CI Financial to convert to a corporation

CI Financial has announced that it will convert back to a corporate structure, ahead of the January 1, 2011, imposition of a new tax regime that will eliminate the advantages of the income trust structure.

“The unprecedented situation in today’s markets has created attractive opportunities for acquisitions in the asset management business,” said CEO William T. Holland. “A corporate structure will allow us to take full advantage of these unique circumstances and put us at the forefront of industry consolidation.”

The plan to restructure the company has been approved by the board of trustees, but still faces unitholder, regulatory and court approval. A special meeting will be held December 19, 2008, for unitholders of record on November 7. The timing allows the company to start fiscal 2009 as a corporation. The conversion will be completed on a tax-free roll-over basis.

As a corporation, CI plans to deliver a quarterly dividend of 12 cents per share, a shadow of the current 17 cent monthly distribution (or 51 cents per quarter). The December distribution has been dropped altogether but will add an extra four cents to the first corporate dividend, payable March 31, 2009.

While the dividend will fall far short of the trust distribution, the company says it will opt for more tax-efficient ways to deliver value to shareholders, specifically through share buybacks. Share buybacks are preferable to dividends because taxation is deferred until disposition, when profits are subject to the more favourable capital gains rate.

Income investors have bailed out of the company on the news, sending the trust down more than 10%.

The company will now shift gears from producing income to a strategy of acquisition and growth.

“Conversion will position CI for continued growth and help to solidify its position as one of the dominant firms in the Canadian asset management business,” Holland said. “This proposal removes CI from the uncertainty gripping the income trust marketplace today.”

Holland cited the uncertainties surrounding the trust structure as a stumbling block on recent acquisition attempts. In September, the company was rumoured to be kicking the tires on Canaccord Capital, although no deal has surfaced. In 2007, a proposed takeover of DundeeWealth fell through.

“CI cannot afford to miss any more of these opportunities,” Holland said.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(10/15/08)