A tale of two bets on CI Financial

How could Scotia's CI sale hit Canada's two biggest funds?

Achilleas Taxildaris 11 June, 2014 | 6:00PM

CI Financial has been all over the financial news since Scotiabank, its largest shareholder, decided to sell most its investment in CI. Scotiabank owns 37% of CI, which it acquired from Sun Life in 2008. Many CI investors had hoped Scotia would buy the rest of CI, and CI stock traded at a premium price on these hopes.

CI's share price declined following Scotia's announcement to sell. Recently, Scotia announced it would sell 72 million shares in a public offering, while CI said it would buy back 20 million shares, helping reduce the increase of the free float. As big CI shareholders, Canada's two largest funds, Investors Dividend   and RBC Canadian Dividend  , will feel the impact regardless of how the sale plays out.

CI's biggest shareholders aren't fund companies but insiders. Directors and executive officers of CI alone own approximately 10% of the firm. In all, insiders control 47% of CI shares, meaning that only marginally more than half are available in the open market (what is called free float). While the firm's market cap is close to $9.5 billion, in reality only $5 billion is publicly available. While CI's market capitalization classifies it as large-cap, relatively high insider ownership means it trades more like a mid-cap stock. As a result, large fund companies can't easily establish meaningful stakes in the company without owning a big chunk of their shares.

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Achilleas Taxildaris

Achilleas Taxildaris  Achilleas Taxildaris is analyst for Manager Research and focuses on active strategies.