Scotiabank to sell CI Financial shares in public offering

Bank of Nova Scotia has settled on a plan to unload the majority of its stake in asset manager CI Financial Inc., opting to sell shares directly to public investors by way of a bought deal.

Scotiabank is selling 72 million shares at $31.60 each, amounting to a total deal size of $2.3-billion, making it one of the largest public offerings in Canada. Comparable deals include Barrick Gold Corp.'s decision to sell $3-billion worth of new shares to investors in November, as well as the Canadian banks' common share offerings during the financial crisis.

Before the sale, Scotiabank owned 37 per cent of CI. After the offering, Scotiabank will hold 11.4 per cent of the company. The lender will book a pre-tax gain of $380-million when reporting its next batch of quarterly earnings.

Earlier in May Scotiabank announced it was looking at ways to monetize its stake in CI, but said it had not decided on the best way of doing so. To keep all its options open, the bank hired Goldman Sachs Co. as a strategic adviser. And on Tuesday chief executive officer Brian Porter told analysts and investors on a conference call that a decision had not yet been made on the best way to unload the stake.

However, Scotiabank initially told CI that it was considering selling shares directly to investors, and the asset manager worried that the bank would not be able to pull it off. In part, that stemmed from concerns around the price at which Scotiabank would have to sell the shares. Historically, such large offerings have been sold at big discounts to market prices.

At an offering price of $31.60, Scotiabank is unloading most of its stake at a 6.1-per-cent discount to CI's closing price on Wednesday. However, CI's shares have fallen since Scotiabank first announced plans to monetize its position, because investors wondered how big the final discount would be.

Relative to CI's closing price on May 16, the day Scotiabank announced plans to sell at least a portion of its position, the new offering price amounts to a 12.5-per-cent discount.