The head of Bank of Nova Scotia has accused CI Financial Corp. of violating the bank's fundamental rights as a shareholder in the investment fund company.
Speaking after Scotiabank's annual meeting in Halifax on Tuesday, chief executive officer Rick Waugh said his bank is entitled to vote on CI Financial's poison pill policy, which places restrictions on how Scotiabank can sell its shares in CI Financial.
Scotiabank bought 38 per cent of CI Financial from Sun Life Financial in 2008. However, when Scotiabank bought out investment firm DundeeWealth Inc. late last year, the deal signalled the bank was no longer interested in boosting its stake in CI and was now likely a seller.
However, divesting its stake in CI will be no easy task for Scotiabank. A poison pill plan in place at CI gives shareholders and the company a veto over any sale of more than 10 per cent of the shares at one time. That policy could stand in the way of Scotiabank selling its stake as a block to one buyer, potentially reducing the value of Scotiabank's investment.
The poison pill plan is now up for renewal, but CI management intends to prevent Scotiabank from voting against it, stating that company rules allow only independent shareholders to cast a vote. Scotiabank is not part of that group, CI maintains.
Mr. Waugh said the plan goes against the rights afforded to shareholders in public companies. "One of the great things about publicly traded companies is you get a shareholder vote. ... That is to me a principle of property rights - the right to vote," he said. "And I find it very strange, just because we happen to be a large shareholder, we are denied that fundamental right."
CI Financial disagrees with Mr. Waugh's assessment of the situation, pointing out that Scotiabank previously supported the poison pill structure with which it now disagrees.
"CI is not denying the bank a fundamental right, it is adhering to and enforcing the terms of a shareholder rights plan which was voted on and approved by all shareholders including [Scotiabank]," a CI spokesman said in an e-mail.
"The shareholder rights plan clearly states that the independent shareholders of CI must approve an extension of the plan for a further three years. The bank is not an independent shareholder according to the terms of the plan."
The spokesman said the bank should not be able to block the renewal of the plan because its intentions have changed. "The bank voted on the plan when it was initially implemented but should not be entitled to veto the continuation of the plan simply because its intentions concerning CI may have changed."
Mr. Waugh said the bank's priority for now is the Dundee Wealth investment.
"But we do have a strategic interest - a significant strategic interest - in CI. And we will continue to evaluate our options," he said.
CI Financial CEO Stephen McPhail said in February that the poison pill is in place to ensure his firm has a say in who its major investors are.
"If [Scotiabank] wanted to sell their shares, the only way they could do it would be to sell it in pieces of less than 10 per cent," Mr. McPhail said then.
"That's why you have a protection plan in place. ... We're just moving forward with our own plan, knowing that if they really want to do something, it has really got to be in the context of something that's good for all CI shareholders."
Bank of Nova Scotia (BNS)
Close: $59.07, down 41¢
CI Financial (CIX)
Close: $23, down 3¢
© 2007 The Globe and Mail. All rights reserved.
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