By James Langton

(November 20 – 11:55) – The take-over bid circular filed by C.I. Fund Management Inc. for Mackenzie Financial Corp. reveals a little background to the fund company tug-of-war.

C.I.’s advisor BMO Nesbitt Burns Inc. met with Jim Hunter, president and CEO of Mackenzie, back in March, “to discuss the Canadian mutual fund industry and Mackenzie’s business plans”.

C.I. says that as a result of that meeting and other public statements made by Mackenzie, including its annual report, C.I. concluded that a friendly takeover was unlikely.

However, in the circular C.I. lists the proposed benefits of such a deal, including:

  • becoming the largest independent mutual fund company in Canada;
  • maintaining significant product distribution capacity through all channels;
  • gaining critical mass and a broader product line to allow for larger marketing, advertising and technology budgets;
  • improved profitability and cash flow as well as lower unitholder costs provided by scale;
  • a substantially increased float improving C.I. liquidity; and
  • a strong balance sheet and substantial free cash flow.

On November 5, the board of C.I. authorized making the offer, and the deal was announced the following day in a press release that stunned the fund industry.

If the deal does go ahead, C.I. says it “may amalgamate, merge or otherwise combine Mackenzie and certain of the Mackenzie subsidiaries with certain of C.I.’s subsidiaries. However, it is C.I.’s current intention to continue to offer the C.I. mutual funds and the Mackenzie funds separately.”

C.I. says the combined company will not only be the country’s largest independent fund company, it envisions creating, “a significant Canadian-based international investment fund company, which would be able to capitalize more effectively on new product development, a broadened distribution network and emerging technologies.”

C.I. says it has no plans for any divestitures or other transactions with Mackenzie’s assets, and it also has no intention to replace any of the portfolio managers on the Mackenzie Funds, or their trustees. “However, upon successful completion of the offer, [it] intends to complete a detailed review of the assets, corporate structure, capitalization, operations, properties, policies, management and personnel of the combined companies and to consider whether any changes would be desirable in light of circumstances which then exist.”

Mackenzie has accused C.I. of planning to finance the deal with Mackenzie’s own cash reserves. At least in the interim, C.I. says it has financing from a Canadian chartered bank, which expires on January 31, 2001, to establish a cash facility to cover the cash portion of the deal. The facility will be repayable either six months after the initial extension of credit, or three business days after it acquires 100% of Mackenzie. C.I. estimates that the deal will cost it $15 million in transaction costs.