The evidence keeps piling up that Bank of Nova Scotia was forced to match a CI Financial bid for DundeeWealth last year, as CI disclosed this week that it had a "binding" agreement and got a break fee when Scotia moved in.
What's more, CI had agreed to pay more than Scotia eventually did. Bank of Nova Scotia agreed in November to buy DundeeWealth for $2.3-billion. At the time, sources told The Globe that Scotia was forced to act quickly because DundeeWealth was in play, as there was a bid on the table from CI.
Scotia had a right to match any takeover offer that DundeeWealth received, which was negotiated when Scotia came to DundeeWealth's aid when it got into trouble during the first days of the financial crisis.
However, Scotia said that's not what happened. When the Scotia agreement with Dundee Wealth was announced, Scotia chief executive officer Rick Waugh denied that that there was a competing bid that forced his hand.
"This was a negotiated deal between DundeeWealth and ourselves ... the result of discussions over a long period of time," he said back in November. "It was not a triggering of that agreement."
So how then to explain the fact that CI Financial said on its conference call Wednesday that it not only made a bid for Dundee, but got a break fee when Scotia exercised its right to match?
CI even gave a price, one share of CI for one share of DundeeWealth. That values the CI bid at about $21.85, which was where CI was trading in the week before the Scotia agreement to buy CI was announced. Scotiabank ended up paying $21 a share.
Sources have said that DundeeWealth was willing to accept a bit less from Scotia because it felt that the chances of the deal closing were much higher than getting a deal done with CI.
CI CEO Stephen MacPhail laid out the terms, and disclosed the break fee, on the conference call Wednesday:
"In November we bid for DundeeWealth, one share of CI per share DundeeWealth in a binding offer. Bank of Nova Scotia chose to exercise the right to match and bought the company. I will say that we did get a nice break fee out of this transaction even if we did not get the company, which after all of our expenses, including fees to our advisors, netted CI almost $4-million."
Now, the CI relationship with Scotia, always distant according to those familiar with the situation, has gone totally cold. Scotia remains CI's biggest shareholder, but has no intention of trying to take the company out, Mr. MacPhail said.
We'll let him tell the story, via a transcript provided by Thomson StreetEvents:
"The last discussion I had with the Bank of Nova Scotia was Monday, December 6. I remember it precisely. It was at 8 AM in the morning. And at that time I congratulated Chris Hodgson on the acquisition of DundeeWealth. They had matched us, and that was fine. That was all fair game. I guess the one thing I had been surprised at at the time was learning that they wanted to own 100% of DundeeWealth, and it was confirmed to me at the time. That's what they wanted, 100% of Dundee, and that their interest really is DundeeWealth, and it's actually not CI at all, now that they had the choice.
So what that has forced us to do is to really relook at where we're going. For the better part of two and a half years we sat down and tried to figure how we could do deals; CI, Scotia; Dundee, CI, Scotia; a whole bunch of things. It took up a tremendous amount of our time, mental time here in calculations, and enough [mulls]probably to sink a ship. But that's gone. They've really lost interest in our business. I mean, that's been clear. I mean, they're not interested any more in having Board seats. They used to want dilution protection. They don't any of that any more -- all for obvious reasons. So I don't know what it means what they're going to do, but from CI's perspective we've had to conclude as a result of that meeting that we're going to plot our course going forward on it. So that's the first one.
The second question I venture just to clarify for you is you asked about could they sell, or how could sell -- is that we have poison pill in place that really doesn't allow them to sell their shares -- well, it doesn't allow them to sell their shares as a block. If they wanted to sell their shares, the only way they could do it would be to sell it in pieces of less than 10% would be the only way they could sell it. Alternatively, they can't sell their shares without CI -- sorry, with CI shareholders, not just CI. All our shareholders approving it. So I can't see any circumstance that CI shareholders would agree to them selling their block, unless it was in the interest of something that CI wanted to do that was for the betterment of all its shareholders. I mean, that's why you have a protection plan in place, that if a transaction gets done, it's there to protect all the shareholders, right? It's not just one individual group.
So if something is going to happen, I mean they can sit there as a, I guess, a passive -- what they are is passive shareholder. Now they could sit as a passive shareholder for a long time. That doesn't bother us at all, because we have no expectations of a passive shareholder other than to collect a dividend -- which I guess is pretty hefty for them now -- on it. And I guess that's the best way to answer your question. That 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, not just Scotia shareholders."
This item has been corrected to show the conference call was Wednesday, not Thursday as previously stated.