There has been a lot of talk about what Bank of Nova Scotia's purchase of DundeeWealth means for both the bank and for Dundee Capital Markets, which was spun out on its own. But what about Dundee Corp.?
Turns out it's doing just fine. In fact, the big transaction has Dundee Corp. swimming in cash, forcing analysts to speculate what can be done with all that money.
"DC has many options at its disposal," noted GMP analyst Stephen Boland. "While possible in the near to medium term, we do not believe a status quo scenario is likely in the long term. We believe that some form of buyback and possibly an increase in the dividend is likely."
Other, bigger, possibilities include investing in more commodity companies or even going private.
To recap, Dundee Corp. was the largest shareholder of DundeeWealth when Scotia announced its plan to buy, owning 48 per cent of the target. That means Dundee Corp. has now received $1.5-billion in Scotia common and preferred shares and Mr. Boland notes that will yield approximately $50-million in annual dividends.
When the deal first broke, all anyone knew was that the deal would gut a huge part of Dundee Corp, but it took a while to do the exact calculations. Historically, DundeeWealth was the largest lever in the net asset value of the Corp.'s shares, with a one dollar change in share price moving Dundee Corp.'s NAV $1.04, according to GMP. Now a dollar change in the price of BNS stock moves Dundee Corp.'s NAV $0.27.
Going forward, the six main public companies that Dundee Corp. holds are Scotia, Dundee REIT, Dundee Precious Metals, Eurogas, Breakwater and Dundee Capital Markets.
Regardless of what the company does with the cash, "we believe there is little downside with [Dundee Corp.]considering the leverage to BNS, and commodity stocks," Mr. Boland noted.
Tim Kiladze