It's official. Mackenzie has rejected a $2.5 billion bid from C.I. Fund Management and is circulating word to that effect to shareholders. The Canadian fund firm's board of directors explained its thumbs down vote on the proposal.

"Under close and careful scrutiny, the C.I offer is a poor one for our shareholders," said Mackenzie president Jim Hunter in a statement. "Our financial advisors have each concluded it is an inadequate bid from a financial point of view. The value of the their offer continues to decline in the marketplace."

The circular provides four reasons as to why shareholders should reject the offer. The timing is disadvantageous to shareholders, The offer does not reflect the contribution of Mackenzie to the resulting firm, the offer is not $28.25, and the offer value is below recent comparable transactions.

The circular explains that C.I.'s offer was made during a short window of time when the the price of its stock was relatively compared to Mackenzie's. At this point, the C.I. offer amounts "to paying Mackenzie shareholders with their own cash," said the Board. Because of the recent decline in C.I.'s share price, the effective offer has fallen to $25.14 per share, or $24.57 for Mackenzie shareholders who elect to receive no cash, argued the Board.

The circular then argues that this value is below that of other comparable transactions. It argues that a generally accepted valuation method is the use of the multiple of a company's latest 12-month EBITDA (earnings before interest,taxes, depreciation and amortization). "The three most recent completed major acquisitions in the Canadian mutual fund industry had an average valuation of 10.5 times the latest 12-month EBITDA. The consideration being offered by C.I. represents a multiple of only 7.3, based on $25.14 per common share," it said.

"Mackenzie shareholders should receive maximum value for their shares," said Alan J. Dilworth, chair of the Special Committee of the Board of Directors in a statement. "The Board of Directors have concluded that this offer falls short. We will continue to work with CIBC World Markets and Merrill Lynch as our financial advisors to vigorously pursue all alternatives."

"The alternatives being considered may include a possible transaction with one or more third parties, but it is too early to assess their relative merits. The Board will advise shareholders as events warrant," Dilworth added.

The last argument is based on a technicality. Mackenzie points out that its shareholder protection plan requires offers to remain open for a period of at least 60 days and the C.I. offer is only open for 35 days.

Officials for C.I. Fund Management were travelling and unavailable for comment in time for this story's deadline.  

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