CI Financial Wants to Go Private: What Investors Need to Know

Will the deal actually go through, or might it face government scrutiny?

CI Financial (TSX: CIX) stock zoomed on the news that the company will be taken private by Mubadala Capital, an asset manager based in Abu Dhabi.

Will the deal actually go through, or might it face government scrutiny? Motley Fool Hidden Gems Canada advisor Jim Gillies shares his take.

Prefer to read? There’s a transcript below.

CI Financial goes private

Transcript

Nicholas Sciple: I’m Motley Fool Canada senior analyst Nick Sciple, and this is the “Five-Minute Major,” here to make you a smarter investor in about five minutes.

Today we’re discussing CI Financial’s CAD$12.1 billion enterprise value deal to go private. My guest today is Hidden Gems Canada lead advisor, Jim Gillies. Jim, thanks for joining me.

Jim Gillies: Thanks for the invite and the discussion, Nick.

Nick: Jim, we’ve got a big deal to discuss today. On Monday, November 25, Canadian wealth management giant CI Financial announced it had agreed to go private at $32 per share in an all-cash deal to be acquired by Abu Dhabi-based Mubadala Capital. Jim, you’ve been following CI Financial for some time. What did you make of the deal?

Jim Gillies: Yeah, I’ve been following for a while. I’ve owned it for two decades on and off myself and recommended in a couple of Foolish newsletters.

I was unsurprised that something happened, and yet surprised that it was this definitive. What I’d actually been expecting is, over the past few years, CI has been really diligently and somewhat aggressively, frankly, building up a U.S. wealth management arm that they call Corient.

In fact, about a year and a half ago — a year and four months ago — the same Abu Dhabi-based investors were at least partially involved with CI taking on an investment in the U.S. wealth management business called Corient. They took in a billion dollar U.S. stake, in part funded by the Abu Dhabi investment authority, as well as Bain Capital, the state of Wisconsin (for some reason, anyway, that was a little odd). But Abu Dhabi was invested. It was involved there. At the time, you’d take a billion-dollar investment for a 20% stake in a sub area of the business.

It was a little weird because the entire market cap of CI at the time was about CAD$2.6 billion. The enterprise value — so cash or the market cap plus net debt — was CAD$5.7 billion. And here was an investment in Corien that valued just Corian at US$ 5 billion. So this was one reason why we had it in a couple services.

What I was expecting to come down the pipe in the next couple of years was the the U.S. IPO of Corien.

That may, in fact, happen in the next couple years.

But I was not expecting that the Abu Dhabi investors, Mubadala Capital, would move to buy the whole thing. That did genuinely surprise me.

Nick: Yeah, Jim, this is the biggest investment I can remember of a Middle East investor in Canada. Any chance that impacts closing the deal? Given that this entire Canadian business is being taken private, or, on the other hand, do you think we could see more of these deals of large Middle East investment companies becoming involved in the Canadian market?

Jim: Well, I’m not sure of Middle Eastern, but I’m going to go just general foreign takeovers, or maybe foreign takeovers that aren’t U.S. companies.

But you know, I look back to 2010; Australian giant BHP Billiton was trying to take over Potash Corp. of Canada, which had previously been the largest company in Canada.

The government of the day blocked it. Said it wouldn’t be a net benefit to the country. And why, that’s interesting to me today is:

Yes, I think this deal could fall through, but it won’t be because the people involved somehow don’t want it to be. I mean, the insiders are rolling some equity. The chairman, Bill Holland, is rolling some equity. Everybody’s praising the detail of the deal in the press release today.

One of the subheadings in the deal press release made me pause, and this comes ahead of any of the transaction details or the board recommendation. There is a section about a third or even a quarter of the way through the press release. The title is “Benefits to Canada.”

This, to me, sounds like the people involved here are expecting the Canadian government to take a look at this as a potential foreign takeover similar to BHP proposing to take over Potash and going, “No.” I think they are worried that the Canadian government might prevent this. And so they’re trying to get out ahead and not detail the potential benefits to shareholders, but benefits to the country. And they talk about maintaining leadership, maintaining jobs, maintaining headquarters, and most importantly maintaining CI’s philanthropic support of charitable organizations across Canada. I thought that was interesting, and yes, I think it could signal that they are at least worried the deal will fall through.

Nick: And we’ll see where things go from here. This may not be the last episode in this transaction, but in the near term, shares of CI Financial are up significantly today. So it’s certainly a happy day for shareholders. Jim, thanks for joining us for this edition of the “Five-Minute Major.” Hope folks will join us again next time.

Jim: Thank you.

Fool contributor Jim Gillies has positions in CI Financial. The Motley Fool recommends CI Financial. The Motley Fool has a disclosure policy.

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