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Invesco, BMO touted as possible Claymore suitors

Som Seif, president of Claymore Investments, at the company offices in Toronto.

Deborah Baic/Deborah Baic/The Globe and Mail

A U.S. financial services firm and several Canadian banks are potential bidders for Claymore Investments Inc., Canada's second-largest purveyor of exchange-traded funds.

Claymore's parent, Guggenheim Partners LLC of New York, is seeking buyers for the Canadian firm, which has about $6.6-billion in assets, Bloomberg News reported this week. Som Seif, chief executive officer of Claymore, said he will "not comment on rumours."

Industry observers say one potential bidder for Claymore is Invesco PowerShares Capital Management LLC of Atlanta. Invesco entered the Canadian market in June and seems to be copying some Claymore ETF offerings. Last Friday, it filed a prospectus with regulators to roll out Canadian and U.S. equity ETFs that will track two popular indexes used by Claymore that select stocks based on "fundamental" factors such as cash flow and dividends.

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"In terms of the product overlap and indexing relationships, Invesco would be a pretty nice fit," John Gabriel, an ETF strategist with Chicago-based Morningstar Inc., said on Thursday. The acquisition would make Invesco PowerShares "a serious contender" in the Canadian market, he said.

Invesco Canada president Peter Intraligi declined comment on the Claymore sale.

Mr. Gabriel said Canadian banks are also potential suitors. Bank of Montreal and Royal Bank of Canada have already started ETF businesses, a sign of the growing popularity of the investment vehicles. Any bank that acquired Claymore would instantly gain about 16 per cent of the Canadian ETF market.

"A Claymore acquisition would put one of the banks right into the mix and challenge the industry leader, iShares [the brand owned by BlackRock Canada]" Mr. Gabriel said.

It's not clear how profitable Claymore is, since Guggenheim is a private company. Also unknown is what price tag Guggenheim has put on the ETF provider.

Claymore is the second Canadian-based ETF provider to be shopped around this year. South Korea-based Mirae Asset Global Investments Co. closed a deal this week to buy 85 per cent of Toronto-based Horizons ETF Management, formerly known as BetaPro Management Inc., for $127.5-million.

Based on the price of the Horizons deal and the valuation of WisdomTree Investments Inc., a publicly listed U.S. ETF provider, Claymore could fetch between $300-million and $425-million, Mr. Gabriel suggested.

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Dan Hallett, an analyst with HighView Financial Group, agreed that Canadian banks are potential buyers, particularly Bank of Montreal , which has aggressively increased its ETF offerings. Canadian ETF providers must become bigger to achieve the economies of scale that will allow them to compete against rivals such as Vanguard Group Inc., the U.S.-based provider of low-fee ETFs, which will soon launch its products in Canada, he said.

Claymore is a unit of U.S.-based Claymore Group Inc., which was acquired by global financial services firm Guggenheim in 2009. While the U.S.-based Claymore ETFs were rebranded with the Guggenheim name, the Claymore brand has continued in Canada.

It is not clear why Guggenheim may be looking to sell its Canadian operations, but it may have its hands full south of the border. In September, it acquired U.S.-based Rydex SGI, which has a family of over 100 ETFs and a family of mutual funds, to create a $120-billion (U.S.) asset management firm.

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