Canadian Imperial Bank of Commerce appears to have paid a fair price for its minority stake in American Century Investments. The question the street is going to have is what comes next now that the bank has a toehold in the U.S. mutual fund business.
Buying a fund management asset in the U.S. must feel like shopping in the bargain basement. In Canada, asset managers trade at a huge premium to the U.S. because of their scarcity value.
CI Financial, the last big prize in Canada, would cost north of its $6.5-billion market cap, and it has roughly $75-billion in assets. IGM Financial has about $130-billion in assets and a market cap of $13-billion.
By contrast, CIBC is paying $848-million (U.S.) for a 41 per cent economic interest in a money manager with $112-billion under management. What's more, the bank appears to have gotten the deal done with no heated auction, as there's not a big premium embedded in the price looking at where U.S. fund assets trade. (Janus Capital has a $1.7-billion market cap for $173-billion of assets. Legg Mason has a $5-billion market cap for $672-billion of assets.)
The big question is what's the end game, as analyst John Aiken of Barclay's Capital noted Friday morning. What does CIBC do with minority stake? The bank isn't saying whether there's a clear path to control, so the assumption has to be that CIBC will be waiting if and when the 87 year old founder of American Century or his family wants to sell. The family, however, donates its take from its portion of American Century to medical research. Is that something the founding family will want to quit doing any time soon to cash out?