Friday, October 05, 2007

Scotiabank's Hunting for Specialty Acquisitions

The Toronto Star, Rita Trichur, 5 October 2007

The Bank of Nova Scotia is hunting for more boutique-style acquisitions for its wholesale banking business to build on the success of its 2005 takeover of energy advisory firm Waterous & Co., says its chief executive officer.

Rick Waugh said Scotiabank is being "inquisitive" in specialty areas such as energy, mining and other types of advisory work.

"We're looking," Waugh said in an interview this week, adding Scotia Waterous has been a "huge success ... I wish we could do more of that."

Scotiabank, Canada's third-largest lender, has deliberately pursued that "niche" strategy in an effort to compete with its larger rivals. And, given the swift pace of mergers and acquisitions in Canada's oil patch in recent years, its approach appears to be paying off.

Since January of 2006, Scotia Waterous has advised on more than $25 billion in oil-and-gas assets and companies, including about $8.4 billion outside of North America.

Its biggest coup is arguably the advisory work it did for Canadian Natural Resources Ltd. on its $4.24 billion purchase of Anadarko Petroleum Corp.'s Canadian subsidiary last year.

While organic growth remains Scotiabank's first priority for its wholesale banking division, Scotia Capital, it continues to scout for other tuck-in acquisitions. "We'll also look because our balance sheet is strong, our liquidity is strong, our earnings are strong," Waugh said.

And based on some forecasts, the timing couldn't be better. Even as oil companies squabble over royalties, it is clear there is plenty of money to be made in the oil patch.

CIBC World Markets chief economist Jeff Rubin predicts that crude oil prices, currently trading around $80 (U.S.) a barrel, are likely to hit $100 a barrel by the end of next year. He forecasts OPEC's export capacity to fall, thereby raising the profile of the Canadian oil sands as "they represent anywhere from 50 to 70 per cent of the world's oil reserves open to private investment."

Scotiabank, however, is not the only Canadian bank that appears ready to do more shopping. With two big foreign takeover plays by Canadian banks just this week, analyst Shannon Cowherd of Citi Investment Research suggested yesterday that the Bank of Montreal is next in line to do a deal.

"Based on a hypothetical analysis we think TCF Financial would make the short list as a potential target for BMO," Cowherd wrote in a note to clients. TCF Financial is a Minnesota-based financial holding corporation with $15 billion in total assets, 446 offices in seven states and market capitalization of about $3.5 billion.

Tim Crane, president of BMO's U.S. subsidiary, Harris Bancorp, said last week the bank will be "aggressive" in its quest to expand in the U.S. midwest.
The Globe and Mail, Tara Perkins & Shirley Won, 5 October 2007

CI Financial Income Fund is putting the finishing touches on its hostile $3.2-billion bid for all of DundeeWealth Inc., but the Bank of Nova Scotia's chief executive officer appears confident his bank would win the wealth management firm, should it come up for grabs.

The bank has just closed a deal to buy 18 per cent of DundeeWealth.

"If they decide to sell, certainly we would [want to buy 100 per cent]," Scotiabank CEO Rick Waugh said in an interview. "We're good partners, and I'm pretty confident that if they decide to do that, we'll be able to do that."

Toronto's Goodman family, which controls DundeeWealth, says it has no plans to sell the rest of the company, so the working assumption is that a sale is not in the cards, Mr. Waugh said. Scotiabank has a right of first refusal if the company does come up for sale.

The Goodmans agreed to sell 18 per cent of DundeeWealth, which owns Dynamic Mutual Funds, to Scotiabank last month at $12.76 a share because it took the money-losing Dundee Bank off their hands. Scotiabank's $608-million deal closed last Friday.

But CI Financial CEO Bill Holland has been shaking things up with his $20.25 a share offer for all of DundeeWealth. The offer, first announced on Sept. 24, is a 52-per-cent premium to DundeeWealth's closing price that day. CI has said it would be in a position to mail its takeover bid in early October.

Mr. Waugh said he's not worried about potential rivals courting DundeeWealth, saying Scotiabank has the upper hand with its new, close relationship with the company.

He's assuming the Goodmans won't put the company on the auction block. "Meanwhile, we have 18 per cent with three people on the board, we can equity account so we don't have to even ask them for a dividend," Mr. Waugh said. "And, importantly, we have this white label bank."

"We're comfortable growing with them," Mr. Waugh added. "We get all these other benefits, and we still have our options open. It's classic win-win."

Mr. Holland declined yesterday to comment on Mr. Waugh's remarks or CI Financial's formal takeover offer. CI Financial's offer, which includes fully diluted shares, has increased because it now includes the new Scotiabank shares.

Elliott Soifer, an arbitrageur at Desjardins Securities Inc., said he is not surprised that Scotiabank would want to buy all of DundeeWealth.

"This would be extremely timely and strategic for Bank of Nova Scotia, because it catapults them into the big leagues [of fund companies]," said Mr. Soifer, whose firm became a DundeeWealth shareholder after CI announced its bid. "They would have bought the whole company if they had the chance the first time."

Mr. Soifer said he believes the fact the Goodman family has been silent since CI Financial made its unsolicited offer indicates that "they are considering selling."

Shares of DundeeWealth continued to do climb yesterday, closing at its highest price since CI Financial launched its takeover bid.