Uh Oh, Canada!

In May 2010, CIBC Mellon – one of only two “mega” stock transfer agents in Canada – indicated its impending exit from the business.   Why?   The CEO of Canadian Imperial Bank of Commerce (the 50% Canadian owner, with U.S.-based BNY Mellon owning the other half), reportedly said stock transfer is not a sufficiently integral, nor sizable, part of their banking focus…and future.   What does this mean for stock transfer service to Canadian companies, and possibly even U.S. companies?

Perhaps BNY Mellon will buy the 50% it does not already own, although it is also possible a totally U.S. company would not be allowed to control over 40% of the stock transfer marketplace in Canada.   (It is believed CIBC Mellon and Computershare currently split around 85%.)   It is also possible BNY Mellon is not interested – even in keeping its half of CIBC Mellon – preferring instead to build up its image and market share in the U.S.   Surprisingly, the party most floated as a potential buyer of CIBC Mellon is Computershare, the other “mega” transfer agent in Canada.   Computershare is, of course, a foreign company also, based in Australia, and the largest stock transfer agent in the world by far.   It first entered Canada in 2000 when it acquired Montreal Trust Company’s business.   But if BNY Mellon raises Canadian hackles with the potential grab of a 40 – 45% market share, what would the government think of a Computershare takeover of 85%?!   And they being another foreign company to boot…not even from this continent!   Not much, we would guess.

Are there smaller transfer agents in Canada that might attempt a David-and-Goliath acquisition of CIBC Mellon?   The players we know of are:

  • Equity Transfer & Trust Company, based in Toronto
  • Capital Transfer Agency Inc., based in Toronto
  • Valiant Trust Company, based in Vancouver
  • Olympia Trust Company, based in Calgary

Equity Transfer & Trust seems to be the largest of the four, and has a highly coveted and hard-to-obtain “federal license,” giving it powers to serve as agent across provincial borders.   Others might have achieved these federal powers as well since our last investigation; and, some who do not have a federal license nonetheless have multiple provincial licenses, which mitigate the associated limitation.   Are any of these four large and aggressive enough to go after CIBC Mellon?   Not without great difficulty, we think.   Or, not without the financial assistance of the Canadian government.   So, as undesirable as a U.S. company takeover of a current Canadian/U.S. joint venture may be, we believe BNY Mellon’s acquisition of the 50% it does not already own in CIBC Mellon is the most likely outcome.

Still, it would not be a shock if another outsider tried to break into this major North America market via acquisition of CIBC Mellon.   Pacific Equity Partners, the Australian private equity firm which now owns most of American Stock Transfer & Trust Company in the U.S., comes to mind.   And how about Broadridge Financial Solutions, which acquired StockTrans this year and thus entered the stock transfer industry for the first time, with a clear desire to expand its footprint into the function and, perhaps, the geographic region at large?

One thing is certain:  if Computershare were allowed to take over CIBC Mellon and control 85% of stock transfer in Canada, it would be a bad day for Canadian public companies looking for optimal service pricing in a dynamic “free market” environment.   Better two or more good-sized competitors, we feel, even if they are headquartered in a foreign country.

Will developments in Canada impact U.S. public companies?   They might, in the following scenarios:

  • BNY Mellon becomes 100% owner of CIBC Mellon and gives itself a reputational and presumably financial “shot in the arm,” taking some pressure off price increases to its U.S. clients
  • BNY Mellon instead divests its 50% stake, and hunkers down to focus on quality U.S. client service exclusively
  • Pacific Equity Partners buys CIBC Mellon and expands its North American footprint, with possible price and service advantages for American Stock Transfer clients
  • Broadridge buys CIBC Mellon which creates collateral advantages for its StockTrans clients, and increases the “scale” (cost effectiveness) of Broadridge’s nascent stock transfer business faster than planned
  • One of Canada’s smaller agents buys CIBC Mellon, and becomes large enough to represent an alternative (and lower priced?) co-agent for U.S. companies with additional Canadian stock exchange listings

In any event, the loss or replacement of a major player in a sizable North American marketplace like Canada will be news, and could have a material ripple effect on the stock transfer landscape regionally, and even globally.