TORONTO (Reuters) - Bank of Nova Scotia, Canada’s third largest lender, has agreed to buy the 82 percent of DundeeWealth it does not already own for C$2.3 billion ($2.25 billion), giving a significant boost to its domestic wealth management presence.
Scotiabank’s offer of C$21 a share drove up the stock of DundeeWealth and parent Dundee Corp by 6.6 and 5 percent respectively on Monday.
The deal comes as Scotiabank pushes to expand its global presence in wealth management, which offers lucrative fees as well as exposure to rebounding stock markets.
The bank will become Canada’s No. 5 wealth manager, with a 7.8 percent market share after the takeover, it said. DundeeWealth sells mutual funds under the Dynamic Funds banner, and is currently Canada’s No. 8 mutual fund manager.
“Scotia historically doesn’t have the scale that the other Canadian banks have, so this acquisition certainly puts them up there,” said Scott Chan, an analyst at Canaccord Genuity.
Scotiabank also owns 36 percent of CI Financial, Canada’s No. 3 asset manager, and the bank has been seen as a likely buyer for the rest of CI.
Analysts said CI was still a likely target, but said the DundeeWealth deal could put that move on the back burner for now.
Chris Hodgson, head of Scotiabank’s global wealth management arm, said his priority was to deal with the Dundee acquisition, but denied a takeout of CI was “off the books”.
“We will continue to look for ways to leverage the investment, and a very significant investment that we have in CI,” he said.
DundeeWealth Chief Executive David Goodman, who said last month the company would seek deals to expand its U.S. foothold, will continue to run the company under Scotiabank’s umbrella.
His father, Ned Goodman, a top shareholder of Dundee Corp, will stay on as nonexecutive chairman at DundeeWealth.
Scotiabank turned its wealth management business into a separate arm in September, and soon after acquired a small group of wealth management assets from BNP Paribas in Panama and the Cayman Islands. Last month, it agreed to buy Canadian money manager WaterStreet Group.
Waugh said the addition of DundeeWealth would let Scotiabank pursue more global wealth management opportunities.
Several Canadian banks have been trying to boost their fee-based wealth management presence to find growth that is more lucrative than traditional retail banking and less volatile than wholesale banking.
Revenues in the industry promise to grow as workers around the world reach retirement age.
The push for expansion also follows a decision by Canada’s banking regulator to drop capital deployment limits that had been in place since 2008 amid uncertainty about a global push to tighten bank balance-sheet rules.
Canada’s banks came through the financial crisis in better shape than most of their U.S. and European rivals, and many have been adding acquisitions.
Royal Bank of Canada has also been aggressive on the wealth management front, agreeing last month to buy Britain’s BlueBay Asset Management for $1.5 billion.
Ben Phillips, a partner at management consultancy Casey Quirk said he expected Canada’s banks to continue buying.
“When you look at the strategic buyers of fund managers worldwide, these guys have the balance sheets, so I think they’re calling the shots,” he said.
VALUES TARGET AT C$3.2 billion
Scotiabank will offer 0.2497 of a common share and either C$5 in cash or 20 percent of a preferred share, for each DundeeWealth share.
Shareholders will also receive a special distribution of C$2 a share as well as 50 Canadian cents a share interest in Dundee Capital Markets, which will be spun out.
The offer is a 7.9 percent premium over DundeeWealth’s closing price on Friday, and values it at C$3.2 billon.
”They paid full price. It wasn’t an excessive premium, but it was fully valued,“ said National Bank Financial analyst Peter Routledge,” adding he expected the deal to go through.
DundeeWealth stock rose C$1.28 to C$20.75 to hit its highest point since 2007. Dundee Corp, which owns just under half of the wealth manager, rose 92 Canadian cents to C$19.22.
Dundee Corp has agreed to tender its shares to the offer, but it will hold its own shareholder vote on the decision.
Scotiabank fell 0.8 percent to C$54.20, while CI slid 1.2 percent to C$21.58.
Additional reporting by John McCrank; editing by Rob Wilson