Five months after takeover talk began around Toronto-based DundeeWealth Inc., Canada’s largest independent brokerage, several Bay Street analysts who track the company now say they’re uncertain the company was ever actually for sale, at any price.

“Bids have been submitted — we know that,” says Horst Hueniken, who follows the company for investment bank Thomas Weisel Partners Group in Toronto. But Hueniken also notes that Ned Goodman, who controls the company through a controlling minority stake, “has neither said it’s for sale, nor that it’s not for sale.”

The furor around DundeeWealth — which has $62-billion in assets and more than 150 employees in its investment banking arm, along with a sales force of 600 stockbrokers and 1,200 financial planners — began last August when Dundee revealed deep problems in its banking unit, Dundee Bank.

Launched as part of the Goodmans’ strategy to diversify Dundee into a mutual fund, banking, insurance and mortgage powerhouse, Dundee Bank had stumbled badly with a $380-million investment in asset-backed commercial paper and other structured investment products. On that news, a quarter of Dundee’s market capitalization evaporated.

On Sept. 18, the Goodmans announced that Bank of Nova Scotia would buy Dundee Bank for $260-million, as well as an 18% share in DundeeWealth, for a total of $608 million — providing a much-needed cash infusion for a company facing substantial losses.

The announcement that Scotiabank had gained a major stake triggered a hostile takeover bid from Toronto’s CI Financial Income Fund on Sept. 26. Dundee never formally responded to the CI offer, and CI itself announced in late October that it would not circulate a takeover circular. But rumours have swirled ever since that Power Financial Corp. of Montreal and Toronto’s Manulife Financial Corp. will join CI and Scotiabank in the bidding.

All this buzz, notes Karen Huo, an analyst who follows the company for Montreal-based National Bank Financial, did remarkable things for a stock that had plummeted around 25% when the crisis at Dundee Bank became public. CI’s share-swap bid, which amounted to $20.25 per share, electrified the market.

VOLUMES TRIPLED

By Nov. 22, recalls Huo, trading volumes had more than tripled to well above three million shares a day. Suddenly, the stock Scotiabank had bought in mid September at $12 had almost doubled in price. In a sector that dropped about 30% across the board last fall, Huo notes, Dundee found itself riding the crest of a massive inflow of investment.

The daily trading volumes were high enough that in late November, market surveillance for the TSX asked Dundee to set up an independent advisory board and a process for due diligence. “Notwithstanding that its controlling shareholder has not expressed any intention to sell,” Dundee announced on Nov. 26, “in response to unsolicited expressions of interest from third parties to acquire the company, a special committee of the board, independent of Dundee Corp., has been formed.” So far, that’s about all that Dundee and the Goodmans have ever said on the topic.

“There’s nothing new to add beyond that,” says Robert Patillo, Dundee’s vice president of communications.

That’s been the message from Dundee all along, however. “This is a company that tends to say almost nothing,” says Huo, while pointing to the role of the dual class share structure in cloaking information. “I would like to know a lot more about what is going on, but they are in fact very secretive.”

Although the Goodmans haven’t said a word about the whole parade of events, long-term Dundee investors can take considerable satisfaction from Dundee’s success in dodging the disaster at Dundee Bank, Huo and Hueniken note.

With the stock now trading back at its historical peak in the mid-$16 range — exactly where it had climbed before the crisis at Dundee Bank — analysts agree Dundee threw off its troubles with remarkable speed.

In Hueniken’s view, Dundee’s striking comeback has more to do with the company’s fundamentals than all the buzz about a takeover: “The sector may be in a terrible period, but Dundee’s numbers are not horrible at all. It’s been a buoyant period for their business. The performance of Goodman and Co. has been spectacular.”

Given all this, whether or not the company is for sale is an open question, Huo and Hueniken agree.

@page_break@“I think the Goodmans were forced to respond to the bids,” says Huo, “but Ned Goodman is the only person who knows the answer to that question. I honestly have no idea whether it’s for sale or not. You hear a lot of rumours. But 90% of them are false.”

That draws an echo from other analysts tracking the company who are prevented from commenting publicly due to conflicts of interest involving Dundee.

“I think originally Ned’s plan was to build the three platforms, with the bank, the securities business, and the mutual funds business, but I think the problems they ran into with the bank forced their hand and unfortunately they had to go to Bank of Nova Scotia and they had to sell [part of ] it,” says one analyst who declined to be named after citing compliance restrictions.

“Will it be sold? The stock market price right now suggests it might be,” the analyst adds. “But I think investors right now are expecting a risk premium that’s a little bit larger than it was a couple of weeks before Christmas, when the stock was in the $23-$24 range. But ultimately it’s up to Ned.”

LOOK AT AGREEMENT

National Bank Financial’s Huo suggests people seeking further insights into the fate of Dundee should take a close look at the agreement between the Bank of Nova Scotia and Dundee Corp. filed with securities regulators. It reveals that Scotiabank sees its acquisition as a strategic investment, and that Scotiabank has a right of first offer and a right to match any third-party offers should other stakes in DundeeWealth be sold. And Scotiabank now has the right to nominate up to three members of the Dundee Board of Directors.

“Scotiabank has its foothold in Dundee Wealth,” says Huo. That, in her view, explains why Scotia was willing to pay $260-million for DundeeBank.

“The actual valuation of the bank was very minimal in the overall valuation of DundeeWealth” she points out. “I would say the bank was almost zero; they probably overpaid for the bank.

“But you can add what they paid for the bank to what they paid for the shares,” she says. “The bank did have about $2-billion in deposits, so it was worth something. But Scotia didn’t want the bank. They want DundeeWealth.” IE