said yesterday in an interview.

"All [the rights plan] does is prevent a creeping takeover."

Under the plan, which was announced after the market's close, the board of trustees of CI Financial gain additional time - 60 days - to seek alternatives to maximize unitholder value if there is an unsolicited takeover bid.

Sun Life gained 30 per cent of the 37-per-cent stake in CI Financial mostly by selling its fund subsidiaries to CI Financial in 2002. However, it agreed to a standstill agreement prohibiting it from increasing its stake beyond 34 per cent for three years subject to certain exceptions. "We have no agreements with Scotiabank," Mr. Holland said. "It's just prudent."

While some analysts suggest that CI Financial may try to negotiate the purchase of Scotiabank's mutual fund arm, they also don't rule out that Scotiabank might want to buy all of the fund company down the road.

Sun Life's stake in CI Financial grew mainly because of the fund company buying back shares. That was in addition to its helping finance the acquisition of financial planning firm Assante Corp., Mr. Holland added.

The rights plan, which is subject to the approval of the Toronto Stock Exchange, must also get the nod of unitholders on Dec. 19. That is the same day that unitholders will vote on CI's proposal to turn itself back to a corporation from an income trust by the start of 2009.

CI Financial wants to become a corporation so that it can have stock as currency to pursue acquisition opportunities arising from the global credit crisis and stock market downturn, Mr. Holland said.

CI Financial's conversion is well ahead of 2011 when Ottawa plans to tax income trusts like corporations.

CI Financial, which has $59-billion mutual fund assets, converted to a trust in 2006.

CI FINANCIAL (CIX.UN)

Close: $18.31, down 29 cents

© 2007 The Globe and Mail. All rights reserved.

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