Brokerlink and Vector hit skids

The proposed merger between listed broker consolidators Canada Brokerlink Inc. and Vector Intermediaries Inc. has hit some skids, both companies confess while asserting the merger will still carry on as planned.

According to Jon Ouellette, Brokerlink’s vice president of operations, the hold-up in negotiations is not attributable to management or operational issues but to legal and contractual concerns. “Both of the companies are fairly complicated in terms of their corporation convenants and legal obligations. There are a variety of insurer interests in both Vector and Canada Brokerlink, both in an equity and debt position.” Further pressed, he concedes the varying obligations each company has to their carrier investors and partners is one issue of contention. “You look at the combinations that this transaction brings together and you realize there will be some serious negotiations,” he adds.

It should come as no surprise that insurer obligations could offer a roadblock to the transaction. The merger expects to team Dominion of Canada General Insurance Company, which has an equity stake in Brokerlink, with CGU Group Canada Ltd., which provided a $20 million loan facility to Vector in late 1998, with options to purchase shares. Vector and Brokerlink — to be combined under the Canada Brokerlink brand — would control $270 million in premiums, a significant amount of business worthy of any insurer fighting for preferred carrier status, one market observer notes. “There are a lot of premium dollars at stake here and any equity-holding carrier would be doing their best to ensure a handle on a sizeable piece of it,” the observer insists.

Ouellette denies industry speculation that company valuation, or third quarter results, are playing any role in the negotiation hold-up. The company posted a third-quarter net income of $536,040 compared to net income of $220,126 for the same period in 1998. The quarter was marred though by a non-recurring executive termination charge of $901,367. “The third quarter numbers were clear in June and July. They have nothing to do with the current negotiations,” Ouellette maintains.

Nevertheless, Ouellette hopes the merger will be complete by the end of first quarter 2000. “At the branch and management levels, there is a positive attitude towards the merger. Because of budgeting and year-ends, we have not been pursuing negotiations diligently in the last few weeks. We are now in the midst though of renewing focus towards getting the deal done.”