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Scotiabank, CI Financial dispute heats up

Stephen McPhail, CI Financial CEO


An already messy dispute between Bank of Nova Scotia and CI Financial is escalating, with the bank accusing the mutual fund company of speculating over what it plans to do with its large ownership stake in the firm.

On a conference call with analysts Tuesday, CI Financial chief executive officer Stephen MacPhail said Scotiabank told the firm the bank intends to sell its 36-per-cent stake in CI, and would like to complete a deal sooner rather than later.

However, Scotiabank later issued a statement suggesting the comments by CI are merely speculation, and that the bank is keeping its options open.

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"It is regrettable that CI has seen fit to speculate on our intentions," Scotiabank said in the statement, which was provided by a spokeswoman. "As a significant shareholder of CI, we have consistently said to our shareholders that the CI investment is important to us, and gives us several options as we go forward."

Scotiabank's statement prompted a rebuke from CI chairman Bill Holland on Wednesday, as well as from Mr. MacPhail, who disagreed with the bank's recollection about a conversation in December. Mr. MacPhail said the bank informed him at that time of its desire to sell. "There is no doubt in my mind what precisely was said," he said.

CI says that at a Dec. 6 meeting between Mr. MacPhail and Scotiabank's head of global wealth management, Chris Hodgson, the bank told Mr. MacPhail it wanted to sell the stake as soon as possible.

That meeting came after Scotiabank struck a deal to buy out Dundee Wealth, a key competitor to CI, for $2.3-billion.

In an e-mail sent less than two weeks after the December meeting, Mr. MacPhail told Mr. Hodgson that he informed CI's board of Scotiabank's intention to sell.

"I wanted to let you know that I advised the Board at the meeting yesterday afternoon that you had informed me … that the Bank had reached the conclusion that its intention was to sell its stake in CI," Mr. MacPhail said in the e-mail.

The e-mail, which was provided by CI on Wednesday, was not disputed by Scotiabank at the time, Mr. MacPhail said. Asked to comment on CI's assessment of the situation, a Scotiabank spokeswoman said the bank stands by its statement that all options are open, and may hold onto its CI stake for the time being.

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The two sides have been locked in a bitter dispute about CI's shareholder rights plan, which prevents any single shareholder from selling more than 10 per cent of the company at one time. The agreement effectively prevents Scotiabank from selling its shares as a block, and potentially realizing a higher price from one buyer.

Under the poison-pill arrangement, Scotiabank is also prevented from acquiring more shares without the approval of other shareholders.

Scotia wants to change the plan, but CI Financial has fought the bank's push to vote on an upcoming review of the poison-pill arrangement. A previous agreement prevented the bank from having a say in the matter, but the bank appealed to the Toronto Stock Exchange a few weeks ago and won the right to vote.

CI Financial is now taking that fight to the Ontario Securities Commission and said it expects to get a hearing on the matter later this month.

During CI Financial's conference call Tuesday, executives also told analysts that Scotiabank received an offer to sell the 36-per-cent stake, but turned it down. Mr. MacPhail said two investment banks, led by GMP Securities, had put in an offer for a "bought deal" that would see the shares sold to institutional investors. "I guess they didn't want to take that bid," he added.

Bank of Nova Scotia (BNS)

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Close: $57.65, down 13¢

CI Financial (CIX)

Close: $22.96, down 18¢

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