UPDATE 3-CI Financial takes Scotia fight to regulators

Tue May 10, 2011 7:55pm EDT

* CI appeals TSX-Scotia decision to OSC

* Firm says Scotia ownership hurting business

* CI earns adjusted C$0.34/shr, meets analyst expectations

* Assets under management up 15 pct to record C$75.5 bln (Adds details, comments from conference call, analyst)

By John McCrank

TORONTO, May 10 (Reuters) - A dispute with Canada's No. 3 bank is hobbling CI Financial's (CIX.TO) ability to grow and the independent wealth manager has taken its increasingly ugly public battle with top shareholder Bank of Nova Scotia (BNS.TO) to Canadian regulators.

CI is challenging a decision by the Toronto Stock Exchange to allow Scotia, which holds a 36 percent stake in CI, a vote on the continuation of CI's shareholder rights plan, CI Chief Executive Stephen MacPhail said on a call with analysts on Tuesday.

The poison pill is aimed at preventing a hostile takeover of CI and prevents Scotia from selling a block of 20 percent or more of the shares without getting shareholder approval.

"It's not clear to CI what jurisdiction the TSX has to corner CI to allow the Bank of Nova Scotia to vote, and making the whole process even more questionable is that the TSX has yet to provide a reason or justification for what it has ordered CI to do," MacPhail said.

CI has appealed the TSX decision to the Ontario Securities Commission. MacPhail said the regulator's decision should be in by June 1, when CI's independent shareholders are due to vote on a three-year extension of the poison pill.

Scotia is not classified as an independent shareholder under the plan, but the TSX recently sided with Scotia CEO Rick Waugh, who said that it would be a violation of the bank's fundamental shareholder rights if it did not get to vote.

Scotia surprised market watchers in November when it bought the 82 percent of CI rival DundeeWealth DW_pa.TO that it did not already own for C$2.3 billion ($2.4 billion). Most thought the bank would buy the rest of CI. [ID:nN22123999]

Now Scotia wants out of CI, and both it and CI want the right to choose the buyer.

Canadian Imperial Bank of Commerce (CM.TO) has been tipped as a buyer of CI, but analysts have said that Scotia might not want to sell to them.

"They probably would refrain from selling to a direct competitor," said Scott Chan, analyst at Canaccord Genuity.

MacPhail said CI offered about six weeks ago to buy back about 20 percent of Scotia's shares as part of a bought deal for Scotia's entire CI stake, but Scotia rejected the offer.

Now if CI wants to make an acquisition, it would probably have to issue shares, and Scotia could object to the dilution.

"Clearly, the situation we have with the Bank of Nova Scotia is that they are detracting and hurting our business right now -- not taking away from our sales in that perspective -- but detracting us from strategic alternatives to build the business," MacPhail said.

PROFITS RISE

The Toronto-based mutual fund manger also reported on Tuesday a 32 percent rise in quarterly net income as stronger markets helped boost its assets under management.

CI earned C$100.1 million ($104.3 million), or 35 Canadian cents a share, in the first quarter, up from C$75.7 million, or 26 Canadian cents a share, a year earlier.

Stripping out the one-time items of an insurance settlement and the loss on sale of marketable securities, it earned 34 Canadian cents a share, matching the average expectation of analysts, according to Thomson Reuters I/B/E/S.

CI said its total assets were up 13 percent from a year earlier at C$98.8 billion, due to improving markets, positive net sales of funds, and the acquisition of Hartford Investments Canada Corp in December.

Assets under management rose 15 percent to a record C$75.5 billion at the end of the quarter, and were C$75.6 billion on April 30. Total revenue rose 15.1 percent to C$386.7 million.

Shares of CI ended down 0.09 percent at C$23.14 on the Toronto Stock Exchange on Tuesday.

($1=$0.96 Canadian) (Additional reporting by Pav Jordan; editing by Janet Guttsman)

FILED UNDER: