The Scotiabank tower in downtown Toronto is shown in a Wednesday, June 16, 2010 photo.Adrien Veczan/The Canadian Press
Bank of Nova Scotia's sale of $2.3-billion of shares in CI Financial found strong demand, now that the price is down by about 14 per cent from where it was when Scotiabank initially made the decision to sell.
Scotiabank and CI said that the bank would sell the stock at $31.60 a share. That's about 14 per cent below where the stock was when Scotiabank told CI privately earlier this month that a sale was in the offing.
The deal found solid demand at that size and price and it is now completely sold, largely to mutual funds and other institutional investors, sources said.
The pricing suggests that both sides were a little bit right in the tense days after Scotiabank's senior management trooped to CI's office on May 7 to tell the mutual fund firm that the bank wanted to unload its stake.
The belief in CI's office was that the bank would try to do a big offering at a slim discount to the closing price of CI on that day, which was $36.79. One number that was bandied about was said to be a 5-per-cent discount, which would have put the sale at about $35 a share. The size that was mooted was about $1.5-billion. Scotiabank knew that there would be strong demand for CI, the top mutual fund stock in the country.
CI has long been hard to buy a big position in because it is not very liquid, and the float was not very big with so much stock in Scotiabank's hands and management owning a lot more. A large offering would fix that, giving people who have long coveted a stake in CI a chance to buy in.
CI pushed back saying that even with CI's popularity, a deal would be tough to get done without a much bigger discount. Scotiabank held off, then put out a release a week later saying it planned a monetization. That allowed the stock to settle after a few days in the $33 range, giving a better sense of where a deal could get done.
The benefit for holding off from Scotiabank's point of view is that even though the price is lower than perhaps initially contemplated, the deal size is much bigger. That leaves Scotiabank with a much smaller residual position in the mutual fund company. The sale will take the bank's stake from 37 per cent to about 11 per cent.
That will reduce concerns about an overhang of stock that the bank will still want to sell some day, whereas a sale of $1.5-billion at a higher price would have left Scotiabank with a much larger position. And that should help CI stock trade more strongly now that this first sale is done.
After some fraying in the relationship between CI and Scotiabank early on in the sale process (CI chairman Bill Holland called Scotiabank's decision to sell "crippling"), there are signs that the sides have patched things up to a degree.
The press release announcing the sale was a joint notice from both companies.
Also of note is the financing syndicate, with Scotiabank's own investment banking division, Scotia Capital, joined by Royal Bank of Canada and GMP Securities. GMP has had an advisory relationship with CI and been an active trader of the stock, another signal that the sides were working more co-operatively to get a sale done.
Goldman Sachs Group Inc., which was hired by Scotiabank to advise on the monetization transaction, is not part of the lead group underwriting the bought deal. Goldman was viewed as there to provide a second opinion on various sale options and perhaps to canvass the world for potential strategic buyers.