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Investors Group Moves to Solidify Lead

In a deal to solidify its status as Canada's largest mutual fund company and strengthen its hand against foreign-owned competitors, Investors Group of Winnepeg, Manitoba, has agreed to acquire the fifth-largest firm, Mackenzie Financial of Toronto.

Investors Group, a 67.9 percent-owned subsidiary of Power Financial of Montreal, announced last week that it had received the endorsement of Mackenzie's board for its $2.77 billion offer. (All amounts in U.S. dollars.) Subject to regulatory approval and assuming that no competing offer trumps Investors', the deal is expected to close in April.

"Size matters in today's financial services market," said Robert Gratton, president and CEO of Power Financial and chairman of Investors Group. The acquisition of Mackenzie is consistent with Power's strategy of owning controlling interests in leading financial services companies with sustainable competitive advantages, he said.

In addition to owning the dominant mutual fund company, Power is the leader in individually-held segregated funds sold by insurance companies, through its 81.5 percent ownership of Great-West Lifeco, also of Winnipeg.

For years, Power had wanted to gain access to new distribution channels, particularly the traditional network of independent brokers and dealers in which Mackenzie has one of the largest presences, said Gratton. In buying Mackenzie, Power buys access to a distribution channel in which it has not had a major presence, said Gratton.

The takeover demonstrates Investors Group's ability to adapt to changing market conditions and will help it to remain competitive with foreign competitors, said Sanford Riley, president and CEO of Investors Group. The latter include AIM Funds Management and Fidelity Investments Canada, both of Toronto and both Canadian branch-plant operations, which have been gaining ground rapidly on Investors Group and currently rank second and fourth in the industry.

But with the acquisition of Mackenzie's $21.1 billion in Canadian mutual fund assets [the company also owns Mackenzie Investment Management, a fund manager of Boca Raton, Fla.], Investors Group would leap well ahead of its nearest rivals.

Investors' mutual fund assets would soar to $50.8 billion and an 18.2 percent share of the Canadian market, up from $29.7 billion and a 10.6 percent share currently. Its nearest rival, AIM, holds an 8.3 percent share of the market, according to the Investment Funds Institute of Canada.

With its expanded size, Investors will be better able to expand its range of banking, brokerage, investment management and online financial services available through its various distribution channels, including those that will continue to be served by Mackenzie, Riley said. Though there will be savings achieved by combining back offices, Investors and Mackenzie will complement each other, Riley said.

"We come at the market differently," said Riley. "We respect these differences." Investors Group distributes mutual funds almost entirely through a proprietary force of about 3,500 commissioned agents.

Investors Group's pledge to leave intact Mackenzie's operations, was a key consideration in winning over Mackenzie management. Investors shared the vision of an "independent and distinct" Mackenzie with its own wholesaling force, investment operation and brands, said James Hunter, president and CEO of Mackenzie. One area of rationalization, however, will be Investors' wholly-owned Scudder Maxxum, a $1.7 billion mutual fund manager that, up until late last year, was 20 per cent owned by Scudder Kemper Investments of New York. In late January, Investors eliminated Scudder Maxxum's small $93.3 million direct sales operation, transferring accounts to Charles Schwab Canada of Toronto and ending an ambitious but ultimately failed attempt to make a breakthrough into the direct channel. The remaining operations of Scudder Maxxum of Toronto, which competes directly with Mackenzie in the broker/dealer channel, are being merged into Mackenzie.