16 September 2008

CI-Scotiabank Talks End Without Deal on Fund Unit

The Globe and Mail, Tara Perkins, 16 September 2008

CI Financial Income Fund's efforts to buy Bank of Nova Scotia's mutual fund arm have fallen flat, according to sources. Negotiations between the mutual fund giant and the bank were dropped last week without a deal, two people familiar with the talks said.

“It's done,” one source said of the failed negotiations.

The companies had been talking about a transaction that would have seen CI pick up Scotiabank's mutual fund business, which is the No. 12 player in Canada's mutual fund market. In return, Scotiabank would have taken a significant equity stake in CI.

On Aug. 22, CI disclosed that it had held discussions with a number of parties in recent months about possible strategic combinations. It cautioned that there was no certainty a deal would be done.

A source familiar with some of the talks said no other deal is likely in the very near future, because of the current market volatility.

“For the foreseeable future I don't know how you could ever do a deal, except for ones that are forced, with asset values moving around several per cent a day,” the source said.

In a note to clients last month, BMO Nesbitt Burns analyst John Reucassel noted that a deal between CI and Scotiabank would be complicated because CI already has a major shareholder. Toronto-based insurer Sun Life Financial owns 37 per cent of the mutual fund company.

Mr. Reucassel had placed a possible value of $1.1-billion to $1.4-billion on Scotiabank's mutual fund operations, noting the bank had $16.1-billion of long-term mutual funds and $3.3-billion of money market funds as of July.

For CI, a deal would have had three major benefits – increased scale, broader distribution, and attractive financial terms – Mr. Reucassel had noted. But his colleague, BMO Nesbitt Burns banking analyst Ian de Verteuil, was skeptical about the deal's merits for Scotiabank.

One source cautioned yesterday that talks could always be revived. Spokespeople at Scotiabank, CI and Sun Life declined comment.