Headnote
National Policy 11-203 - Process of Exemptive Relief Applications in Multiple Jurisdictions – approval granted for indirect change of control of mutual fund manager under s 5.5(2) of NI 81-102 and approval for abridgement of the related 60 day notice requirement to 50 days - approval conditional on at least 50 days notice to unitholders and no changes being made to the management and administration of the funds for at least 60 days after notice delivered.
Applicable Legislative Provisions
NI 81-102, subsection 5.5(2), 5.8(1)(a).
March 16, 2010
In the Matter of the Securities Legislation of Ontario (the Jurisdiction)
and
In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisdictions
and
In the Matter of
Citigroup Inc. (the Filer)
and
In the Matter of
PFSL Investments Canada Limited (the Manager)
and
the mutual funds listed in Schedule A (collectively, the Primerica Concert Funds)
Decision
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):
(a) to approve an indirect change of control of the Manager, the manager of the Primerica Concert Funds (the Manager Change of Control), in accordance with subsection 5.5(2) of National Instrument 81-102 – Mutual Funds (NI 81-102); and
(b) to abridge to 50 days the requirement of section 5.8(1)(a) of NI 81-102 that at least 60 days prior notice of the Manager Change of Control be given to the unitholders of the Primerica Concert Funds.
(Items (a) and (b) are collectively, the Approval Sought)
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that Section 4.7(1) of Multilateral Instrument 11-102 - Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than Ontario.
Interpretation
Terms defined in National Instrument 14-101 - Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Manager
The Manager is a corporation incorporated under the Canada Business Corporations Act with its head office in Mississauga, Ontario.
The Manager is the investment fund manager, trustee, registrar and distributor of the Canadian-domiciled Primerica Concert™ Allocation Series of Funds, which are listed in Schedule A (the Primerica Concert Funds).
The Manager is registered with the applicable securities regulators as a mutual fund dealer in all of the provinces and territories of Canada, and is a member of the Mutual Fund Dealers Association of Canada.
The Primerica Concert Funds are reporting issuers in all of the provinces and territories of Canada and distribute their securities pursuant to a simplified prospectus pursuant to applicable securities legislation.
Each Primerica Concert Fund allocates its assets amongst equities and income by investing primarily in one or more specified mutual funds (the Underlying Funds) in the AGF Group of Funds. AGF Investments Inc. is the manager, principal distributor and trustee, as applicable, of the Underlying Funds.
Legg Mason Canada Inc. provides advice to the Manager in establishing the appropriate investment policy for each Primerica Concert Fund and makes recommendations to the Manager on the specific underlying funds to be invested in by each Primerica Concert Fund. The Manager maintains responsibility for the overall management of the investment portfolio of the Primerica Concert Funds.
Neither the Filer, Manager nor any of the Primerica Concert Funds is in default of applicable securities legislation in any province or territory of Canada.
The Manager is a leading provider of mutual funds. As at February 3, 2010, the Manager had $2.6 billion of assets under management and over 4,700 agents across Canada.
The Reorganization
The Filer, the ultimate parent of the Manager, is considering an initial public offering (IPO) of a portion of its Primerica business and announced this via a press release in the United States dated November 5, 2009. Primerica is one of North America’s largest financial services marketing organizations, with more than 2 million investment clients, with more than $25 billion in asset values in their Primerica investment accounts and more than 100,000 licensed representatives (as of June 30, 2009).
A number of preliminary ancillary transactions are proposed leading up to and in conjunction with the IPO. Among other things, these transactions will include an internal corporate group reorganization (the Reorganization), which will result in Primerica Financial Services (Canada) Ltd., the immediate parent and sole shareholder of the Manager, becoming a direct subsidiary of Primerica, Inc. (Newco).
Following the Reorganization, while Newco would become the new ultimate (indirect) parent company of the Manager, there would be no change in the immediate legal parent of the Manager.
The Manager Change of Control
- Following the Reorganization, the Filer intends to sell less than a majority of Newco to a private equity investor (the Private Sale) on the following terms:
(a) Committed Purchase. At closing of the transaction, Warburg Pincus Private Equity X, L.P. and Warburg Pincus X Partners, L.P. (collectively, the WP X Fund) will acquire from Citigroup Insurance Holdings Corporation (CIHC), the direct parent of Newco and a wholly owned indirect subsidiary of Citi, 23.9% of the fully diluted common shares of Newco (Newco Shares), at a price per share (Purchase Price) based on a 0.95x multiple of Newco’s December 31, 2009, unaudited pro forma book value, after certain adjustments (Committed Purchase). If, however, the purchase of 23.9% of the fully diluted Newco Shares at the Purchase Price would result in an aggregate purchase price in excess of US$230 million, then the WP X Fund would purchase the maximum number of Newco Shares at the Purchase Price that it could purchase with US$230 million. In connection with the Committed Purchase, the WP X Fund will also acquire from CIHC a warrant to be issued by Newco. The warrant will be exercisable for a number Newco Shares equal to 25% of the number of Newco Shares that the WP X Fund will acquire pursuant to the Committed Purchase, will have a term of seven years, and will be exercisable for Newco Shares at a price equal to 120% of the per-share price for Newco’s IPO.
(b) Additional Purchase. The WP X Fund will also have the right, but not the obligation, to purchase from CIHC up to US$100 million of additional Newco Shares, at a price equal to the IPO price. No additional warrant would be issued in connection with this additional purchase.
(c) The WP X Fund will become entitled to appoint two directors to Newco’s board of directors. The WP X Fund will receive other consent rights that are customary for minority investors.
The Filer will also launch an IPO of a portion of Newco, expected to be less than a majority of Newco Shares. The terms of the IPO remain to be determined and negotiated with the underwriters. These terms include the number of Newco Shares to be sold by the Filer. Accordingly, it is not possible at this time to specify the exact shareholding of Newco which the Filer will continue to retain following the IPO.
Depending on the result of the IPO, the Filer anticipates that after the closing of the Private Sale and IPO, the Filer may no longer be the indirect majority owner of Newco, and Newco may not have any single shareholder beneficially owning a majority of Newco Shares.
The IPO is expected to close on or about April 7, 2010, following receipt of all necessary regulatory approvals and subject to market conditions, and the Private Sale is scheduled to close shortly thereafter.
Following the Private Sale and IPO, Newco’s officers and employees will continue to run substantially the same business as before, so Newco will have considerable experience in the asset management and mutual funds industry.
As a result of the combined impact of the IPO and the Private Sale, the Manager may no longer be an indirect subsidiary company of the Filer upon the consummation of the proposed transactions, since the Filer may no longer be the majority beneficial owner of Newco. Under these circumstances, there would be an indirect change of control of the Manager of the Primerica Concert Funds for the purposes of subsection 5.5(2) of NI 81-102.
Unitholders of the Primerica Concert Funds were advised of the potential Manager Change of Control, in accordance with the requirement in subsection 5.8(1) of NI 81-102, by notice (the Notice) mailed on or about February 9, 2010 (the Notice Date). The Notice Date was the day after the Private Sale was agreed to, and 56 days before the expected closing of the IPO and 64 days before the expected closing of the Private Sale.
In respect of the impact of the Manager Change of Control on the management and administration of the Primerica Concert Funds, the Filer has represented that:
(a) the Manager Change of Control is not expected to have any material impact on the Primerica Concert Funds or on the unitholders of the Primerica Concert Funds;
(b) there are no current plans to change, as a result of the Manager Change of Control, the current directors, officers and portfolio managers of the Manager, nor the investment policy adviser of the Primerica Concert Funds, Legg Mason Canada Inc. and the Filer represents that no such changes to the management and administration of the Primerica Concert Funds will be made for at least 60 days following the Notice Date;
(c) the Manager Change of Control will not affect the Underlying Funds;
(d) the Manager Change of Control is not expected to affect the management and administration of the Primerica Concert Funds, including their investment objectives or strategies;
(e) Upon the Manager Change of Control, the members of the independent review committee (IRC) for the Primerica Concert Funds will cease to be IRC members by operation of subsection 3.10(1)(c) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107). It is expected that immediately following the Manager Change of Control, the IRC will be reconstituted with all the existing members as contemplated in the commentary to Sections 3.3(5) and 3.10 of NI 81-107; and
(f) the proposed transactions will not impact the financial stability of the Manager.
Until the Private Sale was agreed to, there was no possibility of a Manager Change of Control, since the IPO by itself would not have resulted in a Manager Change of Control. Accordingly, the Notice was delivered as soon as was reasonably possible in the circumstances.
However, as the Manager Change of Control is expected to have little impact on the management and administration of the Manager and the Primerica Concert Funds, the Filer believes that abridging the period prescribed by section 5.8(1)(a) of NI 81-102 to 50 days will not be prejudicial to the unitholders of the Primerica Concert Funds.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Approval Sought is granted provided that:
(a) The unitholders of the Primerica Concert Fund are given at least 50 days notice of the Manager Change of Control; and
(b) No changes are made to the management, administration or portfolio management of the Primerica Concert Funds for at least 60 days following the Notice Date.
“Rhonda Goldberg”
Rhonda Goldberg
Manager, Investment Funds Branch
Ontario Securities Commission
SEDAR Project # 1549508
Schedule A
The Primerica Concert Funds
Primerica Aggressive Growth Fund
Primerica Growth Fund
Primerica Moderate Growth Fund
Primerica Conservative Growth Fund
Primerica Income Fund
Primerica Canadian Money Market Fund