Massive reorganization at one of the country’s largest financial services firms
By David Scanlan | Bloomberg.com
Billionaires Andre Desmarais and Paul Desmarais Jr. are stepping down as co-chief executive officers of Power Corp. of Canada as part of a massive reorganization at one of the country’s largest financial services firms.
The Desmarais brothers, sons of the family who runs the Montreal-based firm, will stay on as chairman and deputy chairman. Jeffrey Orr, current CEO of the Power Financial Corp. unit, takes the top job at a new entity combining the two main units of the insurance and asset management company.
“The reorganization is a natural step that reflects our evolution from a diversified holding company into one that is primarily focused on financial services,” Andre Desmarais, 63, said in a statement Friday.
Shares of Power Corp. surged as much as 7.5 per cent, heartened also by a 10 per cent increase in the dividend, while Power Financial was up as much as 9.4 per cent. Both were the biggest intraday increases in a decade and handing the brothers an immediate payoff. The family was worth $8.38 billion in 2018, putting them seventh among Canada’s wealthiest families according to Canadian Business magazine.
By combing the two companies, Power Corp. says it will simplify its corporate structure, eliminating the dual-holding format and reducing costs. That may help unlock shareholder value. Neither Power Financial nor Power Corp. have regained their pre-2008 financial crisis highs, unlike the country’s big banks.
Power Corp. also said the new structure should allow the company to focus on financial services, where it faces relentless pressure on fees from ETFs and robo advisers, and from declining interest rates for its life insurance business. Power businesses include insurer Great-West Lifeco Inc. and money manager IGM Financial Inc.
“Canadian banks have been able to take advantage of their booming individual, or retail, businesses in Canada to substantially grow their earnings and balance sheets,” Paul Desmarais Jr., 65, said in a May 2018 speech. “By contrast, during the same 10-year period, the individual businesses of the three major Canadian life insurance companies – including our subsidiary Great-West Lifeco – have more or less stagnated.”
As part of the reorganization, Power Financial shareholders will receive 1.05 Power Corp. subordinate voting shares, or $33.50, and some cash for each share they own. That’s little more than the $32.77 Power Financial last traded at. Power Financial is currently controlled by Power Corp.
“There’s change but it’s evolutionary change and it’s continuity,” Orr told analysts on a conference call. “It’s just part of an ongoing strategy that we’ve been pursuing to create shareholders value.”
The shake-up makes no mention of Paul Desmarais III, 37, son of Paul Jr. and a senior vice president of Power Corp. who oversees the company’s startup strategy, which includes majority-owned robo adviser Wealthsimple Inc. He is also the executive chairman of Sagard Holdings, a subsidiary of Power Corp. which has invested in public and private equity since its founding in 2005 and has moved into private credit last year.
The Desmarais family will continue to control the company through its Pansolo Holding Inc.
With assistance from Sandrine Rastello, Paula Sambo and Doug Alexander