June 6, 2012 / 8:43 PM / 5 years ago

UPDATE 1-Laurentian's B2B to buy AGF Trust, ups dividend

* Bank to pay C$415.5 mln for trust unit

* Reports higher profit, boosts dividend

* AGF shares up leap as much as 8.7 pct, end up 4.4 pct

* Laurentian rises 2.7 pct (Adds analyst, company comment)

By Cameron French

TORONTO, June 6 (Reuters) - Laurentian Bank of Canada's B2B Trust subsidiary will acquire AGF Trust Co from mutual fund company AGF Management for C$415.5 million ($402.1 million), in a deal the bank said will boost its income and increase efficiencies.

The bank, Canada's eighth-largest, announced the transaction on Wednesday as it reported a stronger-than-expected 9 percent rise in second-quarter net income and raised its quarterly dividend by 4 percent.

AGF's shares rose by as much as 8.7 percent after the deal was announced, before settling back and ending the Toronto session up 4.4 percent at C$12.24. Laurentian climbed 2.7 percent to C$42.35.

"AGF Trust will be beneficial to the bank's performance as it increases our scale of operations and optimizes our efficiency, (and) increases our net interest income and margins," Laurentian Bank Chief Executive Rejean Robitaille said during a conference call.

Laurentian said the deal should add to its net income by about C$28 million to C$30 million annually as of 2014, but will result in a one-time charge of C$30 million to C$35 million.

AGF, Canada's third-largest independent mutual fund company, was hit hard by the 2008 global financial crisis and has struggled to regain its footing, with a lineup of mutual funds that have not performed as well as those of its competitors.

The company said in a statement that selling the trust business would allow it to speed up expansion of its global investment management business.

John Aiken, an analyst at Barclays Capital, said the sale would remove about 20 percent of AGF's earnings power, but the influx of cash increases its ability to make acquisitions and makes its dividend safer.

"We believe that the initial price action on AGF's shares Wednesday related to relief surrounding a potential dividend cut," he said in a note.

CASH, PREFERRED SHARES

B2B Trust, which is fully owned by Laurentian, will pay C$242 million in cash for AGF Trust and will repay debt and redeem preferred shares amounting to C$173.5 million in total after the deal closes in August.

The deal also includes a contingent payment of up to C$20 million over five years if credit quality reaches certain criteria.

AGF Trust provides investments, term deposits, investment loans and real estate loans through more than 21,000 financial advisors and mortgage brokers.

It is expected to have assets of about C$3.8 billion at closing.

Laurentian's second-quarter net income rose to C$33.9 million, or C$1.22 a share, from C$31.0 million, or C$1.17, a year earlier.

Excluding acquisition costs related to the 2011 acquisition of the MRS financial management companies, the bank earned C$1.31 a share, ahead of analyst estimates of C$1.19 a share, according to Thomson Reuters I/B/E/S.

$1=$1.03 Canadian Reporting By Cameron French; Editing by Frank McGurty

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