Dundee not for sale, bidding process begins

It appears rumours of an impending bidding war for DundeeWealth are true. The wealth management firm issued a release on Monday morning confirming it has received “unsolicited” bids and is forming a committee to assess these bids.

“Notwithstanding that its controlling shareholder has not expressed an intention to sell,” the statement said, “a special committee of the board, independent of Dundee Corporation, has been formed. This committee has retained independent professional advisors. A process has been established which includes confidentiality agreements being entered into and the provision of a framework for due diligence.”

DundeeWealth’s chief brand and communications officer, Robert Pattillo, says he cannot comment further outside of what was said in the release due to the legal nature of the confidentiality agreements.

Pattillo says DundeeWealth has made the announcement as a response to weekend reports that a bidding process was underway for DundeeWealth and included four major Canadian financial service companies.

The Bank of Nova Scotia, CI Financial, Power Corporation and Manulife Financial have all been rumoured to be putting forward offers to purchase DundeeWealth.

Only CI has made its intentions publicly known. In September it offered approximately $20.25 for each DundeeWealth share, a 52% premium on the September 24, 2007, closing price of $13.31.

Since then, takeover speculation has sent DundeeWealth’s stock price rocketing higher, and it’s now trading on the Toronto Stock Exchange for over $21.00. A winning bid would likely be upward of that. Analysts have said DundeeWealth and its subsidiaries, which include Dynamic funds and 1,800 financial advisors, could conceivably be sold for well over $4 billion.

This is all hypothetical, since DundeeWealth’s controlling shareholders, the Goodman family, have firmly maintained that the company is not for sale.

In an analyst conference call in October, William Holland, the CEO of CI, said Ned Goodman’s refusal to sell effectively killed its original bid, which is why CI did not send out a circular.

“The circular has essentially been sent out to one person. We sent out a bid in a press release to Dundee, the person at Dundee. [He] has the ability to say yes or no. It doesn’t matter what the other shareholders think; we cannot do a deal without the endorsement of that single shareholder,” Holland said at the time.

With some other big players’ names being thrown around now, analysts have resumed their speculation on Dundee’s fate.

The Bank of Nova Scotia is in a unique position because it has the right to match any bid. Scotia already owns 18% of DundeeWealth, which it purchased in September for $12.76 a share. Even if it were to be outbid, it would still effectively double its initial investment in a matter of months.

There are a lot of unknowns for the other players. Dynamic Mutual Funds has been one of the best-performing fund families, with more Morningstar five-star mandates than any other fund company in Canada. It would quickly become a crown jewel of its new owner.

Power Corporation, for example, owns IGM Financial, the largest fund company in Canada, and has a massive distribution network through its various fund subsidiaries like Investors Group, so it could be assumed its primary interest would be in Dynamic.

“The fund management side is the more attractive part because it’s the more profitable piece,” says Dan Hallett, president of Dan Hallett and Associates.

Hallett says Power Corporation has a track record of taking over fund companies, keeping their advisors and running them independently.

“Power bought Investment Planning Counsel. That was certainly a much smaller company overall, particularly on the fund management side,” Hallett says. “When they bought IPC, they let it operate as an independent company.”

In the event that CI buys Dundee, Hallett wouldn’t be surprised if most of the operations were rebranded as CI.

“Each potential bidder might have different plans. Historically, when you look at the acquisitions CI’s made, they’ve fully integrated it under the CI brand eventually,” he says. “You look at the different fund management companies like BPI and Spectrum. Eventually those names disappeared and eventually everything just got swallowed by CI.”

Hallett notes, however, that it is unlikely anyone at this point would alter Dynamic Funds, particularly given its recent track record of success.

“Dynamic has been on such a strong run for a few years now. I would think it’s in the best interest to keep Dynamic intact as long as possible while realizing as many synergies as possible — striking that balance, which is never easy,” he says.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(11/26/07)

Mark Noble