TORONTO - AMVESCAP's $1.8 billion deal to acquire Trimark Financial of Toronto, the biggest fund-company takeover in Canadian history, changes the industry's pecking order and accelerates the trend toward increasing foreign ownership.
The offer of cash and shares by AMVESCAP of London, which beat out other contenders including AGF Management and Mackenzie Financial, both of Toronto, has received the unanimous support of Trimark's board of directors. It is subject to shareholder and regulatory approval.
The deal calls for Trimark and its $16.6 billion in fund assets to be merged with AMVESCAP's existing Canadian operation, AIM Funds Management of Toronto, which manages $6.5 billion.
The combined total of $23.1 billion in mutual funds held by the two companies will make the merged firm the largest in Canada selling through independent brokers and dealers, ahead of the current leader, Mackenzie Financial, and runner-up Fidelity Investments Canada.
It will lift AMVESCAP from the 14th place it previously held among all firms. Trimark currently ranks sixth overall in the industry, and third among firms that sell mainly through third-party financial advisors.
On a global scale, the takeover represents a modest increase in assets of about four percent for AMVESCAP, which, as of March 31, had $391.6 billion under management worldwide.
But in Canada, AMVESCAP is making a much bigger splash, consistent with its global strategy of securing a prominent position in the world's major investment markets. Only the $28.9 billion Investors Group of Winnipeg, which distributes through a proprietary sales force, will have more mutual fund assets in Canada than AMVESCAP.
Charles Brady, chairman and CEO of AMVESCAP, said the merger will enable the company to expand dramatically its Canadian presence, broaden its product mix and add new distribution channels.
The larger scale of AMVESCAP's Canadian operation will be a key competitive advantage, said Robert Hain, the current president and CEO of that operation, who will continue to hold those duties in the merged firm.
"Players with scale are going to be in a position to innovate most, and support the distribution system dependent on us," Hain said at a news conference last week in Toronto.
Hain said that lower management-expense ratios are inevitable in the Canadian market, and new disclosure rules will make it clearer to clients what fees they are paying. One of the challenges that AMVESCAP faces is how to repackage the costs of manufacturing and distribution of funds, he said. A wrap program, using AIM and Trimark funds, would be one of the likely areas for expansion, Hain said.
Robert Krembil, chairman and co-founder of Trimark, also said the acquisition means the combined companies will gain the advantages of greater size and global diversification of products and management expertise.
"We believe that in order to compete in the long run in this business, you have to be a global player," said Krembil, who will remain as chairman of the Canadian operation under AMVESCAP. "We were going down that track. This merger gets us there in one fell swoop."
Krembil, who has headed Trimark's investment team since the company was founded in 1981, said the merger will make it possible to offer a much more diverse range of investment styles.
AIM's equity funds, which favor the growth and momentum styles of investing, are an excellent style complement to the more value-oriented style favoured by Trimark's managers, he said.
One of AMVESCAP's early priorities will be to merge the back office operations of the two firms in order to offer both the AIM and Trimark products within a single integrated family. Hain said AMVESCAP's goal is to complete the integration before the next retirement plan selling season, which begins late in the year and peaks in the first quarter.
Shares of the merged firm will be listed on the Toronto Stock Exchange, under a name that has yet to be decided. Although a name has not been determined, it seems clear that the Trimark name, one of the best known in Canada, will not disappear altogether from the firm's offerings.
"We cannot afford to abandon either brand," said Hain.
There were no immediate announcements of portfolio manager changes, but they are expected to be minimal since AIM does not have a money-management operation in Toronto, and because of style differences.
The most significant executive departure will be Trimark president and co-founder Arthur Labatt, for whom the takeover deal marks his retirement. Labatt will be a director of the merged company but will no longer have a day-to-day role.
Labatt's departure, and the sale to AMVESCAP, reflects the continuing shift in the ownership and control of the Canadian industry to global giants. With the merger, three of the 10 largest fund companies will be foreign owned. The two others are Fidelity Investments Canada and Templeton Management, both of Toronto.
Including the AIM-Trimark combination, these firms alone will hold about $58 billion in assets, or more than a fifth of the industry's $277 billion in assets as reported at the end of the first quarter by the Investment Funds Institute of Canada.
With AIM and Fidelity growing faster than the industry as a whole, and with other foreign firms, including Merrill Lynch, having entered the market in recent years, the Canadian industry appears destined to have even more of an international flavor in the future.
