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Scotiabank said on Wednesday that it will now buy Sun Life's stake of 104.6 million CI units for C$1.55 billion in cash, C$500 million in Scotiabank common shares issued at C$34.60 apiece, and C$250 million in preferred shares.
The deal's terms were renegotiated in the last several weeks and allow Scotiabank to keep more capital in reserve for future initiatives, said bank spokesman Frank Switzer.
From Sun Life's point of view, "we didn't see any reason not to accommodate them on this," said spokesman Steve Kee.
By switching to a combination of cash and shares, Scotiabank will alleviate pressure on its Tier 1 capital ratio, and should remove one of the factors weighing on its stock valuation, Dundee Securities analyst John Aiken said in a research note.
However, the CI purchase had previously been expected to add to Scotibank's net income in the first year, and that has likely changed, National Bank Financial analyst Rob Sedran said.
"We would assume that with the equity issuance and lower markets since the time of the announcement, this transaction is now modestly dilutive," although still of strategic importance, Sedran wrote in a note to clients.
Shares of Scotiabank were up 2.4 percent at C$33.15 on Wednesday morning on the Toronto Stock Exchange. The bank's stock dropped 7.1 percent on Tuesday after it reported a quarterly profit in line with market expectations, but gave an outlook for 2009 that was below expectations.
Sun Life shares were up 3.3 percent at C$23.89. The S&P/TSX financial index was up 1.3 percent.
Sun Life and Scotiabank announced their deal for CI on Oct. 6, after a weekend of hasty negotiations.
The transaction, which will see Scotiabank take some seats on CI's board, will close next week.
Analysts expect the bank could eventually buy the rest of CI, or may merge its mutual fund unit with CI's operations.
($1=$1.26 Canadian)
(Reporting by Lynne Olver; editing by Peter Galloway) Keywords: SCOTIABANK CI/ (lynne.olver@thomsonreuters.com; +1 416 941 8099; Reuters Messaging: lynne.olver.reuters.com@reuters.net)
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