A file photo of Blake Goldring, CEO of AGF Management.Yvonne Berg/The Globe and Mail
AGF Management Ltd. will embark on a global hunt for acquisitions armed with a new war chest of $415-million from the sale of its trust unit to Laurentian Bank of Canada.
AGF Trust, which sells everything from guaranteed investment certificates to investment loans, will be integrated into the Montreal bank's B2B Trust subsidiary, the two firms announced Wednesday.
"There are a number of organizations that are looking to exit the investment management business so we feel it is an extremely exciting period in our industry despite the challenges today," AGF's chief executive officer Blake Goldring told analysts during a conference call.
"When added to our unused debt capacity, we will have $615-million of available capital to invest in our global investment business and/or return to shareholders."
The move comes as AGF's mutual fund business, which has suffered from net redemptions for several years, was dealt a blow in April when its star emerging-markets manager Patricia Perez-Coutts left to join the new Canadian arm of U.S.-based investment firm Westwood Holdings Inc.
Ms. Perez-Coutts oversaw about $2-billion in AGF's mutual fund assets and about $3-billion in institutional money. AGF Management reported a 5.9-per-cent decrease in total assets in May, to $43.2-billion, with the decline coming from market losses and net outflows, analysts say.
Toronto-based AGF, once Canada's third-largest publicly traded fund company, dropped to fourth spot recently after Fiera Sceptre Inc. bought National Bank of Canada's asset management arm, and became Fiera Capital Corp.
While proceeds from the sale, which is set to close in August, could be used to buy back stock and increase AGF's dividend, there are no plans to acquire a financial planning firm that could help in promoting the company's fund offerings to retail investors, Mr. Goldring said.
Canaccord Genuity analyst Scott Chan described the sale as a "good move" for AGF's stock price. "AGF is now a pure play, and the company can focus on wealth management and not improving the trust," he said. "I think the market will like that. The trust was a distraction."
AGF will likely purchase an institutional money manager in the United States or Europe, Mr. Chan suggested. Its last acquisition closed last year with a $325-million deal to buy Toronto-based Acuity Investment Management Inc., which ran mutual fund and institutional money.
But Barclays Capital analyst John Aiken said the sale of the trust arm still does "very little" to solve continued net redemptions in its mutual funds or potential outflows of institutional assets once overseen by Ms. Perez-Coutts.
Mr. Aiken is concerned about the sale of the trust because "it was the main contributor to our anticipated earnings growth," representing about 25 cents a share over the past four quarters.
"While we believe the transaction makes AGF more attractive to potential suitors, we still do not expect it to happen in the near term," Mr. Aiken said in a report. However, with the injection of more than $400-million in cash, "AGF's roughly $27-million quarterly dividend payout appears to be more sustainable."
The price tag for AGF Trust comprises about $242-million for the total equity of AGF Trust, and repayment of the $109.5-million in subordinated debt and $64-million in preferred shares to AGF Management.
AGF Trust's loan and deposit portfolios each totalled about $3-billion. B2B Trust's loan and deposit portfolios stand at $6-billion and $10-billion, respectively. With the acquisition, B2B Trust's loan portfolio will increase by about 50 per cent, and deposits by 30 per cent.